Effective April 13, 2017, the MCA notified Section 234 of the Companies Act, 2013 (the “Act”) to permit cross border mergers or amalgamations. Also, corresponding Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2017 (the “Rules”), were notified in consultation with Reserve Bank of India (“RBI”) on the same date.
Previously, Section 394 of the Companies Act, 1956, only permitted the merger or amalgamation of a foreign company into an Indian company. However, the newly notified provisions of the Act and the Rules now permit both, inbound and outbound cross border mergers or amalgamations, i.e. a foreign company may merge into an India company or vice-versa subject to prior approval of RBI. Further, any cross border merger or amalgamation can only be with companies incorporated in those countries which are notified from time to time by the Central Government.
Foreign Company and Jurisdiction
The explanation to sub-clause (2) of Section 234 describes a “foreign company” to mean any company or body corporate incorporated outside India whether having a places of business in India or not.
The Rules provide that an Indian company may merge with a the foreign company incorporated in the following jurisdiction:
Further, such jurisdiction must not have been identified in the public statement of the Financial Action Task Force (“FATF”) as:
Conditions for Cross Border
The statutory requirements for cross border mergers under the notification are:
To help companies take complete benefit of these new outbound cross border merger provisions, relevant laws would have to be amended such as for obtaining regulatory approvals from the Competition Commission of India and the Securities and Exchange Board of India. Presently, inbound mergers where amalgamated company is an Indian company enjoy tax neutrality under the Indian laws. The tax laws would also need to be amended to provide similar tax benefits for outbound mergers. Further, RBI has also invited comments on the proposed draft Foreign Exchange (Cross Border Merger) Regulations.
Overall, the liberalization of the Indian cross border merger laws is a welcome move by the government. It will not only enable Indian securities to be listed on overseas stock exchanges by merging into a foreign company, but may also provide exit options for overseas investors of Indian companies. Such a move can further boost India’s image amongst the countries for ease of doing business.
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Last Updated on 25th January 2019