RBI puts out draft regulations for cross border M&A

Varun Marwah

The Reserve Bank of India (RBI) has come out with its draft regulations on cross border mergers, after the Ministry of Corporate Affairs (MCA) notified Section 234 of the Companies Act, 2013 (Companies Act).

The Companies Act for the first time permits outbound mergers i.e. merger of an Indian company with a foreign one, since the erstwhile law permitted only inbound mergers.

The MCA, on April 13, 2017, notified [pdf] section 234 of the Companies Act which enables outbound mergers as well, and also amended the Companies (Compromises, Arrangement, and Amalgamation) Rules 2017 by inserting Rule 25A which deals with cross border mergers.

This newly added rule allows cross border mergers, subject to the prior approval of the RBI.

For this purpose, RBI has floated the the draft Foreign Exchange Management (Cross Border Merger) Regulations, 2017, and is accepting comments till May 9, 2017.

The draft regulations make (reporting) rules for the resultant company in relation to,

  1. Issue/ transfer of securities in case of inbound mergers and acquisition/holding of securities in case of outbound mergers;
  2. Repayment of (overseas) borrowings, as the case may be;
  3. Acquisition/holding of assets in or outside India as the case maybe;
  4. In the event the Foreign Exchange Management Act does not permit holding/acquisition of securities, repatriation of their sale proceeds to/outside India, as the case maybe.

Additionally, the valuations for both companies for the purpose of cross border merger shall be done as per internationally accepted pricing methodology, certified by a Chartered Accountant /public accountant/merchant banker authorized to do so in either jurisdiction.

(Read the draft regulations)

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