NEW DELHI: India will allow local companies to merge with
overseas firms, easing rules to help home-grown businesses restructure their
expanding global operations, and pave the deck for more listings of securities
on capital markets abroad.
"Until now, only inbound mergers were
permitted. With outbound mergers now permissible, there would be a lot of
opportunities for Indian companies to acquire, restructure, or list on offshore
exchanges as well," said Mehul Shah, a partner at Khaitan and Co.
Until the federal notification by the corporate
affairs ministry on April 13, India had permitted only inbound mergers. The
merger would be in compliance with the Companies Act, 2013, and require prior
approval of the (RBI).
The notification also lists certain jurisdictions on the
foreign companies, covering countries that comply with rules such as being
members of the Financial Action Task Force (FATF) and whose central banks are
members of the Bank for International Settlements (BIS).
Experts, however, believe that certain related laws must be
amended before these rules take effect. "There would be need to have clarifications
under tax laws. Exchange control regulations need to be relooked and clarified
to give effect to this notification. Also, an obligation is cast on RBI to
provide approval for these mergers, as today, the RBI does not have mechanisms
in place for this," Shah added.
"Now exchange control regulations,
securities laws, etc will need to be amended to facilitate a practical
implementation of the amended law," said Amit Maru, partner-transaction
tax at EY.
The notification amends the Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016, notified in December 2016.
Previously, mergers or demergers were governed by the Companies Act, 1956
before the notification of provisions of the Companies Act, 2013.
But, there were some gaps in the rules governing
mergers. The latest notification seeks to fill these gaps. For instance, the
law was earlier unclear on prior RBI approval even for inbound mergers, it is
now clear that the nod is necessary.
"It might take some time for an Indian
company to merge into a foreign company as it is not only one law but a host of
laws which have to be amended before this becomes operational. For instance,
income tax laws will have to be amended to give you a tax-neutral merger status
because all mergers today are otherwise tax-neutral." said Maru.
The government had recently exempted firms, with
Indian revenue of less than Rs 1,000 crore, from seeking the prior approval of
the Competition Commission of India (CCI) while going in for a merger.
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