could boost foreign direct investment into the country. The notification of
FEMA (Cross Border Merger) Regulations, 2018, is the last leg of legal
provisions which allows both inbound and outbound mergers of companies in
India. The real beneficiaries of these regulations would be MNCs which in many
cases want to consolidate the business of a region and require mergers
involving an Indian company with other companies in foreign jurisdictions ”
The FEM (Cross Border Merger)
Regulations, 2018 have now been notified vide notification no. FEMA 389/
2018-RB dated 20 March, 2018 and are effective from the date of notification.
As per the Regulations, merger
transactions in compliance with these regulations shall be deemed to have been
approved by RBI, and hence, no separate approval should be required. In other
cases, merger transactions should require prior RBI approval.
“Cross Border Merger”
means any merger, amalgamation or arrangement between an Indian company and foreign company, in accordance
with Companies (Compromises, Arrangements and Amalgamation) Rules, 2016
notified under the Companies Act, 2013 (Under the draft regulations, the word
“demerger” was part of the definition of “Cross border merger.” However, the same
has been deleted in the notified regulations).
means any company or body corporate incorporated outside India whether having a
place of business in India or not.
means a company incorporated under the Companies Act, 2013 or under any
previous company law.
means an Indian company or a foreign company, which takes over the assets and
liabilities of the companies involved in the cross border merger.
The notification of FEMA
regulations laying down the framework in relation to cross border mergers is a
positive development, which we believe should facilitate international merger
and acquisition transactions. Given that the guidelines deal with a new set of
transactions, they are likely to evolve based on practical experience, as may
be encountered in the due course of time.
The rules will allow Indian
companies to merge their foreign businesses with their domestic companies while
foreign companies will no longer be required to maintain an Indian company
after a merger and instead fold it up into a single entity. This is expected to
encourage cross-border M&A activity.
The move is likely to have an
impact on insolvency and bankruptcy proceedings as well, since it will
encourage foreign bidders to consider buying Indian assets.
For more detail:
Acquisory News Chronicle - March 2018