CROSS-BORDER MERGERS IN INDIA: LEGAL FRAMEWORK AND CHALLENGES

Abstract

Cross-border mergers are an important part of today’s global business environment. They give companies a chance to expand their reach beyond domestic markets, gain access to new technologies, and strengthen their global presence. For Indian companies, these mergers have become more relevant as businesses aim to compete on an international scale. However, the process is not simple; it involves multiple approvals, strict compliances, and complex valuation requirements, which can be challenging for companies to manage. 

This article critically analyses the legal structure governing cross-border mergers in India, encompassing key enactments such as the Companies Act, FEMA, and RBI regulations. It explores the procedural mechanisms, examines judicial interpretation, compares international practices, and also offers reform suggestions to enhance India’s standing as a global business hub.

Introduction

A merger happens when two or more companies combine to become one, usually to grow faster, reduce duplications, or improve efficiency. When the companies involved are from different countries, the deal becomes a cross-border merger. There are two types of CBMs. One is inbound, where a company from another county joins an Indian company. The second type is known as outbound, where an Indian company merges with a company whose base is in abroad. Such transactions are attractive because they open doors to new markets, customers, technology, and capital but they also bring legal, tax, and regulatory complications.

Earlier, mergers involving companies from different countries were not common in India because there were no clear legal provisions to allow them. The older law mainly focused on domestic mergers and did not provide and easy way for Indian companies to merge with foreign entities. It was the Companies Act, 2013 that first opened door to cross-border mergers in India. Later, supporting rules and regulations were added to guide the process and make it more practical. These changes gave Indian business the confidence to look beyond national boundaries and consider global opportunities for growth.

Legal Framework Governing Cross-Border mergers in India

The legal structure for cross-border mergers in India is both comprehensive and layered, involving multiple authorities and statutes. Each framework plays a distinct role in ensuring that mergers are complaint with national and international standards.

1. Companies Act, 2013

The Companies Act, 2013 is the principle legislation governing mergers in India. Under section 234, the Act permits mergers or amalgamations between an Indian company and a foreign company from notified jurisdictions. Key highlights include:

• Permits both inbound and outbound cross-border mergers.
• Requires approval from the National Company Law Tribunal (NCLT).
• Rules relating to giving shares, depository receipts, or other forms of payment as consideration.
• It highlights the need to follow rules under FEMA and SEBI as well.

This section has laid down the foundation for legally recognizing cross-border transactions within Indian corporate law^[1].

2. Companies (Compromise, Arrangements and Amalgamation) Rules, 2016

These rules operationalize Section 234. Rule 25A specially addresses CBMs by:

• Stipulating that only foreign companies from jurisdictions notified by the central government (such as the US, UK, Germany etc.) are eligible.
• Requiring prior approval from the Reserve Bank of India (RBI).
• Mandating disclosures on valuation, shareholding structure, and consideration type.
• Providing a template for procedural flow and stakeholder notification.

These rules ensure procedural transparency and accountability^[2].

3. Foreign Exchange Management Act (FEMA), 1999

The FEMA (Cross Border Merger) Regulations, 2018 issued under section 6 of FEMA regulate foreign exchange aspects of CBMs. Key provisions include:

• Requires compliance with India’s inbound and outbound investment rules.
• For inbound mergers, Indian companies can issue securities to non-resident shareholders.
• For outbound mergers, Indian residents can hold foreign securities as per LRS (Liberalization Remittance Scheme) limits.
• Authorities check that pricing is fair and that sector limits and FDI rules are followed.

FEMA ensures that India’s capital controls and financial security are not undermined during mergers. 

4. Reserve Bank of India (RBI) Regulations

The RBI plays a central role in vetting and approving cross-border merger schemes. Its responsibilities include:

• Issuing NOCs for outbound mergers.
• Verifying whether foreign jurisdictions are FATF-complaint and meet corporate governance standards.
• Reviewing share valuation mechanisms and currency implications.
• Monitoring capital inflows and outflows to prevent money laundering or tax evasion.

Without RBI’s clearance, a CBM cannot proceed, making it a powerful regulatory checkpoint^[3].

5. National Company Law Tribunal (NCLT)

The NCLT has the statutory authority to approve or reject CBMs under Section 234. Its key functions include:

• Reviewing the merger scheme for fairness and public interest.
• Ensuring compliance with statutory requirements such as notice to creditors and shareholders.
• Addressing objections raised during the hearing process.
• Appointing experts to validate fairness if needed.

The NCLT’s role ensures judicial oversight, but capacity constraints can delay approvals^[4]. 

6. Competition Commission of India (CCI)

CBMs involving in large companies may qualify as “combinations” under the Competition Act, 2002, thereby requiring prior approval from the CCI. Key concerns include:

• Preventing monopolistic practices or abuse of dominance.
• Evaluating the relevant market share post-merge.
• Suggesting modifications or structural remedies to reduce anti- competitive risks.

Failure to obtain CCI clearance can render the merger invalid.

7. Securities and Exchange Board of India (SEBI)

For listed companies, compliance with SEBI regulations is essential. It governs:

• Takeover code requirements if shareholders are breached.
• Mandatory disclosures under the LODR regulations.
• Insider trading restrictions and fair pricing mechanisms.

SEBI ensures market integrity and protects investor interest in merger transactions.

Procedural Route and Stakeholder Role

Each stakeholder plays a crucial role in ensuring the legality, transparency, and viability of the merger.

CBMs in India follow a structure process involving multiple steps and authorities^[5]:

1. Board Approval: The merger scheme must be approved by the board of directors of both India and the foreign entities.
2. Valuation and Scheme Drafting: Independent valuers prepare valuation reports; a detailed scheme is drafted explaining the nature and impact of the merger.
3. Application to NCLT: the scheme is submitted to the NCLT along with necessary affidavits and certifications.
4. Notice to Stakeholders: Notices are sent to the stakeholders, creditors, ROC, SEBI, RBI, and CCI for objections or suggestions.
5. Regulatory Filings: Parallel filings are made to SEBI, CCI, and RBI based on the sector and nature of merger.
6. NCLT Hearing and Sanction: After hearing stakeholders, the NCLT may approve the scheme with or without modifications.
7. Implementation and ROC Filing: Once approved, the scheme is filed with the Registrar of Companies and made effective.

Judicial Viewpoints

• Governance and Cross-border Implications: High Courts have cautioned against non-transparent board structures post-merger and mandated full disclosure of foreign governance frameworks to NCLT during such hearings.
• Legality of CBMs: In Maganbhai Ishwarbhai Patel v. Union of India^[6], according to the Supreme Court, company can do a cross-border merger if it fits within the Companies Act process. But if a company tries to move only part of its business abroad without using the formal merger scheme, the Act doesn’t support that.
• RBI’s Regulatory Mandate: Courts have reaffirmed RBI’s primacy under FEMA. Schemes filed without prior RBI approval have been deemed procedurally invalid, enforcing RBI’s absolute jurisdiction over foreign exchange transaction. 

Judicial interpretation plays a key role in shaping merger law. In Wipro Ltd. V. CCI, the tribunal ruled that CCI’s delay in approving the merger cannot be used as a reason to bypass antitrust clearance, emphasizing the need for strict procedural adherence^[7].

International Benchmarking

Globally, jurisdictions such as the UK, Singapore, and Canada offer simplified and time bound procedures for CBMs. In the UK, mergers follow the Companies Act, 2006, where schemes of arrangements are approved by the court after a single hearing and majority shareholder approval. There is minimal RBI like currency scrutiny.

In Singapore, the process is regulated under the Companies Act and involves ACRA (Accounting and Corporate Regulatory Authority) and the Competition Commission of Singapore, with no foreign exchange limitations and faster electronic filings. Whereas, Canada adopts a provincial – federal system, allowing flexibility and clear tax guidance.

Compared to these countries, India’s process, though legally robust, is scattered across multiple regulators like NCLT, RBI, SEBI, CCI, which causes overlapping compliance and extended timelines. Moreover, foreign exchange regulation in India is more stringent, making the outbound mergers comparatively rare. A unified and digital framework, like those abroad, could significantly boost India’s attractiveness for global mergers^[8].

Furthermore, India must focus not just on aligning with international norms but also on creating its own identity as a merger friendly jurisdiction. This can be done by encouraging transparency and time bound decision making. In the long run, this will not attract cross-border investment but will also give Indian companies the confidence to expand beyond domestic borders and compete at a global level.

At the same time, its important to recognize that India’s economic strength, skilled workforce and growing consumer market make it a highly desirable destination for international companies. By embracing global best practices while tailoring them to local realities, India has the opportunity to lead the way in shaping the future of responsible, balanced, and strategic cross-border corporate partnerships. 

Challenges in Cross-Border Mergers

Even though India has a proper legal framework for cross-border mergers, there are still many practical and structural challenges in implementing them.

1. Procedural Delays and Fragmentation

One of the most pressing issues in the involvement of multiple regulatory bodies like NCLT, RBI, CCI, SEBI, each with their own timelines and approval mechanisms. The absence of synchronized approval framework often leads to procedural overlaps, delays and confusion. Unlike some jurisdictions that offer a single window clearance, India’s segmented approach makes the merger process tedious and time consuming.

2. Valuation Disparities

Cross-border valuation involves comparing Indian GAAP and foreign accounting standards like IFRS. The absence of standard guidelines under Rule 25A or RBI regulations causes disputes, especially about share swap ratios or the valuation of depository receipts. Conflicts between valuers often stall or derail deals^[9].

3. Minority Shareholder Protection

Minority shareholders may not receive fair compensation during CBMs, especially when the consideration is in the form of foreign shares or instruments. While the Companies Act mandates disclosures, practical enforcement of minority protection mechanisms like dissent rights and exit options remains weak. In some cases, regulatory bodies like SEBI have stepped in to address such gaps, but more robust mechanisms are needed^[10]. 

4. Taxation and Capital Gains

The tax implications in cross-border mergers can be quite complex, especially regarding capital gains. When Indian shareholders receive shares of a foreign company in exchange for their Indian holdings during an Outbound merger, this exchange maybe treated as a transfer of assets and taxed under capital gains provisions. This can happen even if no money is received, which creates confusion and financial burden for the shareholders involved. The absence of proper circulars from tax authorities like the CBDT often leads to disputes and tax demands after the merger is completed, discouraging companies form engaging in outbound deals.  

5. Regulatory Inconsistencies and Capacity constraints

One major concern in India’s cross-border merger regime is the lack of uniform interpretation across regulatory bodies. Different authorities may apply the same rules differently, leading to confuse and delays. Additionally, bodies like the NCLT are often burdened with heavy caseloads, causing significant backlogs in approving merger schemes despite the existence of statutory timelines.

6. Post-Merger Integration Issues

Even after the legal formalities of a cross-border merger are completed, many companies struggle with integrating their operations, corporate cultures, and compliance systems. Differences in language, employee rights, data protection laws, and taxation models between countries often complicate smooth functioning, these challenges are rarely addressed during regulatory approvals but significantly impact the success of the merger.

Reform Suggestion 

While India has made progress in recognizing and regulating cross-border mergers, I believe there’s still a lot that can be done to make the progress smoother, more predictable, and business friendly. Based on everything I have studied and researched, here are few reforms that I personally feel can help improve the system:

• Create a Single-Window Online Approval Platform

Currently companies need approvals from different authorities like the NCLT, RBI, SEBI, and CCI which can be very time consuming and confusing. I feel that there should be a single online portal where all merger related approvals can be applied for and tracked together. This would cut down the extra paperwork and avoid delays caused by repeating same steps.

• Simplified Valuation Rules for Cross-Border Deals

One of the biggest problems in cross-border merger is that India and foreign companies follow different valuation methods. This often creates confusion and disputes. I believe the government should create a standard valuation formula or give a choice between two or more approved methods so that both parties can agree on a fair and transparent value.

• Awareness Campaigns and Training for Business

Many Indian companies especially mid-sized and family run ones don’t even know that cross-border mergers are possible or how to go about them. The government and the recognized institutions should organize training workshops, webinars, and simplified guides to raise awareness and build capacity among Indian Businesses.

• Set up Special Benches for Mergers in NCLT

NCLT handles insolvency, company cases, and mergers all in one forum. Because of this heavy workload, merger cases often get delayed. The government could set up special NCLT benches that handles only mergers and reconstructing cases. This would speed up the process and ensure better focus on such matters.

Conclusion

Cross-border mergers are becoming a big part of today’s business world, and India is slowly moving in the right decision. The laws and rules are in place, but the real challenge is making the process easier and faster for companies. If regulators work together and businesses follow the right steps, these mergers can create great opportunities for growth. At the same time, it is important to protect shareholders and keep the system fair.

Looking ahead, India has the potential to become a global hub for corporate restructuring if the gaps are addressed with practical reforms. A transparent, time-bound, and simplified process will not only boost investor confidence but also strengthen India’s position in the global economy. With the right approach, cross-border mergers can truly open doors to economic growth and innovation. 

 

References

[1] Companies Act, 2013, section 234

[2] Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, Rule 25A

[3] iPleaders, ‘Cross-border mergers under Companies Act, 2013’ (2022) https://blog.ipleaders.in/cross-border-mergers-companies-act-2013/ accessed 15 July 2025.

[4] Bar and Bench, ‘NCLT approval mandatory for cross-border mergers: A legal analysis’ (2023) https://www.barandbench.com accessed 15 July 2025.

[5] TaxGuru, ‘Cross-border mergers in India – Process and Practical Insights’ (2023)

[6] Maganbhai Ishwarbhai Patel v. Union of India [2010]

[7] Indian Kanoon, Sun Pharma v SEBI, [2020].

[8] iPleaders, ‘How cross-border mergers work globally: A comparative analysis’ (2022) https://blog.ipleaders.in/how-cross-border-mergers-work-globally/ accessed 16 July 2025.

[9] IndiaCorpLaw, “Cross-Border Merger Framework in India: Limited Efficacy?” (2025) https://indiacorplaw.in/2023/04/27/cross-border-merger-framework-in-india-limited-efficacy  , accessed 16 July 2025

[10] LiveLaw, ‘Shareholder protection in cross-border mergers’ (2024), accessed 16 July 2025