Corporate Restructuring, Valuation and Insolvency · Cross Border Mergers

RBI Approval and FEMA Cross Border Merger Regulations

Updated 11 October 2026 · Fact-checked

The FEMA (Cross Border Merger) Regulations, 2018 govern the foreign exchange side of mergers between Indian and foreign companies. An inbound merger leaves an Indian company; an outbound merger leaves a foreign company. A merger done in line with the Regulations is treated as having RBI's approval. Solve questions by identifying direction, then securities, assets, liabilities and reporting.

Understand RBI Approval and FEMA Cross Border Merger Regulations

Company law and foreign exchange law apply together to a cross border merger. Section 234 of the Companies Act, 2013 lets the Chapter on compromises, arrangements and amalgamations apply, with the necessary changes, to schemes between Indian companies and companies in jurisdictions notified by the Central Government. Section 234(2) adds that a foreign company may merge into an Indian company, or the other way round, with the prior approval of the Reserve Bank of India. The scheme may pay the shareholders of the merging company in cash, in Depository Receipts, or partly in each.

The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 supply the FEMA rules for this. They split mergers into two types. In an inbound merger, the foreign company merges into an Indian company and the resultant company is Indian. In an outbound merger, the Indian company merges into a foreign company and the resultant company is foreign. The test is always: where does the surviving company sit?

The key idea is deemed approval. If the merger, including how securities are issued and how assets and liabilities are handled, follows the Regulations, it is treated as having the RBI approval that the Companies (Compromises, Arrangements and Amalgamations) Rules require. You do not need a separate case-by-case approval. If any part falls outside the Regulations, you must go to the RBI for specific permission.

The Regulations then deal with three things. First, securities: who may receive shares of the resultant company, and under which FEMA limits. Second, overseas assets and liabilities of the foreign company, which pass to the Indian resultant company in an inbound merger. Third, Indian assets and liabilities of the Indian company, which pass to the foreign resultant company in an outbound merger. Each comes with a time to align with FEMA, usually two years from the date the Tribunal sanctions the scheme, and with reporting duties.

The company law steps still apply. Section 232 sets out the Tribunal procedure. It also says the Tribunal's order can specify how shares go to a non-resident shareholder holding under the foreign direct investment norms (section 232(3)(f)). Treat FEMA as an extra layer on top of the NCLT process, not a replacement.

Key rules to remember

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.

How to solve RBI Approval and FEMA Cross Border Merger Regulations questions

Use the same structure for any question on RBI approval and the FEMA Regulations. It matches the paper's pattern of provision, analysis of facts, conclusion.

1Identify the direction. Is the foreign company merging into the Indian company (inbound) or the Indian company into the foreign company (outbound)? Say which company is the resultant company.
2State the basic law. Cite section 234 of the Companies Act, 2013 (notified jurisdictions, mutatis mutandis application, prior RBI approval, cash or Depository Receipt consideration) and Rule 25A of the Companies Rules.
3State the deemed approval rule. A merger that complies with the FEMA (Cross Border Merger) Regulations, 2018 is treated as approved by the RBI. Check whether the facts stay within it.
4Test the securities. For inbound, check whether shares issued to non-residents meet the FEMA entry route, sectoral cap and pricing rules. For outbound, check whether resident Indians receiving foreign securities stay within the overseas investment framework.
5Test assets and liabilities. For inbound, deal with overseas assets, borrowings and guarantees of the foreign company and the two-year window. For outbound, deal with Indian assets and liabilities and how the sanctioned scheme treats them.
6Add the company law steps. Mention the Tribunal process under section 232, the valuation report, the auditor's certificate and the Registrar filing of the order.
7Conclude. Say whether deemed approval applies. If any element is outside the Regulations, say specific RBI approval is needed. Add reporting and compliance duties.
8Close with practical points: a board resolution, a scheme clause on FEMA compliance, and a certificate or report to the authorised dealer bank.

Quickest way: Direction, deemed approval, three checks

When to use it: Use this when you have about ten minutes for a short or case-based question and need a complete answer quickly.

Write one line: inbound or outbound, and who survives.
Write one line on section 234 and prior RBI approval, then say that compliance with the 2018 Regulations gives deemed approval.
List three checks: securities issued, assets and liabilities, reporting.
Apply each check to the facts in one or two sentences, using the two-year window where assets or borrowings do not conform.
End with a conclusion: deemed approval holds, or specific RBI approval is needed.

Common mistakes in RBI Approval and FEMA Cross Border Merger Regulations

Mixing up inbound and outbound mergers.
Students think from the point of view of the company that is paying or leaving, not the company that survives.
Fix: Always ask which company survives. Indian survivor means inbound. Foreign survivor means outbound.
Saying RBI approval is always needed case by case.
Students read only section 234(2), which speaks of prior approval, and miss the 2018 Regulations.
Fix: Write both: section 234(2) needs RBI approval, and a merger that follows the Regulations is deemed approved.
Assuming deemed approval covers any foreign merger.
Students take 'deemed' to mean automatic in all cases.
Fix: Deemed approval holds only if every element follows the Regulations and the FEMA rules they refer to. Anything outside needs specific RBI permission.
Ignoring the Companies Act process.
Students treat FEMA as the whole answer to a cross border merger.
Fix: State that Tribunal sanction under section 232 and the Rule 25A conditions still apply. FEMA is an extra layer.
Forgetting what happens to overseas assets and liabilities after an inbound merger.
Students focus on shares and forget that the foreign company's assets and borrowings now belong to an Indian company.
Fix: Mention the time allowed to conform or dispose of assets and liabilities (usually two years from sanction), repatriation of sale proceeds, and the resultant company's compliance duties.
Stating consideration as always shares.
Students carry over the domestic merger idea of a share exchange ratio.
Fix: Section 234(2) allows cash, Depository Receipts, or part cash and part Depository Receipts. Mention shares only where the scheme gives them and FEMA permits.

Worked examples

Example 1

Bharat Polymers Ltd, an Indian company, proposes to absorb its wholly owned subsidiary Pacific Polymers Pte Ltd, incorporated in a jurisdiction notified by the Central Government. Pacific Polymers owns a factory abroad and has a bank loan from an overseas lender. Advise Bharat Polymers on the RBI and FEMA position.

Show the solution

Direction: the foreign company merges into the Indian company, so this is an inbound merger and the resultant company is Bharat Polymers Ltd, an Indian company.
Law: section 234(1) applies the merger Chapter to schemes with companies in notified jurisdictions. Section 234(2) requires prior RBI approval. Rule 25A of the Companies Rules sets the conditions.
Deemed approval: if the scheme follows the FEMA (Cross Border Merger) Regulations, 2018, it is treated as approved by the RBI and no separate approval is needed.
Securities: Pacific Polymers is wholly owned by Bharat Polymers, so no shares need to go to outside shareholders. If the scheme did issue securities to non-residents, the FEMA entry route, sectoral cap and pricing rules would apply.
Assets: Bharat Polymers may acquire and hold the overseas factory. It should bring the holding into line with FEMA, or sell it, within the period allowed by the Regulations, usually two years from the date of Tribunal sanction. Sale proceeds should be repatriated to India through banking channels.
Liabilities: the overseas loan passes to Bharat Polymers. It must be brought into conformity with the FEMA borrowing framework within the same window.
Company law: the scheme goes through the Tribunal under section 232 with a valuation report and an auditor's accounting certificate. A certified copy of the order is filed with the Registrar within thirty days of receipt.

Answer: This is an inbound merger. A scheme that follows the 2018 Regulations has deemed RBI approval. Bharat Polymers must align or dispose of the overseas factory and loan within the allowed window (usually two years from sanction), repatriate sale proceeds, and complete the section 232 Tribunal process and filings.

Example 2

Kaveri Software Ltd, an Indian company, plans to merge into Orion Tech Inc., a company in a notified jurisdiction, with Orion Tech surviving. Resident Indian shareholders of Kaveri will receive shares of Orion Tech. Explain how the FEMA Regulations apply and when specific RBI approval would be needed.

Show the solution

Direction: the Indian company merges into the foreign company, which survives. This is an outbound merger and the resultant company is foreign.
Basic law: section 234 allows the merger with a company in a notified jurisdiction, and section 234(2) requires prior RBI approval. Under the 2018 Regulations, a merger that complies is deemed approved.
Securities: resident Indian shareholders will receive foreign securities. They may do so only within the overseas investment framework of FEMA. If their holding fits it, no extra approval is needed for that part.
Indian assets and liabilities: Kaveri's liabilities in India are to be dealt with as the Tribunal-sanctioned scheme provides. Orion Tech can hold Indian assets only to the extent FEMA permits. Anything it cannot hold must be disposed of or aligned within the period the Regulations allow.
When specific approval is needed: if any part of the scheme falls outside the Regulations, for example a shareholder's holding in Orion Tech beyond what the FEMA overseas investment rules allow, the parties must apply to the RBI for specific approval.
Company law and reporting: the scheme still needs Tribunal sanction under section 232. The companies should also meet the Regulations' reporting duties to the authorised dealer bank.

Answer: This is an outbound merger. If the securities issue, treatment of Indian assets and liabilities and reporting all follow the 2018 Regulations, RBI approval is deemed. Specific RBI approval is needed only for elements outside the Regulations, and the section 232 Tribunal process applies in either case.

Exam tips

Begin every answer by naming the direction (inbound or outbound) and the surviving company. Examiners reward this clarity.
Quote section 234(2) for the prior approval requirement and the consideration options (cash, Depository Receipts, or part of each). Then bring in deemed approval under the 2018 Regulations.
Use the securities, assets, liabilities, reporting structure for case questions. It covers the points a marker looks for.
Do not quote precise limits, forms or dates from memory unless you are sure. Describe the rule in words, such as 'within two years from sanction', and move on.
Link FEMA to the Tribunal process under section 232 and the Rule 25A conditions. Marks often depend on showing that both regimes apply.

Practice questions from Cross Border Mergers

RBI Approval and FEMA Cross Border Merger Regulations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalMerger with Foreign Company (Section 234)

RBI Approval and FEMA Cross Border Merger Regulations: frequently asked questions

What is deemed approval of RBI in a cross border merger?

Under the FEMA (Cross Border Merger) Regulations, 2018, a merger that follows the Regulations is treated as having the RBI approval that the Companies Rules require. You do not need a separate case-by-case approval. If any part falls outside the Regulations, you must seek specific RBI approval.

What is the difference between inbound and outbound cross border mergers?

In an inbound merger, a foreign company merges into an Indian company and the resultant company is Indian. In an outbound merger, an Indian company merges into a foreign company and the resultant company is foreign. The FEMA treatment of securities, assets and liabilities differs for each.

Does section 234 of the Companies Act, 2013 require RBI approval?

Yes. Section 234(2) says a foreign company may merge into an Indian company, or the reverse, with the prior approval of the Reserve Bank of India. The Regulations then provide that a merger which complies with them is deemed to have that approval.

What can the consideration be in a cross border merger?

Section 234(2) says the scheme may provide for payment to the shareholders of the merging company in cash, in Depository Receipts, or partly in cash and partly in Depository Receipts. The terms are set out in the scheme drawn up for the purpose.

Do cross border mergers still need NCLT sanction?

Yes. Section 234(1) applies the merger Chapter, including the Tribunal process, with the necessary changes. The FEMA Regulations are an additional layer for foreign exchange compliance.