Corporate Restructuring, Valuation and Insolvency · Cross Border Mergers

Companies (Compromises, Arrangements and Amalgamations) Rules: Rule 25A Explained

Updated 11 October 2026 · Fact-checked

Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 lets an Indian company merge with a foreign company, inbound or outbound, under Section 234. The foreign company must be from a permitted jurisdiction, RBI must approve beforehand, and the transferee company's valuation must follow internationally accepted principles by valuers from a recognised professional body.

Understand Companies (Compromises, Arrangements and Amalgamations) Rules: Rule 25A

Section 234 of the Companies Act, 2013 is the enabling provision. It says that the merger and amalgamation provisions of the Chapter apply to schemes between Indian companies and companies incorporated in jurisdictions notified by the Central Government. It also says a foreign company may, with the prior approval of the Reserve Bank of India, merge into an Indian company or the other way round. The section does not give the detail. The detail is in Rule 25A.

Two directions matter. In an inbound merger, the foreign company is the transferor and merges into an Indian company. In an outbound merger, the Indian company is the transferor and merges into a foreign company. Rule 25A covers both with the phrase "merge with an Indian company or vice versa".

Rule 25A works as a layer on top of the normal NCLT process. The scheme still goes through Sections 230 to 232: Tribunal application, meetings as directed, circulation of documents, auditor's certificate and sanction. On top of that, Rule 25A adds three gates: the foreign company's jurisdiction must qualify, RBI must approve in advance, and the valuation must meet a standard.

On jurisdiction, the rule sets objective tests instead of naming countries. The foreign company must be incorporated in a jurisdiction (a) whose securities market regulator is a signatory to the IOSCO Multilateral MoU or has a bilateral MoU with SEBI, (b) whose central bank is a member of the Bank for International Settlements, and (c) which is not named in the FATF public statement as a jurisdiction with strategic anti-money-laundering or counter-terror-financing deficiencies, whether subject to counter-measures or not making sufficient progress. Learn this as three tests: securities regulator, central bank, FATF.

On valuation, the transferee company must ensure the valuation is done by valuers who are members of a recognised professional body in the jurisdiction of the transferee company, and in line with internationally accepted principles of accounting and valuation. A declaration to this effect goes with the application to RBI. Under Section 234(2), the consideration to the shareholders of the merging company can be cash, Depository Receipts, or partly each, as the scheme provides. Foreign exchange aspects of the merger are also governed by FEMA and the regulations made under it.

Key rules to remember

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.

How to solve Companies (Compromises, Arrangements and Amalgamations) Rules: Rule 25A questions

Use this order for any Rule 25A question, whether it asks for procedure, eligibility or advice on a given set of facts.

1Identify the direction. Say whether the merger is inbound or outbound and name the transferor and transferee company.
2State the legal base: Section 234 of the Companies Act, 2013 read with Rule 25A, with the usual Sections 230 to 232 procedure applying.
3Test the foreign jurisdiction against all three conditions: IOSCO MMoU or SEBI MoU, BIS membership of the central bank, and absence from the FATF public statement. Say which are met and which are not.
4If the jurisdiction qualifies, state that prior RBI approval is needed and that FEMA rules apply to the transaction and the consideration.
5Deal with valuation: valuers from a recognised professional body in the transferee company's jurisdiction, internationally accepted principles, and a declaration filed with the RBI application.
6Add the NCLT steps: application, meetings as directed, circulation of the Section 232(2) documents, auditor's accounting certificate, sanction order, and filing of the certified order with the Registrar within thirty days.
7Cover the consideration: cash, Depository Receipts or both, as the scheme provides.
8Conclude clearly: the merger is permissible or not, and the next action the company should take.

Quickest way: Three gates and then the NCLT process

When to use it: Use this when the question is a short fact pattern asking whether a cross border merger is allowed or what must be done.

Write the direction in one line: inbound or outbound.
Run the three gates: jurisdiction (three tests), prior RBI approval, valuation standard.
If any gate fails, conclude that the merger cannot proceed under Rule 25A. Stop there.
If all pass, add one line: normal Sections 230 to 232 procedure before the NCLT, consideration in cash, DRs or both, and file the certified order with the Registrar within thirty days.

Common mistakes in Companies (Compromises, Arrangements and Amalgamations) Rules: Rule 25A

Treating the three jurisdiction conditions as alternatives.
The list looks like a menu of options, so students think one is enough.
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.
Students think the Tribunal order is the last approval in any merger.
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.
Saying Rule 25A replaces Sections 230 to 232.
The word 'cross border' suggests a separate procedure.
Fix: Section 234(1) applies the Chapter mutatis mutandis. Rule 25A adds conditions on top of the normal NCLT process.
Mixing up inbound and outbound, or the transferor and transferee.
Students memorise the labels without tying them to the direction of transfer.
Fix: Inbound means the foreign company comes into India as transferor. Outbound means the Indian company goes out as transferor. Draw a one-line arrow before answering.
Naming specific countries as 'permitted' or 'prohibited' without basis.
Students expect a fixed list in the rule.
Fix: Rule 25A works by tests, not a country list. Apply the three tests to the facts given in the question.
Forgetting the valuation declaration and the valuer's qualification.
Students focus only on RBI and jurisdiction.
Fix: Always add a line on valuers from a recognised professional body in the transferee company's jurisdiction, internationally accepted principles, and the declaration with the RBI application.

Worked examples

Example 1

Sunrise Textiles Ltd, an Indian company, plans to merge into Harbor Mills Inc., incorporated in Country P. Country P's securities regulator is a signatory to the IOSCO Multilateral MoU and its central bank is a BIS member, but Country P appears in the FATF public statement as a jurisdiction with strategic deficiencies to which counter-measures apply. Can the merger go ahead under Rule 25A?

Show the solution

Direction: Sunrise (Indian) is the transferor and Harbor Mills (foreign) is the transferee. This is an outbound merger.
Base: Section 234 of the Companies Act, 2013 read with Rule 25A allows such a merger only if the foreign company is from a qualifying jurisdiction.
Test 1: the securities regulator is an IOSCO MMoU signatory. Met.
Test 2: the central bank is a BIS member. Met.
Test 3: the jurisdiction must not be in the FATF public statement. Country P is named for strategic deficiencies. Not met.
The tests are cumulative, so failing one is enough to disqualify the jurisdiction.

Answer: The merger cannot proceed under Rule 25A because Country P fails the FATF condition, even though it meets the other two. The question of RBI approval and valuation does not arise until a qualifying jurisdiction is used.

Example 2

Meridian Pharma Pvt. Ltd., an Indian company, wants to absorb Zenith Labs Ltd., incorporated in Country Q, which satisfies all three jurisdiction tests. Explain the procedure and conditions under Rule 25A.

Show the solution

Direction: Zenith (foreign) merges into Meridian (Indian). This is an inbound merger. Zenith is the transferor and Meridian the transferee.
Eligibility: Country Q meets the IOSCO or SEBI MoU test, the BIS central bank test and the FATF test, so Rule 25A is available.
RBI: obtain the prior approval of the Reserve Bank of India under Section 234(2), keeping FEMA requirements in view.
Valuation: Meridian, as transferee, must ensure valuation by valuers who are members of a recognised professional body in the transferee company's jurisdiction, following internationally accepted principles of accounting and valuation. A declaration to that effect is attached to the RBI application.
NCLT process: apply under Sections 230 to 232. The Tribunal orders meetings. The companies circulate the draft scheme, confirmation of filing with the Registrar, directors' report explaining the share exchange ratio and effect on each class, the valuation expert's report, and a supplementary accounting statement if the last accounts are more than six months old before the first meeting.
The auditor's certificate that the accounting treatment follows the standards under Section 133 must be filed with the Tribunal before sanction.
Consideration: the scheme may provide payment to Zenith's shareholders in cash, in Depository Receipts, or partly in each.
After sanction: file the certified copy of the order with the Registrar within thirty days of receipt.

Answer: This is a permitted inbound merger if RBI gives prior approval and the valuation conditions are met. Then the Sections 230 to 232 procedure is followed, consideration may be cash or Depository Receipts or both, and the certified order is filed with the Registrar within thirty days.

Exam tips

Start every answer with the direction (inbound or outbound) and the legal base: Section 234 read with Rule 25A. Examiners reward this framing.
In fact-based questions, check the jurisdiction facts line by line against the three tests. The case usually plants one failing fact.
Do not forget the RBI step and the valuation declaration. These are the two practical points markers look for.
Close with a clear conclusion and the next compliance action, such as the filing of the certified order within thirty days, instead of ending on the law.

Practice questions from Cross Border Mergers

Companies (Compromises, Arrangements and Amalgamations) Rules: Rule 25A: frequently asked questions

What does Rule 25A deal with?

Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 sets out conditions for mergers between Indian companies and foreign companies. It works with Section 234 of the Companies Act, 2013 and covers jurisdiction, RBI approval and valuation.

What is the difference between an inbound and an outbound merger?

In an inbound merger, a foreign company merges into an Indian company. In an outbound merger, an Indian company merges into a foreign company. Rule 25A permits both, subject to its conditions.

Is RBI approval needed for a cross border merger?

Yes. Section 234(2) requires the prior approval of the Reserve Bank of India for a foreign company to merge into an Indian company or the other way round. FEMA provisions also apply to the transaction.

Can shareholders of the merging company be paid in cash?

Yes. Section 234(2) allows the scheme to provide consideration in cash, in Depository Receipts, or partly in cash and partly in Depository Receipts.

Do the normal NCLT steps still apply?

Yes. Section 234(1) applies the provisions of the Chapter mutatis mutandis, so the Sections 230 to 232 process of Tribunal meetings, circulation of documents and sanction still applies, along with the extra Rule 25A conditions.