Corporate affairs ministry consulting with RBI on cross border mergers
While the Companies Act of 2013 provides for a cross-border merger between an Indian and a foreign firm, the rules have yet to be finalized, says ministry official
New Delhi: The ministry of corporate affairs (MCA) is holding consultations with the Reserve Bank of India (RBI) to finalise the rules for cross border mergers.
“Rules are to be finalized and we have to consult RBI. So that consultation process is on. Once that is completed, we’ll be able to move forward on that," said a ministry official, declining to be identified.
Under the Companies Act 2013, Section 234 provides for mergers between an Indian and a foreign company. The central government is authorized to make rules for it after consultations with the RBI and other concerned ministries. This provision has not been notified by the government yet.
The provision allows mergers between companies registered under Indian laws and those from other jurisdictions.
At the time the Act was passed, there was considerable doubt about the workability of the provisions on cross border mergers. As the National Company Law Tribunal (NCLT) was to be the sole authority for all schemes of restructuring, questions were raised about when the tribunal would be set up.
A February 2014 white paper by EY and Assocham—“Mergers and acquisitions in the new era of Companies Act, 2013"—said that “there is no clarity on the time that will be taken for the NCLT to be constituted and become operational. Practical difficulties are expected in implementation of provisions relating to restructuring till the MCA provides clarity on these issues."
The government established the NCLT in June this year and it has been functioning since July.
The government recently also notified the provisions of the law which allowed restructuring and winding up of companies to be now dealt with by the NCLT. Cross border mergers will depend on the rules that the government is currently in consulting on.
The EY report also said these provisions marked a changed from the earlier law, where only inbound foreign mergers were only allowed. “The 2013 Act proposes to allow both—inbound and outbound cross-border mergers between Indian companies and foreign ones. It provides for the merger of an Indian company into a foreign one, whether its place of business is in India or in certified jurisdictions (to be notified by the Central Government from time to time), subject to the NCLT’s and RBI’s approval," according to the report.
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