Cross Border Mergers under the Companies Act 2013


Cross-border merger provisions under the Companies Act, 2013


The Ministry of Corporate Affairs, Government of India (MCA), has notified Section 234 of the Companies Act, 2013 (2013 Act) vide commencement notification dated 13 April 2017. The notified section allows cross-border mergers concerning the merger or amalgamation of an Indian company with a foreign company and vice-versa. The MCA, in consultation with the Reserve Bank of India (RBI), has also amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 by inserting a new rule 25A vide amendment notification dated 13 April 2017 (Amended Rule).

Coverage of Section 234

(a) Under the newly notified Section 234 of the 2013 Act, read with the Amended Rule, cross-border mergers have been permitted both ways, that is:

  1. Inbound merger: Merger or amalgamation of a foreign company with an Indian company
  2. Outbound merger: Merger or amalgamation of an Indian company with a foreign company

(b) For the purposes of this section, the expression “foreign company” is defined to mean any company or body corporate incorporated outside India, irrespective of whether it has a place of business in India or not.

Conditions applicable

  1. Such merger or amalgamation will necessarily require prior approval of the RBI.
  2. Once an approval from the RBI is granted, the concerned company is required to file an application before the National Company Law Tribunal pursuant to the provisions of Sections 230-232 of the 2013 Act.
  3. The general provisions of Sections 230-232 of the 2013 Act that are applicable in relation to a merger between two Indian companies are also applicable in case of cross-border mergers.

Valuation in case of outbound merger

In terms of the Amended Rule, in case of an Indian company merging with a foreign company, the following must additionally be ensured:

  1. The foreign company is required to ensure that valuation is conducted by valuers who are members of a recognized professional body in the jurisdiction of such foreign company.
  2. The valuation is conducted in accordance with internationally accepted principles on accounting and valuation.
  3. A declaration in relation to the above-mentioned points (a) and (b) is submitted along with the application to the RBI seeking approval for such merger or amalgamation.

Jurisdiction of foreign companies in case of outbound merger

In terms of the Amended Rule, Indian companies can merge with foreign companies located in the following specific jurisdictions only:

  1. Jurisdictions whose securities market regulator is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A signatories) or is a signatory to a bilateral Memorandum of Understanding with the Securities and Exchange Board of India.
  2. Jurisdictions whose central bank is a member of Bank for International Settlements (BIS).
  3. Jurisdictions that are not identified in the public statement of Financial Action Task Force (FATF) as:
  • Jurisdictions having strategic anti-money laundering or combating of financing of terrorism deficiencies to which counter measures apply
  • Jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies

Payment of consideration

  1. Section 234(2) of the 2013 Act provides that the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company.
  2. The section offers consideration either in cash or in depository receipts, or partly in cash and partly in depository receipts, as the case may be, depending upon the scheme drawn up for the purpose. The RBI’s role

The RBI’s role

  1. The provisions of cross-border merger require mandatory prior approval of the RBI.
  2. The Amended Rule offers a clarification to the effect that no further amendment shall be made in the Amended Rule without consultation with the RBI.
  3. Further, the RBI has also released draft Foreign Exchange Management (Cross Border Merger) Regulations, 2017 (Draft Regulation).
  4. The RBI has proposed the Draft Regulation under the Foreign Exchange Management Act, 1999 in order to address the issues that may arise when an Indian company and a foreign company enter into scheme of merger, demerger, amalgamation or rearrangement. The Draft Regulation stipulates conditions that should be adhered to by the companies involved in the scheme.
  5. The Draft Regulation deals with additional conditions relating to inbound and outbound mergers, valuation and reporting requirements etc. and has been released to invite the attention of the members of public and experts on the subject, for their views.


Section 234 of the 2013 Act facilitates and provides legal sanctity to structure cross-border mergers and amalgamations between Indian companies and foreign companies.

The proposition of merging a foreign company with an Indian company was permitted under the Companies Act, 1956 (1956 Act). Section 234 of the 2013 Act has, however, now introduced the concept of also merging an Indian company with a foreign company. This was previously unworkable as the definition of “transferee company” under the 1956 Act was defined to mean only “a company incorporated under the Act.”

The notification of Section 234 of the 2013 Act and the Amended Rule appears to be a positive step, which may provide greater flexibility in structuring cross-border mergers and amalgamations and offer an efficient framework for undertaking the transactions.