The document discusses the provisions related to cross border mergers under the Companies Act 2013 and FEMA regulations. It provides details about inbound and outbound mergers, valuation requirements, deemed approval process, reporting obligations and income tax implications. Key highlights include: - Cross border mergers can involve an Indian company merging with a foreign company or vice versa. - The foreign company jurisdiction needs to be specified in Annexure B of Rule 25A of the Companies Act. - Valuation of the companies needs to be done according to internationally accepted principles by qualified valuers. - Certain transactions and asset/liability transfers are permitted to facilitate the merger while ensuring compliance with FEMA regulations. - Capital gains tax exemptions for transfer of assets

1. Cross Border Mergers
CA. Divakar Vijayasarathy

2. Credits and Acknowledgments
Bharathi Priya R D
Thirumal V
CA Jugal Gala

3. Legends used in the Presentation
BIS Bank for International Settlements
CG Central Government
CS Company Secretary
ECB External Commercial Borrowings
FATF Financial Action Task Force
FDI Foreign Direct Investment
FEMA Foreign Exchange Management Act
FEM Foreign Exchange Management
FMV Fair Market Value
FY Financial Year
GOI Government of India
IOSCO International Organization of Securities Commission
JV Joint Venture
LRS Liberalised Remittance Scheme
MD Managing Director
MoU Memorandum of Understanding
MMoU Multilateral Memorandum of Understanding
NCLT National Company Law Tribunal
RBI Reserve Bank of India
SNRR Special Non-Resident Rupee Account
WOS Wholly Owned Subsidiary
WTD Whole Time Director

4. Presentation Schema
Introduction
Provisions under
Companies Act, 2013
FEM (Cross Border
Merger) Regulations,
2018
Income-tax
Implications
Statistics

5. Introduction
Cross Border Mergers refer to the Consolidation of Companies situated in two or more
countries
It can be Indian Company going for a merger with foreign company or vice versa
Cross Border Mergers are permitted in India subject to Companies Act 2013
FEMA regulations additionally apply to such Cross Border Mergers

6. Regulations Covered
Provisions of Companies Act, 2013
Merger or Amalgamation of Company with Foreign Company – Sec 234
Merger or amalgamation of a foreign company with a Company and vice versa – Rule 25A
Power to Compromise or Make Arrangements with Creditors and Members – Sec 230
Power of Tribunal to Enforce Compromise or Arrangement – Sec 231
Merger and Amalgamation of Companies –Sec 232
FEM (Cross Border Merger) Regulations, 2018
Introduction
Inbound Merger
Outbound Merger
Valuation of Companies
Deemed Approval
Reporting and Miscellaneous
Income-tax Provisions
Transactions not regarded as a transfer – Sec 47
Carry forward and Set off in the case of Amalgamation – Sec 72A(1)/(2)/(3)

7. Provisions of Companies Act, 2013

8. Merger or Amalgamation of Company with Foreign
Company – Sec 234
The provisions of Companies Act, 2013 relating to domestic merger shall apply mutatis
mutandis to cross border mergers between Indian Company and Foreign Companies
incorporated in the overseas jurisdictions, as may be notified by CG
CG may make rules, in consultation with the RBI, in connection with mergers and
amalgamations of Company with Foreign Company
A foreign company, with the prior approval of the RBI, may merge into an Indian company or vice versa
and the terms and conditions of the scheme of merger may provide, among other things, for the
payment of consideration to the shareholders of the merging company
in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case
may be, as per the scheme to be drawn up for the purpose.
A Depository Receipt is a financial instrument representing certain securities
(eg. shares, bonds etc.) issued by a company/entity in a foreign jurisdiction

9. Merger or amalgamation of a foreign company with a
Company and vice versa – Rule 25A
Inbound merger - A foreign company incorporated
outside India may merge with an Indian company
Outbound merger - A company may merge with a foreign company
incorporated in any of the specified jurisdictions [Annexure B]
after obtaining prior approval of the RBI and after complying
with provisions of Companies Act, 2013 relating to domestic
merger
Jurisdictions
A. a jurisdiction having a strategic Anti-Money Laundering or Combating the
Financing of Terrorism deficiencies to which counter measures apply; or
B. a jurisdiction that has not made sufficient progress in addressing the
deficiencies or has not committed to an action plan developed with the FATF to
address the deficiencies.
a jurisdiction, which is not
identified by FATF (Financial
Action Task Force) as
whose central bank is a
member of BIS (Bank for
International Settlements )
• whose securities market regulator is a
signatory to IOSCO’s MMoU [International
Organization of Securities Commission’s
Multilateral Memorandum of
Understanding] (Appendix A Signatories) or
• a signatory to bilateral Memorandum of
Understanding (MoU) with SEBI,
or and
Rule 25A of The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
IOSCO MMoU – 124 Jurisdictions
SEBI bilateral MoU – 22 Jurisdictions
60 Jurisdictions

10. Jurisdictions Notified by FATF
Bahamas
Botswana
Cambodia
Ghana
Iceland
Mongolia
Pakistan
Panama
Syria
Trinidad and Tobago
Yemen
Zimbabwe
Democratic People's Republic of Korea
Iran
Jurisdictions to which Counter-measures apply
Monitored Jurisdictions with Deficiencies

11. Illustration
Indian Co.
Foreign Co.
Inbound Merger
Indian Co.
Foreign Co.
Outbound Merger
Merger
Shareholders
Consideration in the
form of shares of
Indian company
Shareholders
Consideration in the
form of shares of
Foreign company
In permitted Jurisdictions
Permitted
Jurisdictions
Signatory to MMoU of IOSCO or
bilateral MoU with SEBI
OR
Member of BIS
AND
Not notified by FATF in the
specified categories
Singapore
• Monetary Authority of Singapore (MAS) is a signatory
to IOSCO’s MMoU and also a member of BIS
• Not notified by FATF under the categories
Singapore would be a permitted jurisdiction for the
purpose of cross border merger
Indian Entity remains
Foreign Entity remains
Merger

12. Rule 25A - Contd.
Valuation • The transferee company shall ensure that valuation is conducted by valuers who are members of a
recognised professional body in the jurisdiction of the transferee company and further that
• such valuation is in accordance with internationally accepted principles on accounting and valuation
• A declaration to this effect shall be attached with the application made to RBI for obtaining its approval
Procedure • The concerned company shall file an application before the Tribunal [NCLT] as per provisions of Sec 230
to Sec 232 of the Act and these rules
• after obtaining approval from RBI for the Inbound or Outbound merger as the case may be.
“company” means a company incorporated under Companies Act, 2013 or under any previous company law
“foreign company” means a company or body corporate incorporated outside India whether having a place of business in India or not
It is clarified that no amendment shall be made in this rule without consultation of the RBI
Assets Based Approach
• Net Book Value Method
• Net Replaceable Value
• Net Realizable Value
Market-based Approach
• Market Price Method
• Comparable Multiple Method
• Comparable Transaction Method
• Price of Recent Investment Method
Income-based Approach
• Discounted Cash Flow Method
• Price Earning Capacity Value Method
Internationally accepted principles on accounting and valuation

13. Procedures for Domestic Merger
Sections 230 to 232 of the Companies Act, 2013
Check whether objects
clause of Memorandum
of Association authorises
merger
Prepare scheme of
amalgamation (valuation
report, swap ratio)
Board approval of the
scheme
Convene general
meeting of shareholders
approving the scheme
Application to NCLT
sanctioning the scheme
disclosing proper
information
Issuing Notice for
Meeting to Members
and applicable
Authorities
Conduct of Meeting and
voting by members
Auditor’s certificate for
compliance with
accounting standards

14. Contd.
Passing of Order by NCLT
Filing the orders with ROC
within 30 days
Transfer of assets and
liabilities
Allotment of shares to
shareholders of the
transferor company
Merger shall be effective
from the Appointed date
under the scheme
Report of CA/CMA/CS in Form
CAA.8 within 210 days from end of
each PY until completion of scheme
Penalty for contravention of provisions
Transferor or Transferee company Fine - Rs. 1 lakh to 25 lakh
Every officer of such transferor or transferee company who is in default Imprisonment upto 1 year
Fine - Rs. 1 lakh to 3 Lakh
Fast track merger (Sec 233) will not apply to Cross border mergers as Rule 25A specifies that Sec 230 to 232 are to be
complied with, which talks about only normal merger

15. FEM (Cross Border Merger) Regulations, 2018

16. Introduction
Cross Border Merger
‘Cross Border Merger’ means any merger, amalgamation or arrangement between
an Indian company and foreign company in accordance with provisions of
Companies Act, 2013 and rules made thereunder
Foreign Company
Any company or body corporate incorporated outside India whether having a place
of business in India or not
Indian Company
A company incorporated under the Companies Act, 2013 or under any previous
company law
Save as otherwise provided in the Act or rules or regulations framed thereunder or with the general or special permission of
RBI, no person resident in India shall acquire or transfer any security or debt or asset outside India and no person resident
outside India shall acquire or transfer any security or debt or asset in India on account of cross border mergers

17. Inbound Merger
Inbound Merger A cross border merger where the resultant company is an Indian company
Resultant Company
‘Resultant company’ means an Indian company or a foreign company which takes
over the assets and liabilities of the companies involved in the cross border merger
The resultant company may issue or transfer any security and / or a foreign security, to a person resident outside India in
accordance with the pricing guidelines, entry routes, sectoral caps, attendant conditions and reporting requirements for
foreign investment as per FEMA regulations
Where the foreign company is a Joint Venture (JV) / Wholly Owned Subsidiary (WOS) of the Indian company, it shall comply
with the conditions prescribed for transfer of shares of such JV / WOS by the Indian party as per FEMA regulations
Where the inbound merger of the JV / WOS results into acquisition of the Step down subsidiary of JV / WOS of the Indian
party by the resultant company, then such acquisition should be in compliance with FEMA regulations
Step down subsidiary company means the subsidiary company of a company which is subsidiary of another company

18. Contd.
The resultant company may acquire and hold any asset outside India which an Indian company is permitted to acquire.
Such assets can be transferred in any manner for undertaking a permissible transaction prescribed under FEMA
The guarantees or outstanding borrowings of the foreign company from overseas sources which become the borrowing of
the resultant company or any borrowing from overseas sources entering into the books of resultant company shall
conform, within a period of 2 years, to the ECB norms or Trade Credit norms or other foreign borrowing norms, as per
FEMA regulations
No remittance for repayment of such liability is made from
India within such period of 2 years
Conditions mentioned above will not apply with respect to
end use restrictions
An office outside India of the foreign company, pursuant to the sanction of the Scheme of cross border merger shall be
deemed to be the branch / office outside India of the resultant company in accordance with the FEMA regulation and the
resultant company may undertake any transaction as permitted to a branch / office

19. Contd.
The resultant company may open a bank account in foreign currency in the overseas jurisdiction for the purpose of putting
through transactions incidental to the cross border merger for a maximum period of 2 years from the date of sanction of
the Scheme by NCLT
Where any liability outside India is not permitted to be held by the resultant company, the same may be extinguished
from the sale proceeds of such overseas assets within the period of 2 years
Where the asset or security outside India is not permitted to be acquired or held by the resultant company, the resultant
company shall sell such asset or security within a period of 2 years from the date of sanction of the Scheme by NCLT and
the sale proceeds shall be repatriated to India immediately through banking channels

20. Outbound Merger
Outbound Merger A cross border merger where the resultant company is a foreign company
A person resident in India may acquire or hold securities of the resultant company as per FEMA regulations
A resident individual may acquire securities outside India provided that the FMV of such securities is within the limits prescribed under
the Liberalized Remittance Scheme (LRS) [ 2,50,000 USD per person per FY]
An office in India of the Indian company, pursuant to sanction of the Scheme of cross border merger, may be deemed to be a branch
office in India of the resultant company and the resultant company may undertake any transaction as permitted to a branch office
• The resultant company shall not acquire any liability payable towards a
lender in India in Rupees which is not in conformity with the Act or rules or
regulations framed under Companies Act, 2013
• A no-objection certificate to this effect should be obtained from the lenders
in India of the Indian company
The guarantees or outstanding borrowings of
the Indian company which become the liabilities
of the resultant company shall be repaid as per
the Scheme sanctioned by the NCLT

21. Contd.
The resultant company may acquire and hold any asset in India which a foreign company is permitted to acquire and
such assets can be transferred in any manner for undertaking a permissible transaction under FEMA
Where the asset or security in India cannot be acquired or held by the resultant company, the resultant
company shall sell such asset or security within a period of 2 years from the date of sanction of the Scheme by
NCLT and the sale proceeds shall be repatriated outside India immediately through banking channels
Repayment of Indian liabilities from sale proceeds of such assets or securities within the period of 2years shall
be permissible
The resultant company may open a Special Non-Resident Rupee Account (SNRR Account) in accordance with
the FEMA regulations for the purpose of putting through transactions
The account shall run for a maximum period of 2 years from the date of sanction of the Scheme by NCLT

22. Valuation of Companies
• 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
mentioned before
Valuation
• The transferee company shall ensure that valuation is conducted by valuers who are members of a
recognised professional body in the jurisdiction of the transferee company and further that
• such valuation is in accordance with internationally accepted principles on accounting and valuation
• A declaration to this effect shall be attached with the application made to RBI for obtaining its approval

23. Deemed Approval
Any transaction on account of a cross border merger undertaken in accordance with the FEMA regulations shall be
deemed to have prior approval of the RBI as required under Rule 25A of the Companies (Compromises,
Arrangement and Amalgamations) Rules, 2016
A certificate from the MD / WTD and CS, of the companies concerned ensuring compliance to the FEMA regulations
shall be furnished along with the application made to the NCLT under the Companies (Compromises, Arrangement
or Amalgamation) Rules, 2016

24. Reporting and Miscellaneous
• The resultant company and / or the companies involved in the cross border merger shall be
required to furnish reports as may be prescribed by the RBI, in consultation with the GOI, from
time to time
Reporting
• Compensation by the resultant company, to a holder of a security of the Indian company or the
foreign company, may be paid, in accordance with the Scheme sanctioned by the NCLT
• The companies involved in the cross border merger shall ensure that regulatory actions, if any,
prior to merger, with respect to non-compliance, contravention and violation shall be completed
Miscellaneous

25. Income-tax Implications

26. Transfer of Assets
Transfer of any Capital Asset is subject to Capital Gains Tax
However, specified types of mergers enjoy tax-neutrality with respect to capital gains taxes on transfer of assets
pursuant to merger
Exemptions granted, interalia, have a condition that a transferee company should be an Indian Company i.e. exemption
shall be available only for Inbound Mergers
Where transferee company is a Foreign Company i.e. Outbound Mergers, exemption of capital gains shall not be
allowed

27. Definition of Amalgamation
Sec 2(1B) of the Income-tax Act, 1962
Merger of 1 or more companies with another company or the merger of 2 or more companies to form 1 company
in such a manner that:
All the property and liabilities of the amalgamating company or companies immediately
before the amalgamation becomes the property and liabilities of the amalgamated company
Shareholders holding not less than 3/4th in value of the shares in the amalgamating company or companies
(other than shares already held therein immediately before the amalgamation by the amalgamated company
or its subsidiary or by their nominee) become shareholders of the amalgamated company
otherwise than normal purchase of property or distribution of property on account of winding-up.

28. Exempted Transfers
Section Nature of transaction Conditions to be fulfilled
47(vi)
Transfer of capital asset by an
amalgamating company to amalgamated
company
Amalgamated company should be an Indian Company
47(via)
Transfer of shares of an Indian company by
amalgamating foreign company to
amalgamated foreign company
 At least 25% of the shareholders of the
amalgamating foreign company continue to remain
shareholders of the amalgamated foreign company;
and
 Such transfer is not liable to capital gains tax in the
country of incorporation of the amalgamating
company

29. Contd.
Section Nature of Transaction Conditions to be fulfilled
47(viab)
Transfer of shares of a foreign company,
which derives, directly or indirectly, its
value substantially from shares of an Indian
company, by amalgamating foreign
company to amalgamated foreign company
 At least 25% of the shareholders of the
amalgamating foreign company continue to remain
shareholders of the amalgamated foreign company;
and
 Such transfer is not liable to capital gains tax in the
country of incorporation of the amalgamating
company
47(vii)
Transfer of shares held in amalgamating
company by a shareholder
 Consideration for the transfer shall be shares allotted
in the amalgamated company except for cases where
shareholder itself is the amalgamated company; and
 Amalgamated company is an Indian Company

30. Carry forward and Set off in the case of
Amalgamation - Sec 72A(1)/(2)/(3)
Accumulated loss and unabsorbed depreciation of an amalgamating company can be carried forward and set off
by the amalgamated company (for the unexpired period) if the following conditions are satisfied:
Amalgamation is of an
• Industrial Undertaking
• Ship
• Hotel
• Public sector company/companies engaged in operation of aircrafts with
one or more public sector companies engaged in similar businesses
• Banking company with a specified bank
Note: Industrial undertaking refers to an undertaking which is engaged in:
• Manufacture or processing of goods
• Manufacture of computer software
• Generation or distribution of electricity or any other form of power
• Providing telecommunication services
• Mining
• Construction of ships, aircrafts or rail systems

31. Contd.
Conditions to be satisfied by the amalgamating company
• Should be engaged in the business, in which the accumulated loss/depreciation occurred, for 3 or more years
• Has continuously held at least 75% of the book value of fixed assets on the date on amalgamation, for a
period of 2 years prior to amalgamation
Conditions to be satisfied by the amalgamated company
• Holds for a minimum period of 5 years, at least 75% of the book value of fixed assets of the amalgamating
company on the date of amalgamation
• Continues the business of the amalgamating company for a period of 5 years from the date of amalgamation
• Such other conditions as may be prescribed [Rule 9C]
Conditions as per Rule 9C
• The amalgamated company achieves at least 50% of the installed capacity of the amalgamating company within 4
years from the date of amalgamation and
• maintains the capacity till the end of the 5th year from the date of amalgamation
• CG may relax this condition on application made
• Amalgamated company shall furnish a report of a Chartered Accountant in Form 62 for the confirmation of
satisfaction of conditions mentioned in Rule 9C
In the event of any violation of the above conditions
• The losses already set off shall be considered as income of the amalgamated company in the year of violation
• Further the remaining unadjusted business loss and unabsorbed depreciation cannot be carried forward

32. Statistics

33. Number of Cross-border Mergers and Acquisitions
Worldwide [1990-2018]
2094
2367
21552225
2783
3427
3701
4249
5101
5669
6497
4622
3228
3037
3762
5206
6110
7582
6909
4453
5562
5916
5455
4936
6090
6364
6607
69676821
0
1000
2000
3000
4000
5000
6000
7000
8000

34. Value of Cross-border Mergers and Acquisitions
Worldwide [1990-2018]
98
59 47 43
94 110
141
187
350
560
960
432
244
165
199
535
620
1,033
618
288
347
553
328
263
428
735
887
694
816
0
200
400
600
800
1,000
1,200
In USD Billions

35. Value of Cross Border Mergers and Acquisitions – India vis-à-vis
Other Countries [2016-2018]
In USD Millions Sales (Indian Companies Sold) Purchases (Foreign Companies Purchased)
2016 2017 2018 2016 2017 2018
India 7958 22763 33178 8462 1212 1105
Comparison
China 11057 8255 7646 99331 130876 57397
US 362878 308912 198780 78382 115333 253354
UK 255112 31176 94372 19744 128184 72400
Singapore 4450 9883 19208 6280 12851 4255
Worldwide 886901 693962 815726 886901 693962 815726

36. Thank You
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2019 DVS Advisors LLP
Scan the QR Code to Join our
Research Group on WhatsApp
Scan the QR Code to explore more
Research from our Website