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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Instruments, Laws and Procedures

An Indian company and a foreign company plan a cross-border merger in which the foreign company merges into the Indian company and its shareholders get Depository Receipts as part of the consideration. Which statement is correct under section 234 of the Companies Act, 2013?

The merger is permitted with the prior approval of the Reserve Bank of India, and the scheme may pay shareholders in cash, in Depository Receipts, or partly in each. Section 234(2) of the Companies Act, 2013 says so, and a place of business in India is not required.

  1. AThe foreign company may merge with the prior approval of the Reserve Bank of India, and consideration may be cash, Depository Receipts, or partly eachCorrect
  2. BConsideration must be wholly in cash, as Depository Receipts are not permitted
  3. CPrior approval of SEBI alone is required and no RBI approval is needed
  4. DMerger is allowed only if the foreign company has a place of business in India

Explanation

Section 234(2) allows a foreign company, subject to other laws and with prior RBI approval, to merge into an Indian company or vice versa. The scheme may provide for payment in cash, in Depository Receipts, or partly in each. The explanation defines foreign company regardless of whether it has a place of business in India.

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