Companies Act: MCA Permits Cross-Border Mergers [Read Notification]

To stimulate a surge in mergers, the Ministry of Corporate of Affairs (MCA) brings into effect Section 234 of the Companies Act 2013, from this April 13, enabling an Indian company to merge with a foreign company.

The erstwhile Companies Act 1956 (section 391-394), permitted just the merger of a foreign company with an Indian company and prohibited merger of an Indian company with a foreign company.

It was so to ensure that the merged entity remains to be an Indian company and is subjected to Indian rules and regulations.

Section 234 of Companies Act 2013 allows cross-border mergers both ways, subject to certain conditions.

To bring this into effect, the MCA amended the Companies (Compromises, Arrangement, and Amalgamation) Rules 2017, and inserted rule 25A dealing with cross-border mergers.

It is pertinent to note that such cross-border mergers require prior approval from the RBI, as there are foreign implications involved in such transactions.

Also, in an outbound merger, the transferee company has to ensure that the valuation for such a merger is conducted by valuers who are members of a recognised professional body in its country and that this valuation is by internationally accepted accounting and valuation principles. The valuation declaration has to be filed along with the RBI application.

Annexure B of the rules specifically state that Indian companies can only merge with foreign companies in following jurisdictions:

i) whose securities regulator is a member of IOSCO or has a bilateral memorandum of understanding with SEBI,

(ii) those whose central bank is a member of the Bank for International Settlements (BIS), and

(iii) those who have not been identified in the public statement of the FATF as regards certain specified matters.

Facilitating outbound mergers will transform the restructuring landscape in India by enabling Indian companies to expand their horizons for achieving growth.

Read the Notifications below.