Corporate Restructuring, Valuation and Insolvency · Cross Border Mergers

Valuation, Consideration and Tax Aspects of Cross Border Mergers

Updated 11 October 2026 · Fact-checked

A cross border merger under section 234 involves an Indian company and a foreign company. Valuation is done by a registered valuer under section 247. Shareholders of the merging company may be paid in cash, Depository Receipts, or partly both. RBI's prior approval is needed. Tax neutrality depends on the tax law's conditions.

Understand Valuation, Consideration and Tax Aspects of Cross Border Mergers

A cross border merger is a merger where one company is registered under the Companies Act, 2013 and the other is incorporated outside India. Section 234 allows this in two directions: a foreign company merging into an Indian company, or the reverse. The Chapter on compromises and arrangements applies mutatis mutandis, but only for companies in jurisdictions notified by the Central Government.

For valuation, you must know section 247. Where the Act requires a valuation of property, stocks, shares, debentures, securities, goodwill, other assets, net worth or liabilities, it must be done by a registered valuer who is a member of a recognised organisation. The audit committee of that company appoints the valuer, or the Board if there is no audit committee. The valuer must be impartial, exercise due diligence and follow the prescribed rules. The valuer cannot value assets in which he has a direct or indirect interest, or becomes so interested at any time, during the three years before his appointment or the three years after the valuation. Section 247 covers valuations required under the Act for the Indian company. For the foreign company's shares, the cross-border merger rules and FEMA valuation norms also apply. The valuation report is the base for the share exchange ratio and for the consideration.

Consideration is the price paid to shareholders of the merging company. Section 234(2) says the scheme may provide for payment in cash, in Depository Receipts, or partly in cash and partly in Depository Receipts. Prior approval of the Reserve Bank of India is required. A foreign company here means any body corporate incorporated outside India, whether or not it has a place of business in India.

Depository Receipts link to two other sections. Section 41 lets an Indian company issue depository receipts in a foreign country after a special resolution in general meeting, in the prescribed manner. Section 390 lets the Central Government make rules for Indian Depository Receipts (IDRs) issued by a company incorporated outside India. Section 391 applies sections 34 to 36 (misstatement in prospectus and related provisions) to IDR issues by a foreign company.

Tax is not covered in the supplied text of the Act, so learn it from the tax law taught in your study material. In general, a merger can be tax neutral if the prescribed conditions are met, so that the transfer of capital assets is not taxed in the hands of the merging company and shareholders are not taxed on the exchange of shares. Always check which direction the merger goes, whether the resulting company is Indian, and what the tax law says on foreign amalgamating companies. Do not assume neutrality without conditions.

Key rules to remember

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.

How to solve Valuation, Consideration and Tax Aspects of Cross Border Mergers questions

Use this method for any case question on valuation, consideration or tax in a cross border merger.

1Identify the direction: foreign company into Indian company, or Indian into foreign.
2Check section 234(1): is the foreign jurisdiction notified by the Central Government? Note the RBI approval under section 234(2).
3Name the valuation requirement: registered valuer under section 247, appointed by the audit committee or the Board, and confirm independence.
4Link the valuation report to the share exchange ratio and the consideration payable.
5State the permitted consideration: cash, Depository Receipts, or a mix. Mention GDR (section 41) or IDR (section 390) if relevant.
6Add the tax position: whether the conditions for tax neutrality are met, and other tax implications, using your tax study material.
7Conclude clearly: whether the scheme is valid and what compliance steps remain.

Quickest way: Four-point checklist

When to use it: Use when time is short and the question is a short case or a short note.

Notified country plus RBI approval.
Registered valuer, independent, appointed by audit committee or Board.
Consideration: cash, DRs, or both.
Tax: neutrality only if conditions are met; state it as conditional.

Common mistakes in Valuation, Consideration and Tax Aspects of Cross Border Mergers

Saying any foreign company can merge with an Indian company under section 234.
Students overlook the notified jurisdictions condition.
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.
Students focus on the Tribunal and the Companies Act only.
Fix: Write that section 234(2) requires prior approval of RBI.
Allowing shares as the only consideration.
Domestic mergers use share swaps, so students carry that habit over.
Fix: Quote section 234(2): cash, Depository Receipts, or partly both.
Stating that the company's auditor values the shares.
Confusion between audit and valuation roles.
Fix: Say a registered valuer under section 247 does it.
Confusing GDR with IDR.
Both are depository receipts.
Fix: GDR is issued by an Indian company abroad (section 41). IDR is issued in India by a foreign company (section 390).
Claiming tax neutrality without conditions.
Students memorise the headline only.
Fix: Say neutrality applies only when the conditions of the tax law are satisfied.

Worked examples

Example 1

Zenith Tech Ltd, an Indian company, plans to merge into its parent in a notified foreign country. The shareholders of Zenith are to get cash for part and Depository Receipts of the parent for the rest. Advise on the legality of the consideration and approval required.

Show the solution

Section 234(2) permits a foreign company to merge into an Indian company, and vice versa, subject to the provisions of any other law in force. So an Indian company merging into its foreign parent is permitted.
Consideration to shareholders of the merging company (Zenith) may be cash, Depository Receipts, or partly both, as the scheme provides.
A mixed consideration is therefore permitted.
Prior approval of the Reserve Bank of India is required. Also, Zenith's shareholders are Indian residents who will receive Depository Receipts of a foreign company. That issue is subject to RBI approval and the FEMA rules, which fall under 'other law'.
The country must be notified by the Central Government under section 234(1).

Answer: The mixed consideration is permitted, provided the foreign country is notified, RBI gives prior approval, and the issue of the foreign parent's Depository Receipts to Indian resident shareholders complies with FEMA.

Example 2

Aarav Pharma Ltd, an Indian company with an audit committee, is to merge with a foreign company. Its Board wants to appoint CA Rohan, a registered valuer, to value Aarav's own shares for the exchange ratio. Two years ago Rohan advised Aarav on a bank loan. Is this appointment valid?

Show the solution

Section 247(1): the valuer must be a registered valuer, appointed by the audit committee, or by the Board only if there is no audit committee. This covers the valuation of Aarav's own shares. The foreign company's valuation is governed by the cross-border merger rules and FEMA valuation norms, not by this appointment.
Aarav has an audit committee, so the audit committee, not the Board, should appoint the valuer.
Section 247(2)(d): the valuer cannot value assets in which he has a direct or indirect interest, or becomes so interested at any time, during the three years before his appointment or the three years after the valuation.
The loan advice was two years ago, so it falls within the three-year window before appointment. But advising on a loan is not automatically a direct or indirect interest in Aarav's shares.
Test the facts: did that engagement give Rohan any direct or indirect interest in the shares being valued? If yes, he is barred. If no, the loan advice alone does not bar him. The same test applies for three years after the valuation.
If he values despite such an interest, section 247(3) penalties apply: fine of ₹25,000 to ₹1,00,000, and for intent to defraud, imprisonment up to one year with fine of ₹1,00,000 to ₹5,00,000.

Answer: The Board cannot make the appointment because Aarav has an audit committee. The audit committee must appoint. Rohan is barred only if his loan engagement gave him a direct or indirect interest in the shares being valued. The advisory role alone does not bar him.

Exam tips

Quote section 234(2) wording for consideration. Examiners look for 'cash, Depository Receipts, or partly both'.
Write the valuer's independence rule with the three-year window.
In tax answers, state conditions for neutrality, not just the outcome.
Use the case format: provision, facts, conclusion.
Mention RBI approval in every answer on this topic.

Practice questions from Cross Border Mergers

Valuation, Consideration and Tax Aspects of Cross Border Mergers in other exams

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

Valuation, Consideration and Tax Aspects of Cross Border Mergers: frequently asked questions

Who values the companies in a cross border merger?

A registered valuer under section 247 does the valuation. The audit committee appoints the valuer, or the Board if there is no audit committee. The valuer must be impartial and independent.

Can shareholders be paid in cash in a cross border merger?

Yes. Section 234(2) allows cash, Depository Receipts, or partly cash and partly Depository Receipts. The scheme sets the terms, and RBI's prior approval is needed.

What is the difference between GDR and IDR?

A GDR is issued by an Indian company in a foreign country after a special resolution under section 41. An IDR is issued in India by a company incorporated outside India under rules made under section 390.

Are cross border mergers always tax neutral?

No. Tax neutrality applies only when the conditions in the tax law are met. Study the conditions in your tax material and state them in the answer.