Reverse merger: meaning, how it works in India and examples

In an ordinary merger, the bigger company absorbs the smaller one. In a reverse merger the direction flips: the bigger or more valuable company merges into the smaller one, and the smaller company stays alive as the legal entity. The company that disappears is called the transferor. The company that continues is the transferee.

The idea matters because the surviving entity keeps its licences, its tax history and, if it is listed, its place on the stock exchange. People use the term in two main ways. One is a private business that merges into a listed company and so ends up with listed shares. The other is a group restructuring in which a parent company merges into its own subsidiary, often because the subsidiary holds the licences or the operations that cannot be moved.

Every merger in India needs the boards of both companies to approve a scheme that sets out the exchange ratio, the effective date and what happens to staff, assets and debts. After that, the scheme is taken through shareholders, creditors and the National Company Law Tribunal (NCLT), the court-like body that sanctions company schemes.

The exact order differs for a listed company, which has extra steps with the stock exchanges and SEBI. A simplified version looks like this.

• Boards approve the scheme, usually after a valuation report and a fairness opinion.
• If a listed company is involved, the stock exchanges and SEBI review the scheme and give an observation letter before the filing.
• The scheme is filed with the NCLT, which orders meetings of shareholders and creditors.
• Shareholders and creditors vote. The Companies Act asks for a majority in number representing three fourths in value of those who vote.
• The NCLT hears objections, including from regulators such as the Regional Director and the Registrar of Companies, then sanctions the scheme.
• The order is filed with the Registrar of Companies and the merger takes effect from the date the scheme names.

Schemes of merger are governed by Sections 230 to 232 of the Companies Act, 2013, together with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The Act does not use the words reverse merger as a separate category. A reverse merger is simply a merger carried out in a particular direction, as of November 2026.

For listed companies, SEBI's rules for schemes of arrangement apply on top. A listed company has to take the scheme to the stock exchanges, which check it and share the result with SEBI before the NCLT filing, under Regulation 37 of the SEBI Listing Obligations and Disclosure Requirements Regulations and SEBI's master circular on schemes. Law-firm summaries describe the exchange and SEBI comments as advisory rather than a veto, but the tribunal pays attention to them.

Section 232(3)(h) of the Companies Act also contemplates a listed transferor merging into an unlisted transferee, so the opposite direction exists in law as well. In that case the scheme must protect the shareholders of the listed company, usually by giving them an exit or a way to stay listed, so the terms deserve a close read.

The main reason is the listing. A private company that merges into a listed company can have its shares quoted on NSE or BSE once the scheme is effective, without running a full IPO. Some promoters see this as a faster or cheaper path. The cost is that the scheme is still reviewed by the exchanges, SEBI and the NCLT, and law-firm notes say SEBI sets conditions on listings that come through schemes. Check the current circular before assuming a shortcut exists.

The second reason is group restructuring. A holding company that has no operations of its own may merge into its operating subsidiary to simplify the structure, cut compliance cost and merge tax losses. The third reason is a cross-border move. Many startups were set up with a foreign parent, often in the United States or Singapore, and later want the Indian company to become the top company. One way is for the foreign parent to merge into the Indian company, which is a reverse flip in effect.

The two are related but not the same. Reverse flipping is the goal: moving the parent company of a startup back to India after it was set up abroad. A reverse merger is one legal tool that can achieve it. Other tools include a share swap, where investors exchange their foreign shares for Indian shares, or a fresh Indian holding company.

A reverse merger also does not always involve a flip. A domestic reverse merger between two Indian companies is common and has nothing to do with where the parent sits.

Rule 25A of the 2016 Rules allows a foreign company to merge into an Indian company, and an Indian company to merge into a foreign one, with the approval of the Reserve Bank of India. The foreign company must be from a jurisdiction that the rules allow, and the deal must meet the foreign exchange rules, which are known as the Foreign Exchange Management Act (FEMA) rules.

Foreign exchange conditions often decide how long the process takes. A case reported in 2025 ran longer than planned because of FEMA review, according to commentary. Valuation of the foreign shares, pricing guidelines and sector caps on foreign ownership all come up.

There is no fixed period. Law-firm articles put a full NCLT scheme at roughly six to twelve months or more from filing, depending on the bench, the number of objections and whether regulators raise queries. A simpler route for small companies and for parent-subsidiary mergers, called the fast-track merger under Section 233, is described as faster, because it goes through the Regional Director instead of the tribunal. Listed companies generally cannot use it, according to summaries.

Delays come from missing documents, objections from tax or other authorities, and the time needed to get meetings of shareholders held. A founder or investor reading a headline should treat any date in the announcement as a target, not a promise.

Headlines often say a company is going public through a reverse merger. Read for four things: which company survives, what the exchange ratio is, whether the listing needs fresh approvals and whether existing shareholders of the listed shell are diluted. A very small listed company with little business is often called a shell, and some shells have a history of regulatory trouble.

The question of value matters too. Valuations in a merger are set by independent valuers and can be challenged by minority shareholders. The scheme usually needs approval from the public shareholders as well, and the vote often excludes interested promoters. This is general information, not legal or tax advice, so check with a professional before relying on it.