M&A - Cross border mergers permitted

The Ministry of Corporate Affairs, on 13 April 2017, notified Section 234 of Companies Act, 2013 permitting cross border mergers / amalgamation.

   The key features to note are : 

• Provision enables Indian company to merge into Foreign Company and vice-versa
• Central Government to notify permitted foreign jurisdictions
• Central Government to notify rules, in consultation with the Reserve Bank of India (“RBI”), for such merger / amalgamation
• Prior approval of RBI required for such merger / amalgamation
• Consideration can be in cash or in Depository Receipts or partly in cash and partly in Depository Receipts
• “Foreign Company” means any company or body corporate incorporated outside India whether having a place of business in India or not.

This is a welcome move for the India M&A landscape. Merger of foreign company into an India company was permitted, however, the reverse i.e. an Indian company merging into foreign company is now being permitted. Cross border mergers are internationally accepted corporate re-organisation methods. This concept, although engrained since several years in Companies Act 2013, was not operative in India. Vide this notification, it appears that the ministry of company affairs is progressing towards opening a new avenue for expansion of India Inc.

We foresee that rules governing such mergers / amalgamation as well as appropriate amendments to foreign exchange control regulations and income tax regulations should be notified in due course to pave the way forward in this direction.