Ministry of Corporate Affairs (“MCA”) notifies provisions for outbound cross border mergers or amalgamations Download as PDF



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:

  • whose securities market regulator is signatory to appendix A of the International Organization of Securities Commission - Multilateral Memorandum of Understanding (“MoU”), or has a bilateral MoU with Securities and Exchange Board of India, or
  • whose central bank is a member of Bank of International Settlement.

Further, such jurisdiction must not have been identified in the public statement of the Financial Action Task Force (“FATF”) as: 

  • a jurisdiction having strategic anti-money laundering or combating the financing of terrorism deficiencies to which countermeasures apply, or
  • a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with FATF to address deficiencies.

Conditions for Cross Border

The statutory requirements for cross border mergers under the notification are:

  1. Prior approval of the RBI is required for any scheme of merger or amalgamation under Section 234 of the Act.
  2. The concerned company must file application to the jurisdictional National Company Law Tribunal (“NCLT”) after obtaining the RBI approval.
  3. Procedure for undertaking the scheme of arrangement as set out under Sections 230 to 232 (which provide for mergers of Indian companies) of the Act must be complied with.
  4. In case of an outbound merger, the transferee company has to ensure that the valuation is conducted by a member of a recognized professional body in the jurisdiction of the transferee company in accordance with internationally accepted accounting and valuation principles. The valuation declaration has to be filed along with the application seeking approval of the RBI application.
  5. Consideration for cross-border mergers may be discharged in the form of cash or depository receipts or both.


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

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