The Corporate Laws (Amendment) Bill, 2026 (the "Bill"), introduced in the Lok Sabha on March 23, 2026, represents significant legislative intervention in Indian company law. Based on the recommendations of the Company Law Committee Report of 2022, it proposes amendments to both the Companies Act, 2013 (the "Act") and the Limited Liability Partnership Act, 2008, and is currently referred to a Joint Parliamentary Committee for further review. The Bill seeks to achieve three core objectives: rationalise and decriminalise a wide range of procedural defaults, modernise the corporate governance framework in line with evolving global standards, and reduce the compliance burden on enterprises in furtherance of India's ease-of-doing-business agenda.
In pursuit of these objectives, the Bill introduces an extensive set of reforms, this article focuses on three amendments of particular structural significance to corporate practitioners, namely: (i) the formal recognition of share-linked employee compensation instruments such as Restricted Stock Units and Stock Appreciation Rights; (ii) the revision of approval thresholds for fast-track mergers under Section 233; and (iii) the introduction of enhanced flexibility in the frequency and quantum of share buy-backs under Section 68. Each of these changes carries significant legal and commercial implications for companies.
Section 62(1)(b) of the Act provides for the issuance of shares to employees under Employees' Stock Option Plans ("ESOPs"). The Bill proposes to amend this provision to substantively broaden permissible employee incentive mechanisms and include "other scheme[s] linked to the value of the share capital" of the company, thus including instruments such as Restricted Stock Units ("RSUs") and Stock Appreciation Rights ("SARs") along with ESOPs. A corresponding amendment to Section 42(2), which governs private placements, extends this statutory recognition further, ensuring that the new instruments are consistently accommodated within the Act's framework.
An RSU is a promise by the employer to deliver shares (or their cash equivalent) to an employee upon the satisfaction of specified vesting conditions (typically tied to tenure or performance) without requiring the employee to pay an exercise price. Unlike conventional ESOPs, which involve the grant of an option to purchase shares at a pre-determined price, its value is contingent entirely on the market price surpassing that threshold. A SAR, by contrast, entitles the employee to receive the appreciation in the value of the company's shares over a reference price, either in the form of shares or cash, upon vesting without any transfer of ownership of the said shares. All three are structurally distinct instruments.
The significance of the proposed amendment lies in what it expands. For several years, RSUs and SARs have been widely deployed as components of executive and employee compensation in Indian companies, particularly in technology enterprises and the domestic arms of multinational groups. Notwithstanding their commercial prevalence, these instruments lacked an express statutory basis under the Act, compelling companies to structure them within the ESOP construct despite its misaligned regulatory assumptions. This created structural friction for companies seeking to match their compensation architecture with international practice and generated uncertainty regarding regulatory compliance. The Bill resolves this ambiguity by conferring independent statutory recognition on RSUs and SARs alongside conventional ESOPs, bringing the Act into closer alignment with SEBI's Share-Based Employee Benefit and Sweat Equity Regulations, 2021, which already formally recognise these instruments for listed companies, and thereby harmonising a regulatory landscape that had, until now, treated equity-linked compensation unevenly depending on listing status. Companies will accordingly be able to design compensation schemes with greater autonomy in respect of vesting schedules, performance conditions, and settlement mechanisms, while eliminating the disclosure risk that previously attended non-ESOP instruments. The full benefit of the change, however, remains deferred pending the corresponding rules, until which time all share-linked schemes will continue to be governed by the existing ESOP construct.
The fast-track merger mechanism under Section 233 of the Act enables specified categories of companies, subject to compliance with prescribed procedural requirements, to merge or amalgamate without seeking approval from the National Company Law Tribunal ("NCLT"), namely, (i) two or more small companies; (ii) a holding company and its wholly-owned subsidiaries; and (iii) such other classes as may be prescribed. Under the current framework, a scheme of merger or amalgamation under this route requires approval by shareholders holding at least 90% (ninety percent) of the total shares of each company involved, and by creditors representing at least 90% (ninety percent) in value. The existing threshold for fast-track mergers had long been criticised as counterproductive and more stringent than the approval requirements for the more procedurally demanding NCLT route, and therefore limiting the practical utility of a provision designed to offer a simplified and expeditious alternative.
The Bill's proposed revision directly addresses this anomaly by reducing the member approval threshold to approval "by a majority of members or class of members present and voting at the meeting held in such manner, as may be prescribed, who hold at least seventy-five per cent. of the value in shares held by such members present and voting". Contrasting with the earlier 90% (ninety percent) of total shares to now, the majority of members present and voting who together hold at least 75% (seventy five percent) of the shareholding among those present and voting, this alignment is significant for two reasons. First, the earlier 90% (ninety percent) threshold was anchored to total issued shares, not the shares held by the voters present at the meeting. This meant that shareholder non-participation, whether by design or indifference, could exercise an effective veto regardless of the strength of the majority's support. The Bill removes the structural disincentive that previously made the fast-track route unattractive. Second, the change from a total-shareholding basis to a present-and-voting basis introduces a more practical and market consistent standard, acknowledging the reality that achieving participation by every member of a company is operationally challenging, particularly in companies with diffuse shareholding structures.
The recalibration of the fast-track merger thresholds has immediate and tangible implications for corporate restructuring practice. For companies, the revised thresholds make the Section 233 route a viable and materially faster alternative to full NCLT proceedings.
Having said that, a promoter group with even modest organisational advantage can, in practice, ensure that the composition of the meeting tilts in favour of approval, leaving dissenting minority shareholders, who may be dispersed, uninformed, or structurally excluded from the deliberative process, without the numerical protection, though passive, that they previously enjoyed. Whether this change will work as intended or will, in practice, leave minority shareholders exposed with diluted scrutiny remains to be seen.
Section 68 of the Act currently limits a company's buy-back to 25% (twenty five percent) of the aggregate of its paid-up capital and free reserves in any given financial year and requires a minimum gap of 1 (one) year between the closure of the first buy-back offer and the commencement of the next. The Bill introduces 2 (two) significant relaxations to this framework. First, it enables prescribed classes of companies to undertake buy-backs up to a higher prescribed percentage of their capital and free reserves, effectively creating a carve-out from the 25% (twenty five percent) cap for qualifying companies. Second, it permits prescribed classes of companies to conduct up to 2 (two) buy-back offers within a single year, provided the second offer is initiated no earlier than 6 (six) months from the closure of the first. The Bill also proposes to replace the affidavit-based declaration of solvency with a self-declaration, thereby reducing procedural compliance requirements.
The existing limitations on buy-back quantum and frequency reflected a conservative regulatory approach premised on the protection of creditor interests and the prevention of market manipulation. While these concerns remain legitimate, the blanket application of the 25% (twenty five percent) cap and the 1 (one) year gap requirement has increasingly been seen as blunt instruments ill-suited to the diverse capital management needs of modern corporates. The Bill acknowledges this by introducing a rule-based framework for prescribed classes of companies, likely those characterised by the absence of debt exposure and are capital rich companies, to access enhanced buy-back flexibility.
For technology and new-age companies with large share-based compensation programmes, the ability to conduct two buy-backs in a year, combined with the prospect of higher permissible buy-back limits, significantly enhances the company's capacity to absorb dilution from equity compensation without being constrained to a single annual window.
The three amendments examined in this article share a common thread; the recognition that a modern corporate law framework must be flexible enough to accommodate the diversity of business models, ownership structures, and capital management strategies that characterise a dynamic economy. The Bill reflects a coherent policy intent to enable Indian companies to manage their equity capital life cycle in a more integrated and globally competitive manner.
Taken collectively, these changes reflect a deliberate and calibrated legislative effort to bring Indian corporate law into closer alignment with international standards and commercial realities. That said, it would be premature to treat these amendments as self-executing. The full realisation of their potential depends materially on the quality and timeliness of the subordinate legislation, rules, and regulatory guidance that will inevitably follow.
About the authors: Vrinda Patodia is a Partner and Manik Tanwar is an Associate at Obhan Mason.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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