Cross Border Merger

The enforcement of the relevant provisions pertaining to Cross Border Mergers contained in the Companies Act, 2013 by the Ministry of Corporate Affairs with corresponding provisions in Companies (Compromises, Arrangements and Amalgamation) Rules, 2016, including insertion of the Rule 25A and introduction of draft Foreign Exchange Management (Cross Border Merger) Regulations, 2017 has ushered in infinite opportunities of partnerships in the form of mergers, consolidations, acquisitions etc. As per the notified provisions, prior approval of the Reserve Bank of India is requisite to go ahead with such mergers. And the draft Regulations issued by the RBI provide that cross-border merger shall be deemed to be approved by the RBI if it is accordance with the draft Regulations.

Section 234 of the Companies Act, 2013 provides for scheme of mergers and amalgamations between Companies registered under the said Act and Foreign Companies. However, in case of outbound mergers only Companies which are incorporated in the Jurisdictions of such Countries which are notified by the Central Government are eligible. Apart from complying with the provisions stipulated under Section 230 to 232 of the Companies Act, 2013 read with the rules made thereunder the following additional compliances in case of outbound mergers are enumerated in Rule 25A of Companies (Compromises, Arrangements and Amalgamation) Rules, 2016:-

• Prior approval of RBI is mandatory in case of cross border mergers.
• In terms of the said rule Valuation in case of cross border merger, the following must additionally be ensured:
• The foreign company is required to ensure that valuation is conducted by valuers who are members of a recognized professional body in the jurisdiction of such foreign company.
• The valuation is conducted in accordance with internationally accepted principles on accounting and valuation.
• A declaration in relation to the above-mentioned points are submitted along with the application to the RBI seeking approval for such merger or amalgamation

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