Foreign Exchange Management (Cross Border Merger) Regulations 2018 (“Merger Regulation”) was notified by the Reserve Bank of India on 20th March, 2018 which regulates the cross-border mergers in India. Cross border mergers are categorised as:
a. ‘In bound merger’ when an Indian company (“IC”) acquires assets and liabilities of a foreign company. Some of the essentials of an Inbound Merger are
i. Merger Regulations allow transfer of securities to a foreign shareholder, subject to compliances applicable to a foreign investor under the foreign direct investment regulations (“FDI Regulations”)
ii. Where the cross border merger results in transfer of securities of a joint venture (“JV”) or a wholly owned subsidiary (“WOS”) of an IC, situated in a foreign jurisdiction, the same is subject to compliance, such as pricing of shares in a specified manner, any outstanding’s owed to the IC being cleared prior to such transfer, etc. set out under the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004)
iii. If the cross-border merger results in acquisition of a step-down subsidiary (situated in a foreign jurisdiction) of the JV/WOS, by an IC, then certain additional conditions laid down in the Foreign Exchange Management (Transfer or issue of any foreign security) Regulations 2004 will have to be complied with
iv. The IC has to ensure that the overseas borrowings of the foreign company, proposed to be taken over by it, are compliant with the provisions of the overseas borrowing Regulations (“Overseas Borrowing Reg.”) under Indian law within a period of 2 (Two) years from the date of sanction of the scheme pertaining to such cross-border merger by the relevant authority. However, the IC cannot remit any monies from India for repayment of such overseas borrowings
v. Further, it is to be noted that the Overseas Borrowing Reg. inter-alia stipulates specified interest rates, maturity, end use restrictions, on borrowings, from overseas, by an IC (however, end use restrictions are not applicable to an IC per the Merger Regulations)
b. ‘Outbound Merger’ when a foreign company (“FC”) acquires assets and liabilities of an IC. Some of the essentials of an Outbound Mergers are
i. In such cases the law applicable in the jurisdiction where the FC is situated will regulate such cross-border merger
ii. Merger Regulations also stipulate certain conditions by which guarantees that outstanding borrowings of the IC shall, as a result of such cross-border merger, become guarantees or borrowings of the FC. This however is subject to the FC not acquiring any such guarantee or outstanding borrowing, in rupees payable to Indian lenders, non-compliant with the relevant foreign exchange law in India.