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.