The MCA on 13 April 2017 notified Section 234 of the Companies Act, 2013 (the Act) and the Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 (Amendment Rules) which allows the merger of a foreign company with an Indian company and vice versa.
Previously, the Companies Act, 1956 (the old Act) under Section 394, provided that in any arrangement or reconstruction, an amalgamated company (transferee company) must be a company within the meaning of the old Act i.e., it has to be an Indian company. This meant that a foreign company could not be a transferee company, which meant the Indian company could not merge with the foreign company. Thus, it was possible for a foreign company to get merged with an Indian company, but vice versa was not possible.
Key highlights of the notification:
The notified Section 234 provides enabling provision for mergers
and amalgamations between companies registered under the Act and
companies incorporated in the jurisdictions of such countries as
may be notified from time to time by the Central government. It
also provides for enabling provisions to make rules in consultation
with the Reserve Bank of India (RBI) in this behalf. The key
highlights of this notification are:
- Prior approval of the RBI is required for any scheme of merger and amalgamation between an Indian company and a foreign company.
- The section also lays down the criteria for the discharge of consideration on a merger i.e. payment of consideration to the shareholders of the merging companies may be discharged in cash, or in depository receipts, or partly in cash and partly in depository receipts.
- An Indian company can merge with a foreign company only if the foreign company falls under the jurisdiction as specified.
- It has been stipulated that the provisions of the Act shall apply to cross-border merger or amalgamation schemes with the necessary changes and compliance with Section 230-232 of the Act and rules thereunder is mandatory.
- The transferee company has to ensure that the valuation is conducted by a member of a recognised professional body in the jurisdiction of the transferee company and the valuation is in accordance with internationally accepted standards.
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