Merging a foreign company into an Indian company

Court-approved mergers form an important part of corporate restructuring in India. Outlined below are certain key issues under Indian foreign exchange laws for issuance of shares of an Indian (transferee) company to non-resident shareholders of the transferor company pursuant to merger of a foreign company into an Indian company.

Key issues

Provisions under the Companies Act, 1956: The Companies Act, 1956, currently permits the merger of a foreign transferor (amalgamating) company with an Indian transferee (amalgamated) company. Courts have in several instances upheld the merger of a foreign transferor company with an Indian transferee company (see for example, In Re: Moschip Semiconductor Technology Limited). The laws of the foreign country would also have to be observed for the merger and this would typically be required by the sanctioning court in India as a condition to the merger.

Provisions under the Companies Act, 2013: The Companies Act, 2013, which will replace the Companies Act, 1956, has been promulgated and certain sections have been notified. Sections 230 to 234 of the Companies Act, 2013, which have not yet been notified and made effective, provide for the amalgamation of companies. Section 234 provides that a foreign company may, with the prior approval of the Reserve Bank of India (RBI), merge into an Indian company or vice versa, provided the foreign company is registered in a jurisdiction that is notified by the central government for the purpose of section 234.

Puja Sondhi is a partner and Ramanuj Gopalan is a principal associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.