A scheme involving a foreign transferor company is governed by Section 234 of the Companies Act, 2013, read with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The foreign company may merge into an Indian company (inbound), or an Indian company may merge into a foreign company (outbound). In either case, the scheme must comply with the Companies Act, the FEMA, the tax laws, and the sectoral regulations.
The Inbound Route
Under Rule 25A, a foreign company incorporated outside India is permitted to merge into an Indian company after complying with Sections 230 to 232, including the NCLT’s approval. The Rule requires the prior approval of the Reserve Bank of India, and the Cross Border Merger Regulations, 2018 deem the RBI approval to have been granted where the transaction complies with those regulations.
The September 2024 amendment to Rule 25A introduced a fast-track route for a foreign holding company merging into its Indian wholly owned subsidiary under Section 233. The amendment requires both the Indian transferee subsidiary and the foreign transferor holding company to obtain the RBI’s prior approval, and it requires a declaration in Form CAA-16 where the foreign company is incorporated in a country that shares a land border with India.
The Outbound Route
An outbound merger is available only where the foreign transferee company is incorporated in a notified jurisdiction. The notified jurisdictions include the United States, the United Kingdom, Singapore, Mauritius, and certain other countries. The RBI approval is required, and the transaction must comply with the Overseas Investment Rules and the Cross Border Merger Regulations.
The NCLT Process
The inbound scheme is filed before the NCLT under Sections 230 to 232, and the Tribunal convenes the meetings of the Indian company’s members and creditors. The foreign company is not required to convene a meeting under the Indian law, but the scheme must be approved in accordance with the foreign company’s constitutional documents and the law of its jurisdiction. The NCLT considers the RBI approval and the statutory authorities’ objections before sanctioning the scheme.
The Limits
The cross-border demerger is not expressly permitted. Section 234 and Rule 25A contemplate a merger or amalgamation, not a demerger, and the tax provisions do not extend the demerger neutrality to a cross-border demerger. A cross-border demerger must therefore be structured through other means, such as a business transfer or a slump sale.
A cross-border scheme is technically demanding. The coordination of the NCLT process, the RBI approval, the FEMA reporting, and the tax analysis is the condition of a transaction that reaches the effective date.
Call to Action
Anuj Desai & Associates advises companies on cross-border schemes involving a foreign transferor company—from the Rule 25A eligibility and the RBI approval to the NCLT process and the FEMA compliance. If you are planning a cross-border merger, we can help you structure the transaction.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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