Under Section 394 of the erstwhile Companies Act 1956, the merger1 of a Foreign Company2 with an Indian Company (Inbound Merger) was allowed but the merger of an Indian Company with a Foreign Company (Outbound Merger) was not allowed.

On April 13, 2017, the Central Government amended the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016 and inserted rule 25A3. Further, through S.O. 1182(E) dated April 13, 2017, Section 234 of the Companies Act, 2013 also came into effect4, which allows the merger of an Indian company with a Foreign company. This means that, now both inbound and outbound mergers are allowed.

New Rules related to Cross Border Merger

  • In cases of cross border merger, prior approval of the Reserve Bank of India (hereinafter referred to as "RBI") is mandatory.
  • The notification imposes responsibility on Transferee Company to have valuation of merger by professional of recognized professional body and to ensure that such valuation is as per internationally accepted accounting and valuation principles. Also declaration of that shall be attached at the time of making application to the RBI.
  • The company shall file application to the jurisdictional National Company Law Tribunal (hereinafter referred to as "NCLT") as per provisions of Section 230-232 of the Companies Act 2013 and Companies (Compromises, Arrangement5 and Amalgamations6), Rules 2016.

Jurisdictions in which Outbound Mergers are allowed

  1. A jurisdiction whose securities market regulator is a signatory to the International Organisation of Securities Commission's Multilateral Memorandum of Understanding or a signatory to a bilateral MoU with Securities and Exchange Board of India; or
  2. A jurisdiction whose Central Bank is a member of the Bank of International Settlements; or
  3. A jurisdiction, not identified in the public statement of the Financial Action Task Force as:

    1. Jurisdiction having a strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply; or
    2. Jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

Compliance under Section 230-232 of Companies Act 2013 and Companies (Compromises, Arrangement7 and Amalgamations8), Rules 2016.

  • Firstly, the Company, seeking to undergo such Cross-Border Merger, must be authorized to carry out amalgamation through its Memorandum of Association. If it is so authorized then a draft scheme for amalgamation is to be prepared for approval in Board Meeting.
  • After obtaining prior approval of the Board, followed by approval from the RBI, an application for should be filed by the Indian Company with the NCLT in form NCLT-1 seeking an order in favour of calling a meeting of members/creditors for approving the proposed Merger and Amalgamation. Copy of the scheme, affidavit verifying petition and notice of admission along with material disclosures relating to company such as latest financial position, latest auditor's report, and pendency of proceeding against company is also required to be submitted. The Tribunal has the right to either accept or dismiss the application.
  • It is pertinent to note that if a Scheme of corporate debt structuring is to be filed, the same should be accompanied with documents such as inter alia the Creditor Responsibility Statement, valuation report in case of shares, tangible, intangible asset by a registered valuer.
  • Once the Tribunal allows the Company to hold the meeting of members/ creditors, notice of such meeting along with scheme, details of company, details of board meeting, impact of such merger etc. is to be given to each member/creditor/debenture holder not less than 30 days before date fixed for meeting. Such notice shall also be published in newspapers, on the website of the company, Stock Exchanges, The Securities and Exchange Board of India (hereinafter referred to as "SEBI").
  • It is pertinent to note that notices must mandatorily be given to the statutory authorities such as Central Government, Registrar of Companies, and Income Tax authorities. Notices may also be sent to RBI, SEBI, and other sectoral authorities as may be required by the Tribunal so that they may make a representation 30 days from date of receipt of notice.
  • Members may vote on the matter within 30 day of receipt of notice vote in the meeting through person, proxy, postal ballot or electronic means. The report of the results of meeting shall be filed with the Tribunal within 3 days. If the scheme is approved by the majority of members/creditors, then a Petition for confirming compromise, arrangement shall be made to the Tribunal within 7 days of filing of report of result.
  • The Tribunal after being satisfied that the procedure specified has been complied with, shall pass the order to sanction the scheme and make provisions related to matters such as transfer of whole or part of undertaking, property, liability of Transferor company to Transferee Company, allotment of shares by transferee company, payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, transfer of legal proceedings, transfer of employees, dissolution of transferor company etc. The Company should file such order of the Tribunal with the Registrar of Companies within 30 days.


The notification is a welcome move and has opened many blocked doors for outbound merger of Indian Companies with Foreign Companies in specified jurisdiction. This should assist domestic companies in expanding their operations globally and list their securities abroad. It is pertinent to note that this revision in merger jurisprudence will also require changes in existing rules and regulations of Income Tax laws and Foreign Exchange Management Laws.


1 Absorption of one company by other.

2 Company or body corporate incorporated outside India whether having place of business in India or not.

3 https://www.mca.gov.in/Ministry/pdf/CompaniesCompromises_14042017.pdf

4 http://www.mca.gov.in/Ministry/pdf/section234Notification_14042017.pdf

5 All modes of reorganizing share capital.

6 Combination of two or more independent business into single business.

7 All modes of reorganizing share capital.

8 Combination of two or more independent business into single business.

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