Section 234 of the Companies Act, 2013 ("the Act") permits the merger of an Indian company with a foreign company, and vice versa. The provision is a departure from the traditional territorial limitation of Indian company law, and it is subject to a dense overlay of foreign exchange regulations, tax laws, and sectoral approvals.
The Statutory Framework
Section 234 read with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 permits a cross-border merger where the foreign company is incorporated in a jurisdiction notified by the Central Government. For an outbound merger—an Indian company merging into a foreign company—the foreign company must be in a notified jurisdiction. The notified jurisdictions include the United States, the United Kingdom, Singapore, Mauritius, and certain other countries. The list is not static; it is amended by notification.
The merger requires the prior approval of the Reserve Bank of India. The RBI's approval is granted under the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, which deal with the exchange control consequences of the merger, including the transfer of assets and liabilities, the issuance of shares, and the reporting requirements.
The Inbound Reverse Flip: The 2024 Fast-Track Route
The most significant development in the cross-border merger space is the 2024 amendment to Rule 25A, which permits an inbound reverse merger—a foreign holding company merging into its Indian wholly owned subsidiary—to use the fast-track route under Section 233. The amendment, effective 17 September 2024, allows the merger to be approved by the Regional Director rather than the NCLT, subject to prior RBI approval.
The rationale is to encourage "reverse flipping"—the relocation of holding structures back to India—by simplifying the process for Indian-origin start-ups that had incorporated holding companies in foreign jurisdictions. The fast-track route reduces the timeline from the nine-to-twelve-month NCLT process to a shorter administrative process.
The 2026 amendment to the FEMA Cross-Border Merger Regulations replaced the reference to the NCLT with the broader term "Competent Authority," harmonising the exchange control regime with the fast-track route. The amendment closes a procedural gap that had created uncertainty about whether the RBI's deemed approval applied where the Regional Director, rather than the NCLT, approved the merger.
The Conditions and the Limits
The cross-border merger must comply with the sectoral regulations. Where the Indian company operates in a sector with foreign investment restrictions, the merger must comply with the FDI policy and the sectoral caps. The merger must also comply with the tax laws, including the conditions for tax neutrality under the Income-tax Act.
The cross-border merger is not a routine transaction. It requires a coordinated approach across the corporate law, foreign exchange, tax, and sectoral regulatory dimensions.
Call to Action
Anuj Desai & Associates advises companies on cross-border mergers—from the Section 234 and Rule 25A analysis and the RBI approval process to the notified jurisdiction assessment and the fast-track reverse flip route. If you are planning a cross-border merger, we can help you navigate the regulatory architecture.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
🔗 linkedin.com/in/ca-anuj-desai-122547230
Article 87