A cross-border merger is governed by two overlapping regimes: the Companies Act, 2013, which provides the corporate approval mechanism, and the Foreign Exchange Management Act, 1999, which governs the exchange control consequences. The FEMA regime has undergone a significant clarification in 2026, but the substantive conditions—pricing, sectoral compliance, valuation, reporting, and asset disposal—remain intact.
The 2026 Amendment: From NCLT to Competent Authority
On May 29, 2026, the Reserve Bank of India notified the Foreign Exchange Management (Cross Border Merger) (Amendment) Regulations, 2026. The amendment replaces references to the "National Company Law Tribunal" with the broader expression "Competent Authority" in Regulations 4, 5, 7 and 9. The Competent Authority is defined as any body empowered under the Companies Act, 2013 or its subordinate legislation to approve a scheme of merger or amalgamation.
The change was necessitated by the September 2024 amendment to Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, which permitted a foreign holding company and its Indian wholly owned subsidiary to use the fast-track route under Section 233, subject to prior RBI approval. The FEMA regulations, however, continued to refer specifically to the NCLT, creating uncertainty about whether the deemed approval provisions applied where the Regional Director, rather than the NCLT, approved the merger. The 2026 amendment closes that procedural gap.
The Substantive Conditions That Remain
The amendment is procedural housekeeping; it does not relax the substantive FEMA requirements. Pricing guidelines continue to apply to the transfer of shares, and the price must be determined in accordance with the applicable valuation norms. Sectoral conditions continue to govern the foreign investment, and the merger must comply with the FDI policy, including the sectoral caps and the approval routes. Valuation requirements continue to apply, and the scheme must be supported by a valuation that meets the FEMA standards. Reporting obligations continue to apply, and the parties must file the prescribed forms with the RBI through the AD bank. Timelines for the disposal of assets that cannot be retained following the merger continue to apply, and a failure to dispose of the assets within the prescribed period attracts penalty.
The Share Transfer Dimension
A cross-border share transfer that is not part of a merger is governed by the Non-Debt Instruments Rules and the Master Direction on Foreign Investment. Clause 6.15.1 of the Master Direction permits an Indian entity to issue or transfer equity instruments to non-residents in connection with a scheme of merger or amalgamation under the Companies Act. The transfer must comply with the pricing guidelines, the sectoral conditions, and the reporting requirements. The share transfer form attracts stamp duty at the uniform rate of 0.015 per cent on a delivery basis under the Finance Act, 2019 amendments.
The Residual Gaps
The 2026 amendment does not address the deeper structural gaps. The dissolution of the foreign transferor company remains a complex issue. The drafting difference between Rule 25A(5)(iii), which uses "shall", and Section 233(14), which uses "may", creates uncertainty about the obligation to dissolve the foreign company. The absence of an express cross-border demerger pathway under Section 234 means that a demerger involving a foreign entity cannot use the cross-border route, and it must be structured through other means.
A cross-border merger requires a coordinated approach across the corporate law, FEMA, tax, and sectoral regulatory dimensions. A defect in any one dimension can derail the transaction.
Call to Action
Anuj Desai & Associates advises companies on FEMA compliance in cross-border mergers and share transfers—from the 2026 Competent Authority amendment and the pricing guidelines to the sectoral conditions, valuation, reporting, and asset disposal timelines. If you are planning a cross-border merger or a share transfer involving non-residents, we can help you structure a compliant transaction.
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