Authored By: Saya Krishnan
Sastra Deemed University
Introduction
Mergers and acquisitions (M&A) play a crucial role in shaping the corporate landscape worldwide. With globalization, businesses increasingly seek to merge across borders toexpand their market reach, optimize resources, and enhance competitiveness. India, beingoneof the fastest-growing economies, has gradually opened up to the idea of cross-border mergers, but the legal framework surrounding it remains complex. This article examines theevolution of Indian law on cross-border mergers, compares it with international practices, andhighlights landmark cases to shed light on the challenges and opportunities in this field.
Historical Context and Evolution of the Law
The regulation of mergers in India can be traced back to the Companies Act, 1956, whichdealt with mergers largely from the domestic perspective. Cross-border mergers were not explicitly recognized, thereby creating uncertainty for foreign companies intending tomergewith Indian entities. Recognizing the increasing global integration of Indian businesses, theCompanies Act, 2013 was enacted, which specifically provided a framework for cross- border mergers under Section 234.
This marked a turning point, as it not only legalized such transactions but also alignedIndiawith global practices by allowing mergers of Indian companies with foreign companies incorporated in jurisdictions notified by the Central Government. The Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, later amended in2017, further clarified the process and laid down regulatory approvals required, particularlyfromthe Reserve Bank of India (RBI).
Key Provisions of Cross-Border Mergers under Indian Law
The Companies Act, 2013, read with the 2016 Rules, provides a detailed mechanismfor cross-border mergers. Section 234 allows:
- Inbound Mergers – Foreign companies merging into Indian companies.
- Outbound Mergers – Indian companies merging into foreign companies, but onlyif the foreign jurisdiction is notified by the government.
The process requires multiple approvals, including from the National Company LawTribunal (NCLT), RBI, and other regulatory bodies such as SEBI, CCI, and sectoral regulators depending on the industry. RBI, in particular, issued regulations in 2018 permittingboth inbound and outbound mergers, subject to compliance with foreign exchange regulations.
Despite this progressive step, practical hurdles remain, especially due to India’s exchangecontrol restrictions, taxation complexities, and lengthy approval timelines.
Comparative International Perspective
In jurisdictions like the United States and the European Union, cross-border mergers arerelatively straightforward owing to developed regulatory mechanisms. For instance, the EUprovides a harmonized legal framework under the Cross-Border Merger Directive (2005/56/EC), allowing companies incorporated in different member states to merge seamlessly. Similarly, the US emphasizes disclosure, competition law review, and shareholderprotection rather than multiple overlapping approvals.
In contrast, India’s layered system of approvals, along with its evolving foreign exchangeregime, often delays transactions and discourages foreign entities from pursuing mergers withIndian companies. Thus, while India has made progress in permitting such mergers, the regulatory environment still lags behind international best practices.
Landmark Case Laws
Case law has played a significant role in shaping the understanding of cross-border mergersin India. A notable example is MOSER BAER KENYA LIMITED (2017), where the Delhi High Court dealt with the amalgamation of a foreign company with an Indian company. TheCourt emphasized that the legislative intent behind Section 234 was to facilitate suchmergers, provided they did not violate any public policy or statutory provision.
Another significant case is Sun Pharmaceuticals Industries Ltd. v. Ranbaxy LaboratoriesLtd. (2014), though largely a domestic merger, it highlighted the importance of competitionlaw review in mergers. The Competition Commission of India (CCI) scrutinized the transaction to ensure that the merger would not create an anti-competitive market structure. This case underscores that in cross-border mergers, regulatory scrutiny will be equallystringent.
Globally, the Vodafone-Hutchison case (2012), although primarily concerning taxation, demonstrated the complexities of cross-border corporate deals in India. The retrospectivetaxdemands arising from the case showed how unpredictability in tax laws could significantlyimpact investor confidence in cross-border mergers.
Challenges in Indian Cross-Border Mergers
Despite legal recognition, several hurdles persist:
∙ Regulatory Overlap: Approvals from multiple authorities create delays.
∙ Exchange Control Restrictions: RBI approval and FEMA compliance limit flexibility.
∙ Tax Uncertainty: Lack of clarity on capital gains and indirect taxes complicates transactions.
∙ Jurisdictional Issues: Outbound mergers are restricted to only those foreign jurisdictions notified by the government.
These hurdles often contrast sharply with international jurisdictions that emphasize easeof doing business.
Lessons from Global Practice
India can draw lessons from the EU and US by streamlining approvals and ensuring regulatory predictability. A single-window clearance system, harmonization of FEMAprovisions with corporate law, and clarity in tax implications would go a long way in boosting cross-border M&A activity. Further, protection of minority shareholders and creditors—well-established in developed jurisdictions—needs to be made more robust inIndia.
Conclusion
Cross-border mergers in India are gradually becoming a reality, thanks to the progressiveprovisions of the Companies Act, 2013, and subsequent RBI regulations. However, the system remains fraught with procedural hurdles, regulatory overlaps, and tax complexities. Learning from international practices, India must move toward a more transparent, predictable, and streamlined framework to encourage global investment and position itself asa leading hub for cross-border M&A. Case laws, both domestic and international, serve as reminders that while the law has evolved, consistent application and reformremain the needof the hour.
