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RBI notifies FEMA regulations for inbound & outbound mergers

By CS Vinita Nair

The Reserve Bank of India (‘RBI’) on April 28, 2017 proposed draft of Foreign Exchange Management (Cross Border Merger) Regulations, 2017[1] which covered regulations in relation to merger, demerger, amalgamation or arrangements between Indian company (ies) and foreign company[2] (ies). These regulations were proposed in relation to section 234 of the Companies Act, 2013 notified by MCA w.e.f. 13th April, 2017, which provides for the merger of a foreign company with a company registered under the Act, 2013 or vice-versa. Rule 25A was inserted in Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 in this regard.

On March 20, 2018[3] RBI has notified the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 effective from the date of publication in Official Gazette i.e. March 20, 2018.

These regulations prescribe the rules to be followed for cross border mergers between an Indian company and foreign company in accordance with the provisions of the in accordance with the Act, 2013. All cross border mergers pending before the competent authority as on the date of the commencement of these regulations shall be governed by these Regulations. A summary of the provisions is discussed in this write-up.

Inbound Mergers:

Meaning and scope of compliance

Inbound mergers are mergers wherein the Resultant Company[4] (RC) is an Indian company.

  • Any issue of security by the RC to a person resident outside India (‘PROI’) shall be in accordance with provisions prescribed in the FEM (TISPRO) Regulations, 2017[5].
    • In that case, if the shareholders of the foreign company are PROI, in that case they would be entitled to receive shares of RC subject to sectoral cap, pricing guidelines, reporting requirements etc. as stated in the aforesaid regulations.
  • An Inbound merger could lead to following possibilities:
  • The foreign company getting merged is a JV/WOS of some Indian Party.
    • In that case the transfer of shares shall be in accordance with ODI Regulations[6] issued by RBI.
  • Such JV/WOS getting merged has Step Down Subsidiaries (SDS) and the inbound merger will result in acquisition of said SDS by the RC.
  • In that case acquisition shall be in accordance with Regulation 6 and 7 of ODI Regulations.
  • Such foreign company will be having an office outside India. In that case, pursuant to Sanction of scheme, it shall be deemed to be branch/ office outside India of the RC.
    • In that case, amounts retained or required to be remitted will be in accordance with FEM (Foreign Currency Account by a person resident in India) Regulations, 2015.
  • Such foreign company must have issued guarantees in favour or availed borrowings from overseas sources which, subsequent to inbound merger, become borrowing of RC.
    • The borrowing shall conform with ECB/ Trade Credit/ other foreign borrowing norms within a period of 2 years, as per;
      • FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000; or
      • FEM (Borrowing or Lending in Rupees) Regulations, 2000; or
      • FEM (Guarantee) Regulations, 2000.
    • No remittance for repayment of such liability will be permitted to be made from India within such period of 2 years.
    • The end-use restrictions as specified in ECB norms shall not apply in this case.

Acquisition of asset/ security outside India

  • The RC may acquire and hold any asset outside India which an Indian company is permitted to acquire.
    • In accordance with FEM (Acquisition and Transfer of Immoveable Property outside India) Regulations, 2015 which permits a company incorporated in India having overseas offices to acquire immoveable property outside India for its business and for residential purposes of its staff, in accordance with RBI directions issued from time to time.
  • Assets and securities outside India which are not permitted to be acquired or held by the resultant company, shall within a period of two years from the date of sanction of the scheme by NCLT be sold by RC, and the sale proceeds shall be repatriated to India immediately through banking channels.
    • Any liability outside India is not permitted to be held by RC may be extinguished from the sale proceeds of such overseas assets within a period of 2 years;

Opening of bank account

  • RC may open bank account in overseas jurisdiction for the purpose of putting through transactions incidental for the purpose of effecting the cross border merger for a maximum period of two years;

Outbound Mergers:

Meaning and scope of compliance

Outbound mergers are mergers wherein the RC is a foreign company.

  • A person resident in India may acquire or hold shares of the RC in accordance with provisions of ODI Regulations;
    • In case of resident individual acquiring shares of RC , the fair market value of such securities shall be within the limits prescribed under the Liberalised Remittance Scheme i.e. USD 250000;
  • An office in India of the Indian company, pursuant to sanction of the Scheme of cross border merger, may be deemed to be a branch office in India of the RC;
    • Accordingly, it will be governed by FEM (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016.
    • RC may undertake transactions as permitted to a branch office.
  • The guarantees or outstanding borrowings of the India company shall be repaid as per the scheme sanctioned by the NCLT;
    • RC can acquire any liability payable towards a lender in India in INR only in confirmation with FEMA Act, rules or regulations, after obtaining NOC from lender in India.

Acquisition of asset/ security outside India

  • RC can acquire, hold and transfer assets in India in accordance with the FEM (Acquisition and transfer of immovable property in India) Regulations, 2018[7];
  • Assets or securities in India which are not permitted to be acquired or held by the RC, shall within a period of 2 years from the date of sanction of the scheme by NCLT be sold by the RC.
    • The sale proceeds shall be repatriated outside India immediately through banking channels.
    • Repayment of Indian liabilities from sale proceeds of such assets or securities within the period of 2 years shall be permissible;

Opening of bank account

  • Opening of a Special Non-Resident Rupee Account (SNRR Account) in accordance with the provisions of the FEMA (Deposit) Regulations, 2016 for the purpose of transactions under these regulations for a maximum period of 2 years from the date of sanctioning of the scheme by NCLT;

Other requirements:

  • Valuation of the Indian and foreign company shall conducted by valuers who are members of a recognised professional body in the jurisdiction of the transferee company and further that such valuation is in accordance with internationally accepted principles on accounting and valuation.
  • Reporting shall be as per prescribed by RBI from time to time.
  • Certificate from MD/WTD and CS of the company (ies) concerned to be furnished along with application made to NCLT.

Deemed approval

Sub-rule (1) of Rule 25A mandates prior approval of RBI for merger of a foreign company with Indian company and vice-versa. Transaction on account of cross border merger undertaken in accordance with these Regulations shall be deemed to have prior approval of RBI.


The Regulations are in line with draft regulations. The transition time has been increased from 180 days to 2 years as compared to draft regulations. While the regular reporting requirements under FEM (TISPRO) Regulations, 2017 and ODI Regulations shall be applicable, one will have to see Master Directions on Reporting under FEMA for any other reporting specific to this Regulations.


[2] means a company or body corporate incorporated outside India whether having a place of business in India or not


[4] means an Indian company or a foreign company which takes over the assets and liabilities of the companies involved in the cross border merger.

[5] Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017.

[6] Foreign Exchange Management(Transfer or issue of any foreign security) Regulations, 2004