The government has amended certain rules under the companies law concerning mergers, making it mandatory for amalgamations between a foreign holding company and its wholly-owned Indian subsidiary to secure prior approval from the Reserve Bank of India.
The Ministry of Corporate Affairs has introduced these amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
The updated rules specifically address mergers involving a foreign transferor company, incorporated outside India, and its wholly-owned subsidiary, the transferee company, incorporated in India. Such transactions will now require RBI clearance before proceeding.
In such cases, the ministry on Monday said both the companies shall obtain the prior approval of the RBI and the transferee Indian company should also comply with the provisions of Section 233 under the Companies Act. Broadly, Section 233 pertains to mergers and amalgamations of certain companies.
Sandeep Jhunjhunwala, Partner at Nangia Andersen LLP, said the trend of reverse flipping has been the norm for many new-age startups in recent times and the resilience and growth of the country's IPO market provide investors with a viable exit strategy for realising returns.
In this backdrop, he said the ministry has introduced a new sub-rule whereby both the foreign transferor holding company and its wholly-owned Indian subsidiary would have to now obtain a prior RBI approval in cases of merger or amalgamation.
"In parallel, the Indian transferee company is also required to file an application with the Central Government under the existing provisions of Section 233 of the Companies Act 2013 and Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 for seeking approval on such India inbound mergers," he added.
(With inputs from PTI)
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