The Reserve Bank of India (RBI) on 26th April, 2017 proposed draft of Foreign Exchange Management (Cross border Merger) Regulations, 2017 under Foreign Exchange Management Act, 1999 in relation to cross border mergers and is accepting public comments till 9th May, 2017. These regulations cover merger, demerger, amalgamation or arrangements between Indian company (ies) and foreign company (ies).
These regulations are proposed in relation to section 234 of the Companies Act, 2013 notified by MCA w.e.f. 13th April, 2017. Rule 25A was inserted in Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 as well.
The proposed regulation prescribes the rules to be followed for Inbound Mergers and Outbound Mergers.
Inbound mergers are mergers, demergers, amalgamation or arrangements wherein the resultant company is an Indian company. The following draft regulations have been proposed:-
Outbound Mergers are mergers, demergers, amalgamation or arrangements wherein the resultant company is a foreign company.
The following draft regulations have been proposed:-
In addition to these provisions, the RBI has also prescribed that the valuation for both the companies for the purpose of cross border merger shall be done as per internationally accepted pricing methodology by a Chartered Accountant/public accountant/merchant banker authorized to do so in either jurisdiction.
Finally, any transaction arising due to cross border mergers shall be reported to the Reserve Bank under prevailing rules and regulations. This means if the merger results in any foreign direct investment or results in direct investment outside India or results in availing external commercial borrowings required reporting will be done to RBI.
Transactions undertaken as per the regulations shall be deemed to be approved by RBI as required under Rule 25A of the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016
Disclaimer: This document is intended to initiate academic debate on a pertinent question. It is not intended to be a professional advice and should not be relied upon for real life facts.
(Author is associated with Vinod Kothari & Company and can be reached at [email protected])