The Ministry of Corporate Affairs of the Government of India (MCA) on 13 April 2017 notified section 234 of the Companies Act, 2013 (Act) that provides for mergers or amalgamations of an Indian company with a foreign company and vice versa (Commencement Notification). The MCA vide a separate notification dated the same day also inserted a new rule, i.e. Rule 25A in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (Rules) to regulate such mergers or amalgamations, which shall come into force from the date of its publication in the Official Gazette of India (Merger or Amalgamation Rule).
Per section 234 of the Act and the Merger or Amalgamation Rule, a ‘foreign company’ means a company or a body corporate incorporated outside India whether having a place of business in India or not. Such mergers or amalgamations may only be done pursuant to the prior approval of the Reserve Bank of India (RBI). Entities opting for such mergers or amalgamations also have to be in compliance with the provisions of sections 230-232 of the Act.
The Merger and Amalgamation Rule provides that such mergers or amalgamations may only take place if the foreign company is incorporated in a jurisdiction:
(a) whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding, more specifically, Appendix A Signatories, or is a signatory to the bilateral Memorandum of Understanding with the Securities and Exchange Board of India;
(b) whose central bank is a member of the Bank for International Settlements; and
(c) which is not identified in the public statement of the Financial Action Task Force (FATF) as:
(i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which countermeasures apply; or
(ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies.
Section 234 of the Act also sets out that the terms and conditions of the scheme of merger may provide for the 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 as the case may be, in accordance with the scheme to be drawn up for purposes of the merger.
Additionally, the Merger or Amalgamation Rule sets out that in instances where such a merger or an amalgamation is sought, the transferee company is under an obligation to ensure that valuation is conducted by valuers who are members of a recognised professional body in the jurisdiction of the transferee company. The transferee company also has to ensure that such valuation is in accordance with internationally accepted principles on accounting and valuation, and has to attach a declaration to this effect when applying to the RBI for its prior approval for such a merger or amalgamation, before filing an application to the National Company Law Tribunal as per provisions of sections 230-232 of the Act.
Setting a restriction on amendments, the Merger or Amalgamation Rule specifically provides that no amendment may be made to it without consultation with the RBI.
The Commencement Notification and the Merger or Amalgamation Rule may be accessed at the following links respectively: