India: RBI Notified Cross-Border Merger Regulations

Last Updated: 13 April 2018
Article by SKP  

The Reserve Bank of India (RBI) has notified regulations facilitating cross-border mergers with effect from 20 March 2018, called the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 (the Regulations).

Earlier, the Ministry of Corporate Affairs had notified Section 234 of the Companies Act, 2013 and the rules made thereunder governing the merger or amalgamation between an Indian and foreign company, which provides that prior approval of the RBI should be obtained before making an application to the Tribunal. In pursuance of this, RBI had released the draft Regulations facilitating cross-border merger, seeking comments from stakeholders. Now, RBI has notified the final Regulations vide Notification No. FEMA.389/2018-RB/GSR 244(E), dated 20 March 2018. The salient features of the Regulations are:

  • A cross-border merger is defined to means any merger, amalgamation or arrangement between an Indian company and a foreign company in accordance with the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 (Merger Rules) notified under the Companies Act, 2013.
  • A foreign company has been specified as any company or corporate body incorporated outside India regardless of it having a place of business in India or not, and incorporated in a jurisdiction specified in Annexure B of Merger Rules.
  • The Regulations define inbound merger as merger where a resultant company (i.e., transferee company) is an India company and vice versa in the case of an outbound merger.  
  • It has been provided that in an inbound merger:
    • The resultant company (i.e., transferee company) may issue or transfer any security and/or foreign security to a person outside India in accordance with pricing guidelines, entry routes, sectoral caps, attendant conditions and reporting requirements as prescribed under the regulations governing foreign direct investment;
    • In case the foreign company is a Joint Venture (JV)/Wholly Owned Subsidiary (WOS) of the Indian company, the merger shall comply with the condition prescribed for transfer of shares of such JV/WOS by the Indian company as laid down in regulations governing overseas direct investment and compliance with the same also needs to be ensured where merger of JV/WOS results into an acquisition of the step down subsidiary of JV/WOS;
    • Post the sanction of the Scheme, an office of the foreign company outside India shall be deemed to be the branch office of the Indian company which may undertake any transaction as permitted to a branch/office under the Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) Regulations, 2015;
    • The guarantees or outstanding borrowings of the foreign company from overseas sources, which becomes the borrowing of the resultant Indian company, must conform within two years to the external commercial borrowing norms or trade credit norms, or other foreign borrowing norms, as laid down under the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 or the Foreign Exchange Management (Guarantee) Regulations, 2000 provided that no remittance for repayment of any liability on that account is made from the Indian company within such period of two years and further the conditions with respect to end-use shall not apply;
    • The Indian company may acquire and hold any asset outside India, which it is permitted to acquire under the exchange control regulations and can be transferred in any manner as may be permitted;
    • In the event the assets are not permitted to be acquired or held by the Indian company, it shall be sold within two years from the sanction of the Scheme by the Tribunal, and the proceeds thereof shall be repatriated to India immediately;
    • Furthermore, where any liability outside India is not permitted to be held by the Indian company, the same may be extinguished from the sale proceeds of the aforesaid overseas assets; and
    • An India company may open a bank account in foreign currency in the overseas jurisdiction for the purpose of putting through transactions incidental to the cross-border merger for a period of two years from the date of sanction of the Scheme by the Tribunal.
  • It has been provided that in an outbound merger:
    • A person resident in India may acquire or hold securities of the foreign transferee company in accordance with the regulations governing overseas direct investment, provided that fair market value of the investment by the resident individual in such merger is within the limits prescribed under the Liberalized Remittance Scheme;
    • An office in India of the transferor Indian company pursuant to the sanction of Scheme shall be deemed to be the branch office of foreign transferee company in accordance with the Foreign Exchange Management (Establishment in India of a Branch or a Liaison or Project Office or any Other Place of Business) Regulations, 2016 and consequently, the foreign company is permitted to undertake activities in accordance with the regulations;
    • Guarantees and borrowings of the transferor Indian company to be repaid by the resultant foreign company as per the terms of the scheme that may be sanctioned by the Tribunal, provided no liability or guarantee should be acquired which is payable to the local Indian lenders, if it is not in conformity with FEMA or guidelines issued thereunder, and further a no-objection certificate to this effect should be obtained from the lenders in India of the Indian transferor company;
    • The foreign transferee company may acquire and hold any asset in India which a foreign company is permitted to acquire under the provisions of the Foreign Exchange Management Act, 1999 and rules or regulations framed thereunder;
    • Where the asset or security is not permitted to be acquired or held by the foreign transferee company, it should be sold within two years from the date of sanction of the scheme of cross-border merger and the sale proceeds shall be repatriated outside India immediately; and
    • The foreign transferee company may open a Special Non-Resident Rupee Account for two years for the purpose of putting through transactions under these regulations.
  • Valuation in case of cross-merger shall be done in accordance with Merger Rules which requires valuation by registered valuers' in accordance with internationally accepted principles on valuation.
  • It has been provided that the transferee company may pay compensation to security holders in accordance with the Scheme sanctioned by the Tribunal.
  • The cross-border merger shall be subject to compliance with any other regulatory requirements.

It has been provided that any transaction of a cross-border merger undertaken in accordance with the Regulations shall be deemed to have prior approval by RBI for the purpose of Merger Rules, and a certificate to that effect needs to be furnished by the Managing Director/Whole Time Director and Company Secretary, if any, of the company concerned with the application made to the Tribunal.

SKP's Comments



The Regulations lays down the framework facilitating cross-border mergers. This comes at a time when insolvency resolution process in respect of larger borrowers is underway which gives one more option in a case involving overseas bidder while preparing effective resolution plan. Clarity on valuation in a merger is well appreciated as it is in sync with the Companies Act, 2013 requirements. The deemed approval provision in the Regulations is expected to expedite the transactions undertaken in accordance with the Regulations without having to wait for the approval from RBI. The Regulations are required to be read along with Merger Rules.

On an overall basis, the Regulations introducing cross-border merger for the first time is a welcome step. One needs to be mindful of the provisions governing merger in overseas jurisdictions while conceptualizing the transaction. Also, a lot would depend on how it will be considered from a taxation point of view as presently there is no clarity from that perspective.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions