Centre clears way for Indian firms to merge with foreign companies

Prior RBI approval will be required

New Delhi, April 19:  

Paving the way for a broader merger and acquisition (M&A) landscape, the Centre has allowed Indian companies to merger with companies abroad. However, such outbound mergers will be allowed only with the prior approval of the Reserve Bank of India (RBI).

Indian companies will now be able to merge into foreign companies based in Mauritius, the Netherlands, Singapore, UK, US, Abu Dhabi, DIFC (Dubai) and UAE.

The Corporate Affairs Ministry (MCA) has passed the necessary executive orders under the new Companies Act, 2013 to bring this into effect from April 13, official sources told BusinessLine.

While explicitly allowing Indian companies to merge with companies abroad, the Ministry of Corporate Affairs has also reaffirmed the existing legal position of allowing foreign companies to merge with Indian firms here through a scheme of arrangement (inbound mergers).

The erstwhile Companies Act 1956 had no specific provision allowing Indian companies to go for outbound mergers. Only inbound mergers (foreign companies merging into Indian companies) were allowed under this law, which was replaced by the new Companies Act, 2013.

No demergers

Although the doors have now been opened for Indian companies to go for outbound mergers, the latest Company law still does not allow cross-border demergers.

This would mean an Indian company’s business division cannot be hived off and de-merged through a scheme of arrangement into a foreign company, say company law experts. The entire Indian company has to merge and would have to lose its identity.

Lalit Kumar, Partner, J Sagar Associates, a law firm, said the latest MCA move was a significant change as earlier there was a complete ban. “We have now moved to allowing Indian companies to go in for outbound mergers, but in a regulated manner,” Kumar said.

This is going to benefit foreign companies more as they can now look to gobble up Indian companies easily through this route, he said.

Kumar also said that allowing outbound mergers with foreign entities was a norm in many jurisdictions.

(This article was published on April 19, 2017)

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