Introduction
In 1992, economic reforms were introduced by the government under the leadership of former prime minister P. V. Narasimha Rao and former finance minister Dr. Manmohan Singh, these reforms opened India's market through the introduction of New Economic Policy (NEP) which is also referred as LPG reforms (Liberalization, Privatization and Globalization), for the interests of the country's economy. Since 1992, foreign investors have grown in India because it has a huge market due to its demography, culture, tradition, and population, which attracts foreign companies to invest in the country. So, with the increased investment and capital inflow in the country, several laws, regulations and policies were introduced by the government. With time, "Mergers and Acquisitions" (M&A) became an essential part of globalisation. There has been a surge in the number of cross-border M&A, which gained importance in the global market. Companies are going beyond their domestic boundaries and investing in foreign countries, and vice versa, to maximise profit and expand their services in foreign countries. M&A has been a tool for companies to generate the inflow of capital while taking risks and for better management. In the last decade, we have seen hundreds of mergers and acquisitions, including the purchase of Essar Oil Limited by Rosneft Oil Company in 2016 and the merger of Vodafone India Limited with Idea Cellular Limited in 2017. There have been several reforms in the country in relation to the M&A, which include rules and provisions of the Companies Act 2013, Companies (Compromises, Arrangements and Amalgamations) Rules, 2017, RBI Guidelines, The Foreign Exchange Management (Cross-Border Merger) Regulation, 2018, and SEBI Regulations 2011. Apart from these, there are several laws on M&A, including some provisions of the Competition Act, 2002, the Indian Stamp Act, 1899, and the Income Tax Act, 1971.
Understanding the meaning of Cross-border Mergers & Acquisitions
Cross-border M&A is also referred to as "overseas M&A", in which there is involvement of companies situated in two different countries. In this, there are two companies in different countries, and the acquiring company holds power, control, operations, and the assets of the company that has been acquired. M&A can be classified into two categories: outbound cross-border and inbound cross-border M&A, where the former involves a domestic company acquiring a foreign company and the Latter involves a domestic company being acquired by a foreign company. The M&A generally takes place to acquire assets, control, operations, technical resources, and shareholder value for the company. Section 2(iii) of the Foreign Exchange Management (Cross Border Merger) Regulations, 20181, defines 'any merger, between a domestic company and a foreign company with reference to the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016. The Companies Act 1956 did not allow mergers between any Indian and foreign Companies, but it was later approved in the 2013 Act with the prior approval of the RBI.
Legal Framework related to Cross-border Mergers & Acquisitions
There are several pieces of legislation in the country that govern cross-border mergers. Sections 230 to 240 talk about Arrangements and amalgamations, Companies Act, 2013. Section 2322 of the Act talks about the merger and amalgamation of companies. Section 2343 of the Act talks about the merger between a domestic and a foreign company; Sub section 2 says that a former company may merge into an Indian company with the prior approval of the RBI. Section 2374 of the Act gives power to the central government to amalgamate two companies into one company for public interest. The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, under which Rule 25A talks about the Merger and amalgamation of a domestic company with a foreign company and vice versa, after complying with the provisions of The Companies Act, 2013 and taking prior approval of the RBI.5
The Foreign Exchange Management (Cross Border Merger) Regulations, 20186 provide rules for Inbound mergers and Outbound mergers, Security transfers, pricing guidelines and their approval. The Foreign Exchange Management (Overseas Investment) Rules, 2022,7 are the framework which governs overseas investments by Indian residents, this framework supersedes the earlier FEM regulations of 2004 and, FEM regulations of 2015. Section 9, 72A of the Income Tax Act, 1961 is related to M&A, Section 9 (1)(i) of the Income Tax Act, 1961 talks about taxation on the income which accrues or arises in India, specifically arising from business connections, assets situated in India or sources in India,8 Section 72A of the Income Tax Act, 1961, deals with carrying forward and setting off the business losses and depreciation related to amalgamation and demerger of companies.9 Security and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations, 201110, these guidelines provide the acquisition of shares, control in Indian listed companies in India and voting rights as well as regulating the takeovers. The Competition Act, 2002, The Insolvency and Bankruptcy Code, 2016, The Indian Stamp Act, 1899, The Foreign Exchange Management Act, 1999 also contains provisions related to the cross-border mergers.
Reasons why companies choose Cross-border M&A
There are several benefits of the merger and acquisition of a company for example to gain maximum profit and value for shareholders, a company enters a cross-border merger & acquisition deal, to acquire new assets of the company and eliminate competition in the market, companies do mergers, and to internalize in the international market for the purpose of exploring the foreign markets to reduce the cost of the labour and to get skilled personnel. A company may enter M&A to increase its productive resources like land, labour, capital and technology, which can be utilised for industrial applications and to increase the creation of value, dynamic learning, and institutional facilitation.
Problems faced by companies in M&As
There are several risks involved with the cross-border M&A in both inbound and outbound M&A transactions. While entering the Indian market, a foreign company may face entry risks in India because there are certain restriction on FDI under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 which were issued under the FEMA Act, 1999. Round-Tripping practice in which black money is converted into white, which may involve tax evasion issues and legal action. There is a need for Anti-Trust Approval under the Competition Act, 2002, M&A which exceed certain thresholds requires approval of CCI unless it qualifies for the small target exemption, acquisitions of below 25% of shares and voting rights do not require approval of CCI.
Examples of Recent M&As
There have been several M&A deals in India involving Indian Companies and cross-border transactions. Tata Group's Acquistion of Air India in 2022 was a great move by TATA as well as the merger of Air India with Vistara Airlines and its joint venture with Singapore Airlines, which has now become a strong airline entity. We have seen the merger of the PVR and INOX in 2022, making it a huge multiplex chain with over 1500 screens, with a valuation of 1 billion dollars. This merger bolstered the recovery and growth in the economy of the multiplex Industry. Recently, in 2022, Adani Group acquired a majority stake in NDTV, a news channel which was also in the news due to the issue of freedom of the press. Vodafone India Limited and Idea Cellular merged in 2018, which faced various challenges and issues due to Debt and competition in the telecom market. In 2018, Walmart acquired Flipkart, a leading e-commerce platform, for 16 billion dollars, which is one of the largest deals in India.
Conclusion
M&As include both inbound and outbound mergers. Currently, India has witnessed an increase in trends of global mergers & Acquisitions. We have seen a surge in the FDI inflow in the country after COVID-19 and the Russia-Ukraine war. M&A is essential for both domestic and foreign companies, which ultimately results in the growth of the economy of both countries by expanding the operations of the company and the inflow of capital. Now that India has become a powerful country and has an increasingly growing presence in the global market, Indian companies have acquired many foreign corporations, which will play a crucial role in India's achieving a 5 trillion economy.
Footnotes
1 Foreign Exchange Management (Cross Border Merger) Regulations, Notification No. FEMA.389/2018-RB, Reserve Bank of India Foreign Exchange Department, 2018, available at: Notifications - Reserve Bank of India, ( Last assessed on July 11, 2025).
2 The Companies Act, 2013, S. 232 (India).
3 The Companies Act, 2013, S. 234 (India).
4 The Companies Act, 2013, S. 237 (India).
5 The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, Rule 25A.
6 Foreign Exchange Management (Cross Border Merger) Regulations, Notification No. FEMA.389/2018-RB. Available at; https://enforcementdirectorate.gov.in/sites/default/files/Act%26rules/Foreign%20Exchange%20Management%20%28Cross%20Border%20Merger%29%20Regulations%2C%202018_0.PDF ( Last visited on 11 July 2025).
7 Foreign Exchange Management (Overseas Investment)
Directions, RBI/2022-2023/110
A.P. (DIR Series) Circular No.12, 2022.
8 The Income Tax Act, 43 OF 1961, S. 9(1)(i), (India).
9 The Income Tax Act, 43 OF 1961, S. 72A, (India).
10 Security and Exchange Board of India (SEBI) (Substantial Acquistion of Shares and Takeovers) Regulations, G.S.R. 703(E), 2011 (India).
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