A New Dawn For India’s Cross Border Merger Regime
By Team Legistify / 2017-07-12

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Until recently, whilst it was possible for a foreign company to merge with an Indian company, it was not possible for an Indian company to merge with a foreign company within the court sanctioned merger framework set out under Indian corporate law. This finally changed in April 2017, when the company law provisions that govern cross border mergers were brought into force. In the same month, the Reserve Bank of India (RBI) also issued draft regulations setting out the conditions for obtaining ‘deemed’ approval from the RBI for cross border mergers. Now, companies in India desirous of merging with a foreign company may do so in specified jurisdictions.

Following are some of the key highlights of the recent regulations governing cross border mergers:

  • Jurisdiction Test: The eligible jurisdictions are: (a) those whose securities market regulator is a signatory to the Multilateral Memorandum of Understanding of the International Organisation of Securities Commission or to the Bilateral Memorandum of Understanding with the Securities and Exchange Board of India; or (b) jurisdictions whose central bank is a member of the Bank of International Settlements; and jurisdictions not identified in the public statement of the Financial Action Task Force (FATF) for deficiencies relating to anti-money laundering or combating terrorism financing or jurisdictions without an action plan developed with the FATF to address the deficiencies. Key countries like the United States, United Kingdom, Russia, Germany, France, Japan, China, Singapore, Mauritius, etc. will fall within the definition of eligible jurisdictions.
  • For Inbound Mergers: All issuance of shares/security or transfer of security to a non-resident, borrowings of the foreign company (becoming borrowings of the Indian company pursuant to the inbound merger) and assets acquired, held or transferred by the resultant Indian company, must be in compliance with the relevant Indian foreign exchange regulations (i.e., compliance with sectoral caps and conditions, government approval route, compliance with applicable external commercial borrowing norms, trade credit norms, etc).
  • For Outbound Mergers: An Indian resident may acquire or hold securities of the foreign company in accordance with the applicable Indian foreign exchange regulations. As regards any borrowings of the foreign company, the resultant foreign company shall be liable to repay any outstanding borrowings or impending borrowings as per the court sanctioned scheme. Further, the resultant foreign company may acquire, hold and transfer any asset or security in India, provided it is permitted to do so under the provisions of relevant Indian foreign exchange regulations.

Cross border mergers that are in compliance with the above conditions, as well as other conditions of the RBI, would not be required to file applications to seek approval with the RBI on account of the deemed approval status.

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