Cross-border mergers and the Companies Act, 2013

Reforms by the Indian government in the first decade of this millennium together with long pent-up aspirations of Indian corporations to go global have led to a significant number of outbound acquisitions. This along with the constant need of companies to strengthen their business and broaden their horizon by preserving and optimizing capital makes it inevitable that such companies will explore cross-border mergers.

Cross-border merger in the Indian context would mean merger of a foreign company into an Indian company or vice versa. Under the Companies Act, 1956, it was only permitted to merge a foreign company into an Indian company (albeit subject to foreign exchange laws) and not the other way round, as section 394(4)(b) of that act defined “transferee company” to mean only companies incorporated in India.

Under the Companies Act, 2013, this embargo has been lifted and it seems a green signal has been given for outbound mergers as well. Section 234 of the 2013 act makes the provisions of Chapter XV (Compromises, Arrangements and Amalgamations) applicable mutatis mutandis to mergers and amalgamations between Indian companies and companies incorporated in jurisdictions notified by the central government, and further provides that a foreign company may, with prior approval of the Reserve Bank of India (RBI), merge into an Indian company or vice versa. Section 234 and other provisions of Chapter XV have however not yet been notified and the National Company Law Tribunal (which has been challenged in the Supreme Court) is yet to be set up.

Kalpataru Tripathy is a partner, Promode Murugavelu is a principal associate and Medha Kumar is an associate at Amarchand & Mangaldas & Suresh A Shroff & Co, New Delhi. The views expressed in this article are those of the authors and do not reflect the position of the firm.