(All the reference links are attached and are highlighted with blue ink)

Procedure for an inbound merger or for

acquiring a foreign company

Transfer of securities
The issue or transfer of security should be made in accordance with
the Foreign Exchange Management Act regulations such as pricing guidelines,
entry route, and sectoral caps. Some specified conditions in case of special
circumstances include, where the foreign company is a joint venture or
wholly or subsidiary owned, the provision contained in Foreign Exchange
Management regulations incorporated in the year 2004, should be followed
for the transfer and issue of securities.

Borrowings
In the case of borrowing by a foreign company from an Indian company, the
Indian company becomes liable. Any borrowing if done overseas, that is
borrowing from an Indian company, entering into the books of the resultant
company shall conform to external commercial borrowing norms within a
period of two years.

Assets
The Indian company can acquire the assets of a foreign company under
the regulations as specified under FEMA.

Sale of assets
Where the assets are not permitted to be sold, it shall be sold within a
period of two years from the date of sanction of the scheme. The sale should
proceed immediately.
Office
An office that is situated outside India, after being acquired, is to be treated
as a branch of the acquiring company i.e., the resultant company may
undertake any transaction of that branch under the 2015 regulation of FEMA.

Bank account in the country of the transferor

entity
The resultant company is permitted to open a bank account in a foreign
country for their transaction.

 Valuation: The valuation of an Indian company with a foreign

company should be in accordance with Rule 25A of Companies
Act which provides for accounting standards accepted
internationally.
 Deemed approval: Prior approval of RBI is necessary according
to subsection (2) of 234 which states that foreign companies with
the approval of RBI may merge with the Indian company. This is
unusual and should be left to the person managing the FEMA Act.
For Approval by the Reserve bank, the application has to be sent to the
following address:

The Chief General Manager,

Reserve Bank of India,

Foreign Exchange Department,

Overseas investment Division,

Sir P.m Road Floor,

Mumbai- 400001

A letter from an Authorised Dealer of IP should mention the following details:

Transaction number generated by the overseas investment division.

Brief details about Indian entity and foreign entity.

 Background and details about the transaction.

Reason for seeking approval under FEMA regulation.

Observation of the designated Authorised Dealer Bank with respect to the
following:

Prima facie validity of joint venture/ wholly owned subsidiary outside

India.

Contribution to external trade and other benefits which will accrue

to India.

Financial position and intellectual property record of an entity, etc.

Rules applicable under the provisions of

Companies Act 2013

General provision of Companies Act 2013

Section 230(2) of the Companies Act 2013 states that when an Indian
company wants to acquire a foreign company, the application has to give to
the tribunal and the application should also be given to call for the members
and creditors of the company for their consent. The company should also
disclose the corporate debt structuring to the tribunal.

Notice to the regulator and the role of Competition Commission

of India
Notice to the regulator and other authorities, which are being affected by the
merger or acquisition should be given to the Competition Commission of
India. They should revert back within 30 days of such notice. There are some
rules which are not expressed in the Companies Act 2013 such as sectoral
regulation. So, due notice should be given to the Competition Commission of
India.

As far as notice is concerned, the provision of the Competition Act

2002 provides for mandatory merger and acquisition under Regulation 2011
(merger control regulations). This regulation provides for mandatory
approval of the Competition Commission of India.
Even High Courts are taking steps with regards to the approval of a merger
from the Competition Commission of India, Once the Competition
Commission of India does not object or make any representation in front of
the tribunal within 30 days, then the tribunal may assume that the
Competition Commission of India does not have any objection.

Provision of Section 234 of Companies Act 2013: Progressive or

Regressive
The Companies Act 1956 restricted cross border merger. This policy was
restricted for the protection of Indian companies only. The Indian
government is moving towards an ‘Open Door Policy’. Such a policy is an
inbound foreign investment with relaxation on capital account transactions.

It should also be appreciated that such a restrictive protectionist condition is

not present in many advanced jurisdictions like USA and UK. Otherwise, the
year 2003 amalgamation of Veracity Technology Inc. with MosChip
semiconductor technologies ltd. would not have been possible. The
introduction of Section 234 is a welcoming step.

Central government forming rules in consultation with the RBI: Sub-

section(1) 234 of Companies Act 2013 states that the Central Government
may make rules in consultation with the RBI in relation to merger and
Acquisition.

Depository receipt as payment of consideration to the shareholders

of the merging Company: One radical feature of sub-section(2) of 234 of
the Companies Act provides for payment of depository receipts to the
shareholders of the merging company. But depository receipts has major
issues. If the Indian Depository Receipt has to be made as attractive as the
American Depository Receipt and Global Depository Receipts, then effective
and simpler policies should be made.