CS Professional · Corporate Restructuring, Valuation and Insolvency

Cross Border Mergers: formula sheet

Full chapter guide

Key formulas

Statutory basis: Section 234, Companies Act, 2013 = Chapter on compromises, arrangements and amalgamations applied mutatis mutandis to Indian and foreign companies; Applies for companies incorporated in jurisdictions notified by the Central Government. The Central Government may make rules in consultation with RBI.
RBI approval: Foreign company merges into Indian company or vice versa → prior approval of RBI needed (Section 234(2)); The approval is subject to any other law in force. It is prior, not after the scheme.
Permitted consideration: Consideration = cash, or Depository Receipts, or partly cash and partly Depository Receipts; Paid to shareholders of the merging company as per the scheme.
Inbound merger: Foreign company (transferor) → Indian company (transferee); resulting company is Indian; Foreign company merges into India.
Outbound merger: Indian company (transferor) → Foreign company (transferee); resulting company is foreign; Indian company merges out of India.
Meaning of foreign company: Any company or body corporate incorporated outside India, whether or not it has a place of business in India; This is the Explanation to Section 234(2).
Scope of sub-section (1): Chapter provisions apply mutatis mutandis to schemes between an Indian company and a company in a notified jurisdiction; The Central Government notifies the countries for this sub-section. Sub-section (2) is a separate provision and does not use the notified-country wording.
Rule-making power: Central Government may make rules in consultation with the RBI; This is the proviso to sub-section (1). It is the basis of Rule 25A.
Approval condition under sub-section (2): Foreign company merges into Indian company, or vice versa, only with prior approval of the RBI, subject to other laws in force; Prior means before the merger is effected. The approval is of the RBI, not of the Central Government.
Permitted consideration: Cash, or Depository Receipts, or partly cash and partly Depository Receipts; This is paid to shareholders of the merging company, as the scheme provides.
Meaning of foreign company: Any company or body corporate incorporated outside India, whether or not it has a place of business in India; A body corporate is included, not only a company.
Direction of merger: Foreign into Indian, or Indian into foreign; Sub-section (2) covers both directions: merge into a company registered under the Act or vice versa.
Voting majority borrowed from section 230(6): Majority of persons representing three-fourths in value of creditors or members voting; This applies because the Chapter applies mutatis mutandis. State it when you describe the procedure.
Statutory base: Section 234(1) and 234(2), Companies Act, 2013 + Rule 25A of the 2016 Rules; Section 234 enables the merger. Rule 25A gives the conditions. Cite both in answers.
Direction of merger: Inbound: foreign company → Indian company | Outbound: Indian company → foreign company; Rule 25A permits both. Always identify the transferor and transferee first.
Jurisdiction test (all three must be met): IOSCO MMoU signatory or SEBI bilateral MoU + central bank is BIS member + not in FATF public statement; These are cumulative conditions. Failing any one makes the jurisdiction ineligible.
RBI approval: Prior approval of RBI before the merger; Section 234(2) and Rule 25A both require it. It is prior, not after the NCLT order.
Valuation condition: Valuers who are members of a recognised professional body in the transferee company's jurisdiction + internationally accepted accounting and valuation principles + declaration with RBI application; The test looks to the transferee company's jurisdiction.
Consideration: Cash, or Depository Receipts, or partly cash and partly Depository Receipts; Section 234(2). The scheme decides which.
Foreign company definition: Any company or body corporate incorporated outside India, whether or not it has a place of business in India; Explanation to Section 234.
Section 234(1): who can merge: Indian company + company in a notified jurisdiction → Chapter on mergers applies mutatis mutandis; The Central Government notifies the jurisdictions. Rule 25A of the Companies Rules sets the conditions.
Section 234(2): RBI approval and consideration: Foreign company ⇄ Indian company merger needs prior RBI approval; consideration = cash, or Depository Receipts, or part cash and part Depository Receipts; The section covers a foreign company merging into an Indian company and vice versa. 'Foreign company' means any body corporate incorporated outside India, whether or not it has a place of business in India.
Inbound merger: Foreign company merges into Indian company → resultant company is Indian; Overseas assets and liabilities of the foreign company come into India. Securities issued to non-residents must follow the FEMA entry routes, sectoral caps and pricing rules.
Outbound merger: Indian company merges into foreign company → resultant company is foreign; Resident Indians receiving securities of the foreign company must stay within the FEMA overseas investment framework. Indian liabilities are dealt with as the sanctioned scheme provides.
Deemed approval: Merger in line with the 2018 Regulations = deemed RBI approval for Rule 25A purposes; Any element outside the Regulations needs specific RBI approval.
Two-year alignment window: Resultant company aligns or disposes of non-conforming assets and liabilities within 2 years from the date of Tribunal sanction; State this as the usual period under the Regulations. In an inbound merger, sale proceeds of overseas assets are brought back to India through banking channels.
Section 232 overlay: Draft scheme, directors' report, valuation report, auditor's accounting certificate, Tribunal order, filing with Registrar within 30 days; Section 232(5) requires a certified copy of the order to be filed with the Registrar within thirty days of receipt.
Section 234(1): scope: Chapter provisions apply mutatis mutandis to mergers between Indian companies and companies in notified jurisdictions; Central Government notifies the countries. Rules are made in consultation with RBI.
Section 234(2): consideration: Cash, or Depository Receipts, or partly cash and partly Depository Receipts; Needs prior RBI approval. The scheme sets the consideration. It is payable to shareholders of the merging company.
Section 247(1): who values: Registered valuer, member of a recognised organisation, appointed by audit committee or Board; Board appoints only if there is no audit committee.
Section 247(2)(d): independence: No valuation of assets in which valuer has a direct or indirect interest, or becomes so interested at any time, during 3 years before appointment or 3 years after the valuation; Covers direct or indirect interest in the assets valued. Both the pre-appointment and post-valuation windows count.
Section 247(3): penalty: Fine ₹25,000 to ₹1,00,000; if intent to defraud, up to 1 year imprisonment and fine ₹1,00,000 to ₹5,00,000; On conviction, valuer must refund remuneration and pay damages (section 247(4)).
Section 41 and section 390: GDR: special resolution, issued abroad. IDR: issued in India by a foreign company under Central Government rules; Section 391 applies sections 34 to 36 to IDR issues.
Section 234(1): scope: Merger Chapter applies mutatis mutandis to schemes between Indian companies and companies in countries notified by the Central Government; Only notified jurisdictions qualify. Rules are made in consultation with the RBI.
Section 234(2): foreign company merger: Foreign company may merge into an Indian company, or vice versa, with prior RBI approval; Consideration may be cash, Depository Receipts, or partly each. Subject to any other law in force.
Meaning of foreign company (Explanation): Any company or body corporate incorporated outside India, whether or not it has a place of business in India; Wider than the usual meaning of foreign company under the Act.
Section 390: IDRs: Central Government may make rules on IDR offer, prospectus disclosures, depository mode and transfer; Applies to a company incorporated outside India, whether or not it has a place of business in India.
Section 376: foreign company winding up: A body corporate incorporated outside India that has ceased business in India may be wound up as an unregistered company, even if dissolved abroad; Part of the winding-up provisions, not a merger rule.

Quick revision

Section 234 deals with mergers and amalgamations between an Indian company and a foreign company.
Section 234(1) applies the Chapter mutatis mutandis to companies in jurisdictions notified by the Central Government.
Under the proviso to Section 234(1), the Central Government may make rules in consultation with the Reserve Bank of India.
Under Section 234(2), subject to any other law, a foreign company may merge into an Indian company, or the reverse, with prior RBI approval.
The scheme may provide, among other things, for consideration in cash, in Depository Receipts, or partly in each.
Foreign company means any body corporate incorporated outside India, whether or not it has a place of business in India.
Section 232 supplies the procedure: Tribunal-ordered meetings and circulation of the draft scheme, directors' report and valuation report.
The scheme must state an appointed date and is effective from that date.
The auditor must certify that the accounting treatment follows the accounting standards under Section 133.
A certified copy of the Tribunal order must be filed with the Registrar within thirty days of receipt.
The transferor company can be dissolved without winding up under Section 232(3)(d).
Always write answers as provision, analysis, conclusion.

Common mistakes

Confusing inbound and outbound mergers. Fix: Look at the resulting company. Indian survivor is inbound. Foreign survivor is outbound.
Saying RBI approval is taken after the Tribunal sanctions the scheme. Fix: Section 234(2) requires prior approval of RBI. Write 'prior' explicitly.
Writing that the Central Government gives prior approval for the merger under section 234(2). Fix: Remember the split: the Central Government notifies countries and makes rules, in consultation with the RBI. The RBI gives the prior approval.
Saying a foreign company can only merge into an Indian company. Fix: Sub-section (2) says merge into a company registered under the Act or vice versa. Both directions are allowed.
Treating the three jurisdiction conditions as alternatives. Fix: Remember they are cumulative. The jurisdiction must meet the securities regulator test, the central bank test and the FATF test together.
Saying RBI approval is taken after the NCLT sanctions the scheme. Fix: Section 234(2) says prior approval of RBI. Write that the approval is a precondition and the declaration on valuation goes with the RBI application.
Mixing up inbound and outbound mergers. Fix: Always ask which company survives. Indian survivor means inbound. Foreign survivor means outbound.
Saying RBI approval is always needed case by case. Fix: Write both: section 234(2) needs RBI approval, and a merger that follows the Regulations is deemed approved.
Saying any foreign company can merge with an Indian company under section 234. Fix: Always state that the foreign company must be in a country notified by the Central Government.
Forgetting RBI's prior approval for the merger. Fix: Write that section 234(2) requires prior approval of RBI.

Exam tips

Begin every answer with the definition and Section 234. Examiners reward the legal anchor first.
Draw a small two-line distinction of inbound and outbound in answers on types. Always say which company survives.
In case-based questions, name the type, then the approvals, then the practical risks. Follow provision, analysis, conclusion.
Always write 'prior approval of RBI' and 'notified jurisdictions'. These are the exact conditions of the rule.
For benefits and challenges, give four to five points each and link them to the facts in the question.
Write the RBI as the approving authority in sub-section (2), and the Central Government as the notifying and rule-making authority. Examiners watch for this.
Quote the three forms of consideration exactly: cash, Depository Receipts, or partly cash and partly Depository Receipts.
In case questions, check the direction, the foreign company and the RBI's prior approval under sub-section (2). Note whether the country is notified under sub-section (1), but do not treat that as a bar to sub-section (2). Then conclude.