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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Alpha Ltd, an Indian company, proposes to merge with a foreign company incorporated outside India. Under the Companies Act, 2013, which statement about such a merger of a foreign company into an Indian company is correct?

Under Section 234(2), a foreign company may merge into an Indian company, or vice versa, with the prior approval of the Reserve Bank of India. The scheme may pay shareholders of the merging company in cash, Depository Receipts, or partly in each.

  1. AIt needs the prior approval of the Reserve Bank of India, and consideration may be paid in cash, in Depository Receipts, or partly in eachCorrect
  2. BIt needs only the approval of the Tribunal, and consideration must be paid wholly in equity shares of the Indian company
  3. CIt needs no approval, because a foreign company cannot merge with an Indian company
  4. DIt needs the approval of SEBI alone, and consideration must be paid wholly in cash

Explanation

Section 234(2) allows a foreign company, subject to other laws and with the prior approval of the Reserve Bank of India, to merge into a company registered under the Act or vice versa. The scheme may provide for payment in cash, in Depository Receipts, or partly in cash and partly in Depository Receipts. The options requiring only Tribunal or SEBI approval, or equity-only or cash-only consideration, misstate this.

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