RBI allows cross border mergers under FEMA regulations

The central bank is framing the regulations under FEMA, which can now take effect.

For inbound mergers, the norms allow the resultant company to issue or transfer any security to a person who is resident outside India subject to pricing and sectoral foreign investment conditions and FEMA rules.

For outbound mergers, the norms allow resident Indian entities to acquire or hold securities of the resultant company as per the FEMA regulations.

“The valuation of the Indian company and the foreign company shall be done in accordance with Rule 25A of the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016,” the regulations issued by the RBI says.

The RBI has said that any transaction done in compliance with its regulations will be considered to have its prior approval which will impact the promptness of cross-border mergers and acquisitions.

The rules enable Indian companies to merge their foreign and domestic businesses into a single entity,  negating the need for companies to maintain an Indian company anymore.

The move could impact the insolvency and bankruptcy proceedings as well, as it looks to encourage foreign bidders to buy Indian assets.

The central bank has stated that the assets can be held by the Indian firm outside India and anything which is not allowed to be acquired or held has to be disposed within a period of two years from National Company Law Tribunal’s (NCLT) sanction date.