|Karan Talwar||Noorul Hassan|
More importantly, section 234 of the new Act now allows both inbound and outbound mergers and amalgamations with foreign companies as opposed to the earlier law, which specifically disallowed a foreign company from being a transferee company. The term foreign company has been defined as any company or 'body corporate' incorporated outside India, whether or not it has a place of business in India. However, only foreign companies established in jurisdictions yet to be notified by the government shall be allowed to merge with Indian companies.
Further, these mergers will require prior approval of the Reserve Bank of India (RBI). Also, the scheme of such mergers can now provide for payment of consideration to the shareholders of the merging company partly or fully in depository receipts. The central government is yet to notify detailed rules governing such mergers.
The cross-border merger will also have to be compliant with a myriad of other laws, such as the Foreign Exchange Management Act 1999, Income Tax Act 1961, Competition Act 2002, and SEBI regulations for listed companies, all of which will require consequential amendments for the practical implementation of the new law. Such transactions will also be subject to any applicable law of the foreign jurisdiction.
Only time will tell how harmony between all these laws and their requirements will be ensured. However, since the new law has simplified the M&A process, it is expected to aid market trends touting India as a favoured investment destination and outbound investment by Indian investors.
Karan Talwar and Noorul Hassan