Cross-Border Mergers in India: Legal Framework & Challenges

Abstract

Cross-border mergers have emerged as a significant tool for Indian corporations aiming to expand globally while leveraging operational synergies, diversifying risks, and accessing advanced technologies and capital. The gradual liberalization of India’s foreign investment regime and increasing globalization have made these transactions attractive for companies seeking competitiveness in a rapidly evolving economic environment. However, executing a cross-border merger in India involves navigating complex regulatory frameworks, sector-specific restrictions, valuation challenges, and foreign exchange regulations. This article analyses the legal framework governing cross-border mergers in India, compares it with practices in the UK and Singapore, highlights practical challenges and relevant case studies, and presents a structured checklist to assist professionals and clients in managing these transactions effectively.

Introduction

Cross-border mergers are increasingly being used as a tool for strategic growth by Indian corporations seeking to expand into global markets while leveraging operational synergies, diversifying risk, and accessing advanced technologies and capital. The rise in globalization and the liberalization of foreign investment policies have made these transactions attractive for companies striving to remain competitive in a dynamic economic environment.

In recent years, India’s evolving regulatory framework has enabled opportunities for both inbound and outbound cross-border mergers, allowing Indian companies to achieve economies of scale, acquire cutting-edge technologies, and reach new consumer markets while mitigating domestic market saturation. These transactions also offer the potential for improving financial standing and global brand positioning.

However, executing a cross-border merger in India is layered with challenges, including the need to comply with multiple regulatory requirements under the Companies Act, 2013 (particularly Section 234), the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, and guidelines set by the Reserve Bank of India, SEBI, and the Competition Commission of India. Companies face valuation complexities, foreign exchange restrictions, and delays due to multi-agency involvement during the merger process.

Furthermore, understanding how other jurisdictions like the UK and Singapore approach cross-border mergers can offer comparative insights into streamlining India’s processes. This article aims to provide a comprehensive analysis of India’s legal framework governing cross-border mergers, comparative practices, practical challenges, and a structured checklist for professionals to navigate these transactions effectively.

Understanding Cross-Border Mergers

Cross-border mergers occur when companies incorporated in different jurisdictions combine into a single entity, resulting in the transfer of assets, liabilities, and operations across borders. These can be classified as:

1. Inbound Mergers: A foreign company merges into an Indian company, with the resultant entity being an Indian company. This structure allows foreign investors to consolidate Indian operations under a single entity while benefiting from India’s large market base and operational efficiencies.
2. Outbound Mergers: An Indian company merges into a foreign company, resulting in the resultant entity being a foreign company. This provides Indian companies with opportunities to establish a global footprint, access foreign capital, and diversify risks across geographies.

Historically, outbound mergers were restricted due to the absence of an enabling framework under the Companies Act 1956. However, the Companies Act 2013, under Section 234^[1], now permits cross-border mergers with jurisdictions notified by the Indian government, facilitating these transactions while ensuring regulatory safeguards.

Legal Framework Governing Cross-Border Mergers in India

1. Companies Act 2013 and Rule 25A

Section 234^[2], read with Rule 25A^[3] of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, governs cross-border mergers in India. The government has notified jurisdictions such as the USA, UK, Germany, France, Japan, and Singapore with which such mergers are permissible. The process includes:

• Filing an application before the National Company Law Tribunal (NCLT) for approval.
• Complying with valuation norms to ensure fair consideration to shareholders and creditors.
• Issuing notices to regulatory authorities and obtaining their no-objection or comments.
• Ensuring that the merger terms protect the interests of minority shareholders and creditors.

2. FEMA Regulations

The Foreign Exchange Management (Cross Border Merger) Regulations, 2018, under FEMA^[4], manage foreign exchange issues during cross-border mergers. Key provisions include:

• Automatic route approvals for transactions compliant with sectoral caps and FDI policies.
• A clear distinction between inbound and outbound mergers, with different requirements.
• Reporting obligations to the RBI within prescribed timelines.
• Requirements for repatriation of assets, treatment of securities, and handling borrowings of the foreign company post-merger.

3. SEBI Regulations

For listed companies, compliance with SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations 2015^[5] and Takeover Code (2011) becomes essential. Disclosure requirements include:

• Intimation of board decisions regarding the merger.
• Disclosures in the public domain regarding shareholding changes.
• Compliances concerning the issuance of securities as part of the merger consideration. 

4. Competition Law Compliance

The Competition Act 2002^[6] mandates approval from the Competition Commission of India (CCI) if the merger crosses specified thresholds to ensure it does not cause an appreciable adverse effect on competition within India.

5. Taxation Framework

The Income Tax Act 1961^[7] governs tax treatment during mergers, including capital gains tax, transfer pricing implications, and indirect tax obligations. Structuring the merger for tax neutrality while ensuring compliance with domestic and international tax laws is critical.

Recent Case Studies

Sun Pharma-Daiichi Sankyo

In Daiichi Sankyo v Sun Pharma [2016] EWHC 49 (Comm), indemnity disputes arose post-acquisition, emphasizing the need for comprehensive due diligence, clear indemnity clauses, and enforceable dispute resolution mechanisms in cross-border transactions.

HDFC Ltd-HDFC Bank

The proposed merger between HDFC Ltd and HDFC Bank, although a domestic transaction, illustrates the layered approval requirements from SEBI, RBI, and CCI, providing a blueprint for large cross-border mergers involving regulated sectors.

Challenges in Cross-Border Mergers in India

1. Regulatory complexity: Navigating approvals from the NCLT, RBI, SEBI, and CCI requires expertise and coordinated planning, with timelines often extending due to the procedural layering.
2. Valuation and Exchange Rate Risks: Foreign exchange volatility impacts valuation fairness, requiring hedging strategies and flexible consideration mechanisms.
3. Tax Ambiguities: Understanding the applicability of exemptions under the Income Tax Act^[8], indirect tax obligations, and the interplay with foreign tax laws is essential for structuring.
4. Jurisdictional enforcement: Recognition of foreign judgments and the enforceability of Indian NCLT orders in foreign jurisdictions often requires careful structuring and reliance on bilateral treaties.^[9]
5. Sectoral restrictions: Sectors with FDI caps, such as defense, media, and insurance, impose limitations requiring compliance structuring and sometimes alternative transaction frameworks.
6. Stakeholder objections: Approvals from creditors and minority shareholders require effective communication strategies to avoid delays.^[10]

Comparative Analysis: India vs. UK and Singapore

United Kingdom

The UK’s Companies Act 2006 and the Cross-Border Merger Regulations 2007^[11] facilitated mergers within the EEA, offering a court-sanctioned and efficient process. Post-Brexit, cross-border structures now rely on bilateral arrangements, but the UK remains an attractive jurisdiction due to its advanced legal framework, transparency, and tax treaty networks.

Singapore

Singapore offers a clear, efficient environment for M&A, with the Singapore Companies Act and oversight by the Monetary Authority of Singapore (MAS)^[12] ensuring smooth transactions. Its lack of capital gains tax and double taxation treaties facilitates structuring, although outbound statutory mergers require alternative mechanisms like schemes of arrangement.

India

India’s framework, while enabling, requires navigation of multiple regulators, compliance with sectoral caps, and structuring for tax neutrality. Compared to the UK and Singapore, India’s regime is improving but still presents operational and procedural complexities that require careful planning. 

Practical Checklist for Structuring Cross-Border Mergers

• Due Diligence: Comprehensive analysis covering legal, tax, financial, and regulatory aspects.
  – Jurisdiction Identification: Confirm if the foreign jurisdiction is notified for cross-border mergers.
  – Valuation Strategy: Use RBI-compliant valuation methods and consider forex hedging.
  – Regulatory Planning: Sequential planning for approvals from CCI, SEBI, RBI, and NCLT.
  – Tax Structuring: Identify potential exemptions and align the structure with India’s tax and FEMA laws.
  – Stakeholder Engagement: Plan communication with shareholders, employees, and creditors.
  – Enforceability Consideration: Assess enforceability of Indian and foreign orders and judgments.
  – Post-Merger Integration: Operational, financial, and cultural integration planning for synergy realization.

The Way Forward

India’s efforts to liberalize and simplify cross-border mergers are aligned with its vision of becoming a global investment hub. However, further simplification of regulatory procedures, sectoral liberalization, and tax clarity will enhance India’s competitiveness.

Leveraging best practices from jurisdictions like the UK and Singapore while aligning them with India’s regulatory environment can significantly improve the success rate of cross-border mergers for Indian corporates and foreign investors.

Conclusion

Cross-border mergers are not merely transactional tools; they are critical catalysts in shaping a nation’s integration into the global economic system. For India, the importance of cross-border mergers extends beyond individual corporate growth and profitability; they contribute to the broader objectives of fostering innovation, creating employment opportunities, infusing advanced technology, and deepening capital markets.

The Indian legal framework for cross-border mergers has evolved considerably with the enactment of Section 234 of the Companies Act 2013 and the implementation of the Foreign Exchange Management (Cross Border Merger) Regulations 2018, which have collectively laid down a structured pathway for both inbound and outbound mergers. These provisions signify India’s intent to welcome global investment while maintaining regulatory prudence, particularly in sensitive sectors such as defence, telecommunications, and banking.

However, regulatory complexity remains a defining feature of executing cross-border mergers in India. The involvement of multiple regulators—SEBI, RBI, CCI, and the NCLT—necessitates precise and coordinated compliance strategies, without which transactions may face significant delays. Furthermore, valuation complexities due to fluctuating foreign exchange rates and evolving tax interpretations under the Income Tax Act 1961 create an additional layer of intricacy in structuring transactions, impacting shareholder value and post-merger financial stability.

India’s commitment to ease of doing business must translate into actionable reforms for cross-border mergers, including streamlined procedures, digitized approval systems, and time-bound clearance mechanisms. These measures would greatly enhance investor confidence and reduce transaction costs, encouraging more Indian companies to explore outbound mergers while attracting foreign companies to consider India as a viable merger destination.

Comparing India with jurisdictions such as the United Kingdom and Singapore reveals valuable insights. The UK’s pre-Brexit environment allowed seamless cross-border mergers under EU directives, emphasizing the benefits of harmonized frameworks, efficient judicial systems, and clear tax regimes. Singapore’s stable legal environment, absence of capital gains tax, and clarity in cross-border transactional structures underscore the significance of regulatory predictability in facilitating mergers.

India can draw lessons from these jurisdictions, particularly in aligning its cross-border merger processes with international best practices. For instance, introducing clear timelines for regulatory clearances, enhancing inter-agency coordination, and offering pre-filing consultation mechanisms could mitigate uncertainties and improve procedural efficiency. Additionally, leveraging technology for filing, hearings, and status tracking within the NCLT and regulatory bodies would ensure transparency and reduce manual intervention.

From a corporate strategy perspective, companies considering cross-border mergers must prioritize robust due diligence frameworks, stakeholder alignment, and cultural integration plans. Due diligence should encompass legal, financial, tax, operational, and environmental assessments in both jurisdictions to identify and mitigate risks proactively. Stakeholder engagement, including with minority shareholders and creditors, is essential to pre-empt potential objections that could delay approvals.

Cultural and operational integration post-merger remains equally critical. A significant proportion of cross-border mergers globally underperform due to integration failures, often stemming from misaligned corporate cultures, inadequate post-merger planning, and insufficient communication strategies. Indian companies engaging in outbound mergers must develop detailed post-merger integration roadmaps to fully realize anticipated synergies.

In conclusion, cross-border mergers in India represent an intersection of opportunity and complexity. While the regulatory framework has evolved to accommodate such transactions, successful execution requires meticulous planning, regulatory knowledge, and strategic foresight. The Indian government’s continued focus on simplifying cross-border merger procedures, clarifying tax treatments, and expanding the list of notified jurisdictions will strengthen India’s position as a competitive player in the global mergers and acquisitions landscape.

For law firms and advisors, guiding clients through this terrain demands a multi-disciplinary approach, combining regulatory expertise, commercial pragmatism, and global best practices. By effectively navigating these complexities, cross-border mergers can become instrumental in enabling Indian businesses to emerge as global leaders while positioning India as a prime investment destination in the evolving world economy. 

Bibliography

1. Companies Act 2013, s 234.
2. Foreign Exchange Management (Cross Border Merger) Regulations 2018.
3. SEBI (LODR) Regulations 2015.
4. Competition Act 2002.
5. Income Tax Act 1961.
6. Sun Pharma v Daiichi Sankyo [2016] EWHC 49 (Comm).
7. UK Companies Act 2006.
8. Singapore Companies Act.
9. Official SEBI, RBI, and MCA guidelines on cross-border mergers.
10. Academic commentaries on cross-border mergers and Indian corporate law.

[1] ‘Government of India Notification Regarding Section 234(Cross-Border Mergers)’ <https://www.mca.gov.in/content/mca/global/en/home.html> accessed 22 July 2025.

[2] ‘MCA Notification on Cross-Border Mergers Section 234’ <https://www.mca.gov.in/content/mca/global/en/acts-rules/companies-act/companies-act-2013.html> accessed 22 July 2025.

[3] Bhatia Jagdish Pretty, ‘Section 234 of the Companies Act, 2013, and Rule 25A’ ( INTO LEGAL WORLD) <https://www.intolegalworld.com/post/cross-border-mergers-rbi-regulations-and-compliance-requirements-under-section-234-of-the-companies> accessed 22 July 2025.

[4] Reserve Bank of India, ‘Foreign Exchange Management (Cross Border Merger) Regulations, 2018’ (20 March 2018) <https://enforcementdirectorate.gov.in/sites/default/files/Act&rules/Foreign%20Exchange%20Management%20(Cross%20Border%20Merger)%20Regulations,%202018_0.PDF> accessed 22 July 2025.

[5] SEBI, ‘Listing Obligations and Disclosure Requirements (LODR) Regulations 2015’ (7 February 2023) <https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-february-07-2023-_69224.html> accessed 22 July 2025.

[6] ‘The Competition Act 2002 ’ (13 January 2003) <https://cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf> accessed 22 July 2025.

[7] ‘INCOME-TAX ACT, 1961’ (2025) <https://incometaxindia.gov.in/Documents/income-tax-act-1961-as-amended-by-finance-act-2025.pdf> accessed 22 July 2025.

[8] ibid.

[9] International Law Editorial, ‘Jurisdictional Challenges & Enforcement of Foreign Judgments’ (19 April 2024) <https://worldjurisprudence.com/enforcement-of-foreign-judgments/> accessed 22 July 2025.

[10] ‘NCLT’s Role in Mergers’ (2016) <https://nclt.gov.in/national-company-law-tribunal-rules-2016> accessed 22 July 2025.

[11] UK Legislations, ‘The UK’s Companies Act 2006 and the Cross-Border Merger Regulations 2007’ (2007) <https://www.legislation.gov.uk/uksi/2007/2974/contents/made> accessed 22 July 2025.

[12] ‘Monetary Authority of Singapore Act 1970’ (31 December 2021) <https://sso.agc.gov.sg/Act/MASA1970> accessed 22 July 2025.