Centre amends regulations related to amalgamations under companies law

The government has amended certain rules governing mergers under the companies law and amalgamations involving a foreign holding company and its wholly-owned Indian subsidiary will now require prior RBI approval.

Amendments have been made to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 by the corporate affairs ministry.

The changes are with respect to "transferor foreign company incorporated outside India being a holding company and the transferee Indian company being a wholly-owned subsidiary company incorporated in India" entering into a merger.

In such cases, the ministry on Monday said both the companies shall obtain the prior approval of the Reserve Bank of India (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.