Bill may open new avenues for cross-border mergers

In this era of economic recovery, an effective legislative framework is needed to facilitate and regulate corporate transactions, including cross-border mergers. Cross-border mergers can be challenging yet exciting, given the regulatory, corporate, competition, accounting, taxation and operational issues they may pose.

Present position

The Companies Act, 1956, permits a merger of an Indian company and a foreign body corporate so long as the surviving company is an Indian company. This is because Section 394(4)(b) of the act defines a “transferee company” to exclude an entity that is not a “company” under the act. However, a “transferor company” has been defined to include a body corporate incorporated outside India. Accordingly, there have been several instances of bodies corporate incorporated outside India merging into Indian companies. A majority of these instances involved overseas affiliates or subsidiaries of the Indian companies and seem to be consolidations for regulatory and taxation purposes.

Proposed framework

In a significant departure from the existing regime, the Companies Bill, 2012, as passed by the Lok Sabha (the lower house of the Indian parliament), permits mergers of Indian companies, being transferor companies, with foreign companies or bodies corporate incorporated outside India, regardless of whether they have a place of business in India.

Kunal Mehra is a principal associate-designate at Amarchand & Mangaldas & Suresh A Shroff and Co, New Delhi. The views expressed in this article are those of the author and do not reflect the position of the firm.