Cross-border mergers under the Companies Act, 2013

Until 2014, all matters relating to companies, mergers, acquisitions, etc., were governed by the Companies Act, 1956. The 1956 act only allowed the merger of a foreign company into an Indian company, not vice versa, and its success in facilitating cross-border mergers was limited. The government promised to introduce a comprehensive process for cross-border mergers and consequently section 234 of the Companies Act, 2013, permitted mergers and amalgamations between Indian companies and companies incorporated in jurisdictions notified by the central government, and further provided that a foreign company may, with prior approval of the Reserve Bank of India (RBI), merge into an Indian company or vice versa.

This was perceived as a welcome change. Outbound cross-border mergers were expected to provide an opportunity for Indian companies to effectively restructure their shareholdings by making it easier for them to transfer ownership to a foreign holding.

The unexpected delay in notifying the provisions relating to cross-border mergers under the 2013 act has raised concerns. Academics and expert practitioners have identified a myriad of issues in the cross-border merger provisions under the 2013 act. Some of their key concerns are outlined below.