Echoes of Return: Zepto’s Strategic Reverse Merger

Echoes of Return: Zepto’s Strategic Reverse Merger

Siddhartha Kumar and Anand Vardhan are fourth-year law students at Gujarat National Law University

Many high-profile startups have followed the proverb “Strike while the iron is hot” as they are looking to shift their domicile back to India following a recent amendment by the Ministry of Corporate Affairs (MCA) in the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 (the Rules) to provide impetus to holding companies of such startups to route to India by reducing the time taken to complete the merger with their subsidiary counterparts in India.

Zepto, India’s leading quick commerce platform, following the same line, has made a strategic move by completing the reverse merger from Singapore to India, making Kiranakart India its new holding company. Earlier, Zepto was operated by Kiranakart Pte. Ltd., Singapore. Zepto is also planning to come up with an IPO in Indian capital markets in the months of March and April. This step of reverse merger by Zepto will help it accelerating the IPO plan. The question that arises here is why a company like Zepto is shifting its domicile back to India and why such returns are becoming a new trend in Indian economy. In this piece, the authors try to delve into the same and find an answer to it.

The Amendment

Earlier, the rule 25A of the Rules permitted the company incorporated outside India to merge with an Indian company subject to the prior approval of the Reserve Bank of India (RBI) and the National Company Law Tribunal (NCLT). However, obtaining permission from NCLT was very time-consuming as NCLTs are overburdened with backlog of cases, which usually resulted in delays of the merger.  The said amendment has inserted sub-rule 5 of rule 25A, according to which if the transferor foreign company is a holding company and the transferee Indian company is a wholly owned subsidiary company of the said transferor, then, the merger needs to comply with section 233 of the Companies Act, 2013. The said provision of the Act provides for fast track mergers and thereby, the approval of NCLT has now been done away with. 

As a result, the said amendment has provided impetus for more companies to come back to India by reducing the time taken to complete the merger.

Easing ecosystem to attract corporates

Recent regulatory easements by the MCA and the changing Scenario facilitated various startups to consider returning back to India.

In this series, one of the recent regulatory relaxations was the abolishment of the Angel tax. It was an impediment to investment inflows and was an “Achilles’ heel” for entrepreneurs of the nation. 

The Angel Tax provision was introduced in 2012 under section 56(2)(viii) of the Income Tax Act. As per the provision, if any startup issued shares at a price exceeding the fair market value (FMV), then excess is subject to a hefty tax of 30.9%.  For instance, if a start-up raises an investment worth Rs 200 million while the FMV is Rs 150 million, then the startup will be taxed 30.9% on the excess Rs 50 million. The  of 2023 even added to the financial strain on startups by extending the rule to non-resident investors. The recent amendment under the Income Tax Act, 1961, vide section 23 of the Finance Act, 2024, provided a much-needed relief by abolishing the said vexatious provision. It acted as a pain reliever for the start-ups.

Another factor contributing to the development of the startup-friendly environment is the unprecedented IPO boom in the Indian capital markets in 2024. It is evident from the fact that the National Stock Exchange raised capital worth Rs 1.67 lakh crore, the highest among other global stock exchanges. India witnessed 268 IPOs in 2024 which was the highest number of IPOs pan-Asia. This, in turn, is fueling a wave of confidence and trust in the Indian financial market. Listing on Indian Stock Exchanges not only attracts domestic investors but also opens the door for overseas investors attracted by virtue of the might and strength of Indian markets and the complementary business-friendly amendments by the Government. Companies in India, especially startups, can even resort to Venture Capital for raising capital. According to data analytics firm Global Data, Indian startup ecosystem has seen a remarkable surge, witnessing venture capital (VC) funding worth of $9.2 billion in the year 2024, a staggering 44.1% increase from the previous year. In the first 10 months of 2024, India secured 7.15% of global VC deal volumes and 4.2% of disclosed funding value. Some of the notable funding of year include Zepto’s $1005 million followed by Meesho’s $300 million and PharmEasy $216 million. The strong funding, coupled with investors’ confidence, makes the Indian market an attractive destination for startups and companies to set up their businesses here.

The present move of shifting Zepto’s holding company to India is significant because the company is looking to raise money through an IPO, and the report suggests Zepto may raise up to $ 1 billion through an IPO. The icing on the cake?  Earlier, various startups and companies have moved their headquarters abroad to attract foreign investment due to complex Indian regulatory framework and an adamant bureaucracy. However, with the burgeoning India’s financial markets and the soaring interest of investors, the trend is reversing.

Apart from these factors, important government programs like the National Initiative for Developing and Harnessing Innovations (NIDHI), the Funds of Funds for Startups (FFS) and the Atal Innovation Mission (AIM), have played a pivotal role in shaping the thriving startup ecosystem of the country. By providing seed and pre-seed funding to startups, these key programs have already helped the ideas of many entrepreneurs to turn into reality. Particularly, through NIDHI, the government helped more than 12,000 startups, creating more than 1 lakh jobs– a testament to the impact on innovation and job creation. All these government initiatives have simplified the ease of doing business in the country and also gained the confidence of Foreign Portfolio Investors (FPI) who view India as a hotspot for investment. Today, setting up a business in India is no longer just an option, but actually, it is a smart move.

Way Forward

While the recent amendment to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 is a significant step towards facilitating smoother and quicker mergers, particularly for holding companies of startups consolidating with their Indian subsidiaries, certain challenges in the fast-track merger (FTM) process still need attention. The requirement for securing approval from 90% of creditors and shareholders remains a high threshold, which can be cumbersome in cases involving multiple stakeholders. Additionally, the multiple approval checkpoints from creditors, shareholders, RoC, OL, and RD create procedural bottlenecks, which, though well-intended, may counteract the amendment’s goal of efficiency. To truly optimize the FTM process, regulatory refinements such as introducing a lower approval threshold (as suggested in the Company Law Committee Report 2022), reducing procedural redundancies, and adopting a notification-based system for intra-group mergers—similar to jurisdictions like Singapore and Delaware—should be considered. Such reforms would ensure that while regulatory oversight is maintained, unnecessary administrative hurdles do not deter companies from utilizing the FTM route, reinforcing India’s vision of ease of doing business and making it a more attractive destination for corporate restructuring.