New cross-border regime: Analysis and observations

In April this year, the Ministry of Corporate Affairs (MCA) brought into force section 234 of the Companies Act, 2013, which permits cross-border mergers. Simultaneously, the MCA in consultation with the Reserve Bank of India (RBI) also inserted rule 25A in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, which sets out procedural requirements for mergers of foreign companies into Indian companies (inbound mergers) and vice versa (outbound mergers), and also provides that such mergers would require prior approval of the RBI.

In order to facilitate such approval, the RBI has now introduced the Draft Foreign Exchange Management (Cross Border Merger) Regulations, 2017, which set out the conditions to be complied with to obtain its approval under rule 25A. It is expected that the final set of regulations will be notified shortly.

While the 2013 act has opened its doors for all foreign companies for inbound mergers into Indian companies, outbound mergers of Indian companies are only permitted with foreign companies which are incorporated in a notified jurisdiction, i.e.:

• A jurisdiction whose securities market regulator is a signatory to the Multilateral Memorandum of Understanding (MoU) of the International Organization of Securities Commissions (IOSCO) or a bilateral MoU with the Securities and Exchange Board of India (SEBI);
• A jurisdiction whose central bank is a member of the Bank for International Settlements; and
• A jurisdiction which is not identified in the Financial Action Task Force’s public statement for deficiencies in respect of anti-money laundering or combating the financing of terrorism or a jurisdiction which has not sufficiently progressed in addressing the deficiencies or has not developed an action plan for addressing the deficiencies.

The MCA cited its difficulty in identifying the list of notified jurisdictions as one reason behind its delay in notifying the cross-border provisions. Currently, by virtue of rule 25A, tax-friendly jurisdictions such as Bermuda, the British Virgin Islands, Cayman Islands, Isle of Man, Jersey, Luxembourg, Mauritius and Switzerland fall within the list of notified jurisdictions as they are signatories to the IOSCO MoU. Further, Dubai, Singapore and Mauritius, which are preferred jurisdictions for routing investment in India, have bilateral MoUs with SEBI and fall within the list of notified jurisdictions.

Divi Dutta is a partner and Anant Gupta is an associate at Shardul Amarchand Mangaldas & Co. The views and opinions expressed are solely those of the authors and do not necessarily reflect the official view or position of the firm.