The legal environment for mergers and acquisitions involving unlisted companies in India has transitioned toward a principle-based regulatory architecture during the 2025-2026 cycle. This shift focuses on administrative decentralization and the removal of judicial bottlenecks for standard private reorganizations. The primary governance is derived from the Companies Act, 2013, the Competition Act, 2002, and the Foreign Exchange Management Act, 1999, which collectively ensure that corporate consolidations are executed with high levels of transparency and financial integrity.
As the Indian economy targets structural scale, the legislative intent has moved from simple compliance toward fostering institutional resilience while protecting the rights of diverse stakeholders, including minority shareholders and creditors. The foundational guidelines for these activities are extensively detailed in the legal framework for mergers and acquisitions in India.
The Statutory Pillar: Companies Act 2013 and Recent Procedural Enhancements
The Companies Act, 2013 remains the core legislation for corporate restructuring, specifically under the provisions of Chapter XV, which covers Sections 230 to 240. A significant development for unlisted entities is the expansion of the fast-track merger route under Section 233, as modified by the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2025, notified on September 4, 2025. This route now covers a wider array of unlisted companies, provided that none are non-profit entities under Section 8 and that the aggregate outstanding loans, debentures, or deposits of each company do not exceed two hundred crore rupees.
The 2025 amendments also liberalized the route to include mergers between a holding company and its non-wholly owned unlisted subsidiary, and between fellow subsidiaries of the same parent, provided the transferor companies are unlisted. This process bypasses the National Company Law Tribunal (NCLT) in favor of the Regional Director, establishing a deemed 60-day timeline for completion.
To prevent minority oppression in unlisted structures, the notification of Sections 230(11) and 230(12) has introduced a formalized “minority squeeze-out” mechanism. Under this regime, a majority shareholder holding at least three-fourths of the total shares can file a tribunal-supervised takeover offer to acquire the remaining minority stake. The law mandates a valuation report from a registered valuer that must consider the highest price paid for shares in the preceding twelve months and other fair value parameters like return on net worth and price-earnings multiples relative to industry averages.
Furthermore, the acquirer is required to deposit at least 50% of the total consideration for the takeover offer into a separate bank account before the tribunal sanctions the arrangement. Judicial oversight on such valuations was recently reinforced in Pannalal Bhansali v Bharti Telecom Limited, Civil Appeal No. 7655 of 2025 where the Supreme Court emphasized that while share capital reduction under Section 66 is a board-driven process, the standard of fairness must be higher when public minority investors are edged out of closely held structures.
Securities Regulation and the Evolving Role of SEBI
While the Securities and Exchange Board of India primarily regulates the public markets, its 2025-2026 updates influence unlisted companies, particularly those held by large debt-issuing parents. The SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2026, effective January 20, 2026, increased the High Value Debt Listed Entity (HVDLE) threshold from one thousand to five thousand crore rupees in outstanding listed non-convertible debt.
This restructuring means unlisted subsidiaries of these large debt issuers must align their governance with equity-listed standards, including filling board committee vacancies within three months and obtaining special resolutions for non-executive directors over 75 years of age. Additionally, the 2025 amendments to the SEBI Substantial Acquisition of Shares and Takeovers (SAST) Regulations mandate independent valuations for infrequently traded shares, providing a pricing benchmark that often informs the valuation of unlisted targets in complex cross-sector deals.
Competition Law: The New Era of the Deal Value Threshold
The competition regime for unlisted entities has entered a new phase with the introduction of the Deal Value Threshold (DVT) under Section 5(d) of the Competition Act, enforced since late 2024. Combinations where the transaction value exceeds two thousand crore rupees must now be notified to the Competition Commission of India (CCI) if the target enterprise has “substantial business operations in India” (SBOI).
For digital services, the SBOI test is met if at least 10% of global users or gross merchandise value are in India; for non-digital businesses, the threshold is satisfied if India-based turnover exceeds five hundred crore rupees and represents 10% of total global turnover. The value of the transaction is defined broadly under The Competition Commission of India (Combinations) Regulations, 2024 to include all direct or indirect consideration, including non-compete covenants and inter-connected transactions. To support the speed of private equity and startup deals, the overall timeline for combination assessment was reduced from 210 to 150 days.
The direct tax regime for mergers and acquisitions has been modernized by the Income Tax Act, 2025, which replaces the 1961 Act effective April 1, 2026, pursuant to the Finance Act, 2026. A fundamental structural change is the replacement of “Assessment Year” and “Previous Year” with a single, unified “Tax Year”. For unlisted companies, the Income Tax Act,2025 introduced crucial amendments to Section 72A (renamed Section 116 in the 2025 Act) regarding the carry forward of accumulated losses and unabsorbed depreciation.
The new law prevents the “evergreening” of losses by stipulating that inherited losses can only be carried forward for the unexpired portion of the original 8-year limit, rather than resetting the clock for a fresh 8 years upon amalgamation. This ensures that mergers are driven by economic rationale rather than purely tax-saving motives. Furthermore, the 2025 Act codifies the exclusion of Goods and Services Tax from an asset’s cost for depreciation if an input tax credit has been claimed, providing fiscal certainty for unlisted manufacturing units.
Foreign Exchange Management and Liberalized Capital Flows
Liberalization under the Foreign Exchange Management Act (FEMA) has been a cornerstone of the 2025-2026 reforms. The Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024 simplified cross-border share swaps, allowing unlisted Indian companies to issue equity in exchange for foreign company equity. This is pivotal for the global expansion of Indian startups, as it permits using their own stock as currency for international acquisitions.
Additionally, a major policy recalibration occurred on March 10, 2026, when the Union Cabinet approved amendments to “Press Note 3“. These changes allow investments under the automatic route for entities with non-controlling beneficial ownership from land-bordering countries (LBCs) up to a 10% de minimis threshold in specific manufacturing sectors like capital goods and electronic components. However, the 60-day expedited approval timeline applies only if majority control remains with Indian residents. The Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations prescribes the framework governing eligible borrowers, recognised lenders, maturity requirements and end-use conditions for raising overseas debt by resident entities.
Judicial Jurisprudence: Clarifying the Interplay of Regulatory Frameworks
Judicial trends in 2025 have reinforced the mandatory nature of regulatory compliance in unlisted restructurings, particularly those involving the Insolvency and Bankruptcy Code (IBC). In Independent Sugar Corporation Ltd. v Girish Sriram Juneja, 2025 INSC 124 the Supreme Court ruled that the requirement for CCI approval before a resolution plan is submitted to the Committee of Creditors is mandatory. This prevents the creation of anti-competitive structures during the insolvency process.
In Indian Bank v M/s Aman Hospitality Pvt. Ltd., the NCLAT took a substance-over-form approach to corporate authorization, ruling that a Power of Attorney executed by officers by designation rather than by name is valid, rebuking technical objections that risk stalling insolvency proceedings. Furthermore, the Supreme Court in Kalyani Transco v M/s Bhushan Power & Steel Ltd., 2025 INSC 621 clarified that Section 32A of the IBC, which bars the attachment of assets post-resolution, cannot be used to justify prolonged delays in implementing a sanctioned plan.
Conclusion
The 2025-2026 cycle has established a specialized legal framework for unlisted M&A in India that balances high-speed execution with statutory rigor. The expansion of the fast-track merger route under Section 233 and the implementation of the Income Tax Act, 2025 have modernized the technical and fiscal path for corporate consolidation.
Concurrently, the introduction of value-based competition triggers and the recalibration of Press Note 3 ensure that the rapid scaling of the private market remains aligned with national security and competitive integrity. This dual approach of “controlled openness” and “procedural agility” positions the unlisted corporate sector as a resilient hub for strategic investment, ensuring that business reorganizations are supported by a clear, predictable, and globally integrated legal system through the 2026 period.
For broader regulatory shifts affecting private deals, see The New M&A Regime in India: What Dealmakers Need to Know, which contextualizes the statutory rules governing acquisitions of unlisted companies.