In today’s corporate world, due to high competition amid the companies, it is common practice amid corporate firms to acquire or merger with other entities for diversified reasons. Some ideas behind such M&A activities can be:

(i)                to survive the market challenges and competition from contemporaries;

(ii)              to hold the business and its share in the global market;

(iii)            to expand the business to emerge as market leader in its line of business.

Cross-border merger is one of existing and preferable mode for corporate firms to expand their business base to overseas territories. Under this type of merger, entity registered in any country will merge with foreign entity incorporated on foreign soil.

Indian government has recognized the imminent need to articulate separate set of regulations governing cross border mergers.

Accordingly, much awaited regulations permitting the cross border mergers and amalgamations have been rolled out further reinforcing the prospect of ease of doing business sentiment in India.

The Reserve Bank of India (RBI) has issued The Foreign Exchange Management [Cross-Border Regulations], 2018 with the objective to provide guidance on the merger/amalgamation of any Indian entity with foreign entity vice versa.

Regulations are applicable to both inbound and out bound investments. The Companies Act, 2013 is also amended facilitating the execution of cross border merger of Indian entity and foreign entity.

Multi-National Companies (MNC) will be immensely benefitted from the Regulations enabling such MNC’s to expand their business at international front equally on par with domestic front.

Glimpse of certain key provisions of the Regulations are as follows:

·       The resultant company (Inbound Merger) is permitted to issue or transfer any security to a person resident outside India subject to pricing and sectoral foreign investment conditions and FEMA rules. 

·       Resident Indian entities (Outbound Merger) are authorized to acquire or hold securities of the resultant company in accordance with FEMA regulations. 

·       Rule 25A of the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016 is applicable to the valuation of the Indian company and .the foreign company. 

·       Any cross-border transaction conducted in compliance with the Regulations is considered to have RBI prior approval. 

·       Indian companies will be permitted to merge their foreign businesses with their domestic companies.

·       Foreign companies are under no obligation to maintain an Indian company after a merger and instead fold it up into a single entity.

·       Regulations may encourage foreign bidders to consider buying Indian assets alongside impacting the insolvency and bankruptcy proceedings. 

·       Indian Company is authorized to hold assets outside India. 

·       Indian entity is obligated to comply with the External Commercial Borrowing Regulations provided any foreign company borrowing is transferred to Indian Company upon acquisition of foreign entity – No remittance or repayment from India will be made within specified period and the conditions with respect to end use shall not apply. 

·       Any foreign company office in India is deemed to be a ‘branch office’ of the foreign company. 

 We should hope that the Regulations will enhance the prospect of cross-border transactions amid Indian entities and foreign entities – aid companies to expand the business at national and international front- encourage Indian entities to merge with/acquire foreign entities (vice versa) – ultimately a shot in the arm to the prospect of ease of doing business sentiment in India.

Research inputs by Paruchuri Baswanth Mohan