Foreign
Exchange Management (Cross Border Merger) Regulations, 2018
Reserve Bank of
India (RBI) vide
Notification No- FEMA. 389 /2018-RB [1]dated 20th March, 2018 have
notified the regulations relating to merger, amalgamation and arrangement
between Indian companies and foreign companies. The regulations are called as Foreign
Exchange Management (Cross Border Merger) Regulations, 2018. These regulations have defined
various concepts such as Cross border Merger, Inbound merger, Outbound merger,
Resultant Company etc.
Summary
of the regulations can be referred from below table:
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|
Inbound
Merger
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Outbound
Merger
|
|
Meaning
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A
cross border merger where the resultant company is an Indian company
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A
cross border merger where the resultant company is a foreign company
|
|
Issue or transfer any security
|
The resultant Indian Company may issue/transfer
any security and/or a foreign security to Non Residents as per FDI Regulations,
2017.
Where the foreign company is a JV/WOS/Step down
subsidiary of Indian Company, it shall comply with Overseas Direct Investment
(ODI) Regulations, 2004
|
A
person resident in India may acquire/hold securities of the resultant Foreign
company in accordance with the ODI
Regulations, 2004.
Further,
in addition to above, a resident individual may acquire securities outside
India within the limits prescribed under the Liberalized Remittance Scheme.
|
|
Office of the resultant company
|
An
office outside India of the foreign Company shall be deemed to be the
branch/office outside India of the resultant Indian Company.
|
An
office in India of the Indian Company may be deemed to be a branch office in
India of the resultant Foreign company.
|
|
Guarantees /Outstanding
borrowings
|
Guarantees/outstanding borrowings of foreign company from overseas
sources which become the borrowing of the resultant Indian company shall
conform, within a period of two years, to the External Commercial
Borrowing/ Trade Credit/ other borrowing norms. Further, the conditions with
respect to end use shall not apply.
|
Guarantees/outstanding borrowings of Indian
company shall be repaid as per the Scheme sanctioned by NCLT.
The resultant company shall not acquire any liability
payable towards a lender in India in Rupees which is not in conformity with
the Act/ rules /regulations.
No-objection
certificate (NOC) to this effect should be obtained from the
lenders in India of the Indian company
|
|
Acquire and hold any asset
|
-
Resultant Indian Company can acquire/hold any asset outside India which
they are permitted to acquire under the provisions of the Act, rules or
regulations
- Resultant
Indian Company shall sell such asset /security and extinguish any
liability outside India which is not permitted under the provisions of the
Act within a period of two years from the date of sanction of the
Scheme. The sale proceeds to be repatriated to India immediately.
|
- Resultant Foreign Company may acquire/hold
any asset in India which they are permitted to acquire under the provisions
of the Act, rules or regulations.
-
Resultant Foreign Company shall sell such asset /security and extinguish any Indian
liabilities which are not permitted under the provisions of the Act within
a period of two years from the date of sanction of the Scheme. The sale
proceeds to be repatriated outside India immediately.
|
|
Opening of bank account
|
The
resultant Indian Company may open a bank
account in foreign currency in the overseas jurisdiction for transactions
incidental to the merger for a maximum
period of two years from the date of sanction of the Scheme by NCLT.
|
The
resultant Foreign Company may open a Special
Non-Resident Rupee Account (SNRR Account) in accordance with the Deposit
Regulations, 2016 for transactions incidental to the merger for a maximum period of two years
from the date of sanction of the Scheme by NCLT.
|
Other Conditions-
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Any transaction on account of
cross border mergers undertaken in accordance with these regulations shall be
deemed to have prior approval of RBI.
This will assist in curtailing timelines of cross border merger.
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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.
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All
the entities involved in the cross-border merger are required to comply with any
regulatory action by the Government department on account of non-compliance,
contravention, and violation, of any provision of Act, Rules or Regulations
before going for merger.
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If
RBI prescribes to furnish any reports pursuant to the scheme of merger, the
said reports shall be furnished within due dates.
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Compliance
Certificate from MD / WTD and Company Secretary, if any, to be filed with the
application to the NCLT, ensuring the compliance of this Regulation.
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