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CS Professional · Corporate Restructuring, Valuation and Insolvency · Cross Border Mergers

Kaveri Textiles Ltd (India) and a Mauritius company have a merger scheme. The NCLT has sanctioned it, but no approval has been sought from the Reserve Bank of India. A director says RBI can be approached later as a formality. What is the legal position under section 234?

The director is wrong. Section 234(2) requires the prior approval of the Reserve Bank of India for a merger between a foreign company and an Indian company, in either direction. Seeking it after NCLT sanction is not prior approval, and the NCLT order does not substitute for it.

  1. ARBI approval is needed only if consideration is paid wholly in cash
  2. BRBI approval is needed only if the foreign company is the transferee
  3. CThe scheme is valid, since NCLT sanction replaces RBI approval
  4. DSection 234(2) requires the prior approval of RBI, so approval after the event does not satisfy itCorrect

Explanation

Section 234(2) permits a foreign company to merge into an Indian company or vice versa with the prior approval of the Reserve Bank of India. It does not link that approval to the form of consideration or to which company is the transferee. Approval sought after the NCLT order is not prior approval, and NCLT sanction does not replace it.

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