Published On: September 12th 2025
Authored By: Anjali Bansal
LNCT University, Indore
Abstract
The legal structure and difficulties surrounding cross-border mergers in India are the main topics of this law article. The legal structure that governs cross-border mergers in India was relevant to this article. This article also covers the basics of cross-border mergers along with its types i.e., inbound and outbound mergers. The article also attempts to point out certain loopholes in the law and suggest a way forward for the same. It gives better clarity to the reader about this topic and covers all the major aspects of the merger and acquisition.
Introduction
Cross-border mergers and acquisitions are essential to the nation’s economic success. The concept of cross-border mergers gained momentum in India following the JJ Irani Committee’s 2005 report,[1] which aimed to expand business internationally and harmonise Indian laws with international best practices.
Cross-border mergers involve companies from different jurisdictions and require compliance with multiple legal frameworks, such as Companies Act, 2013, Foreign Exchange Management Act, 1999 (FEMA), Income-tax Act, 1961 and Competition Act, 2002.
Cross-border development in India
India is a desirable location for cross-border M&As due to its expanding market and advantageous location. In order to leverage India’s growing consumer base, technology, and cost reductions, foreign businesses are increasingly looking at mergers. In turn, Indian businesses look for expansion prospects abroad. However, success depends on successfully managing the regulatory environment.
Difference between Cross-border Merger & Acquisition[2]
Two businesses of comparable size and strength combine to form a new business via a merger. The two businesses decide to combine their resources, share ownership, and establish a single company. The main characteristic of a merger is that it is typically regarded as a mutually beneficial arrangement between the two businesses.
Evolution of Cross Border M&A
The process of evolution of cross-border M&A can be traced to two significant events in Indian history, viz. –
1. Introduction of LPG reform of 1991 in India
The transaction of Cross-border M&As in the country initiated with the introduction of LPG policies in 1991. The legal regime during the pre-liberalization period depicts that the Indian Government was very reluctant towards the concept of overseas trading and as a result of this, there were strict laws relating to licensing and “red tape” regulation, which was also termed as “License Raj” this has been described as an inward-looking set policies calling for centralized planning, tight restrictions on the operations of foreign companies, high tariff barriers, restriction of imports and exports, and high bureaucratic control.
With the introduction of LPG reforms of 1991 during the tenure of Prime Minister P.V. Narashimha Rao led to the initiation of Multinational Companies who began to expand their businesses and enter the Indian market.
2. Amendments in Company Law relating to mergers and acquisitions introduced by JJ Irani Committee
The JJ. Irani Committee[3] aimed to simplify India’s complex M&A framework, introducing the key reforms without altering the core company law principles. It granted statutory recognition to contractual mergers, allowing greater flexibility for parties. The report supported both inbound and outbound cross border M&As through contractual and court-based routes. It removed Section 390(a) of the Companies Act, 1956, which required court intervention for winding up. However, the Companies Act, 2013 mandates that the foreign entity be from a government-notified country and requires RBI approval. Section 234 also allows consideration via cash, Indian Depository Receipts, or a combination of both in cross-border transactions.[4]
Inbound and Outbound Mergers
Inbound mergers involve a foreign company merging into an India company. Section 394 (4) of Companies Act, 1956 defines a transferee company to include only companies incorporated in India, permitting only inbound mergers and restricting Indian companies from merging with the foreign entities.
Conversely, outbound mergers, where an Indian company merges with a foreign companies, becomes possible with the introduction of section 234 of Companies Act, 2013 and Indian companies are then transferred to the resultant foreign company.
Legal framework for cross-border M&As:
- Companies Act, 2013: The CA, 2013 is the key legislation of corporate regulation in the country. The act governs the entire process for mergers, amalgamations and demergers. Section 230, 231 and 232 outlines the requirements for the company when they are going through mergers and amalgamations. The approval from the National Company Law Tribunal is also required. For instance, the combination of Vodafone and Idea, two massive telecom firms.
- Foreign Exchange Management Act (FEMA)[5]: FEMA oversees all the foreign exchange transactions which happen in India. In cross-border mergers and acquisitions, FEMA is essential since it helps determine whether or not global mergers and acquisitions will occur. FEMA ensures that all prescribed rules and regulations are followed for foreign exchange transactions.
- SEBI (Substantial Acquisition of shares and take-overs) Regulations, 2011: These Regulations were introduced in September 2011 to regulate the acquisition of shares and voting rights in a public listed company in India. These regulations apply to direct and indirect acquisition of shares and voting rights in target companies. These regulations define “Acquisition” as “direct or indirect, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company”[6] and the person acquiring such a control over the company whether acting alone or in concert is defined as an “acquirer”. A target company as defined under these regulations is a public listed company.
- Application of Income Tax Act, 1961: One of the major reasons behind bringing into effect a merger and acquisition deal is to achieve tax benefits endowed by the Indian tax regime. Subject to certain conditions, mergers are provided with a favourable treatment. A merger of one or more companies to create a new company with the assets and liabilities of the merging companies becoming the assets and liabilities of the resulting company and the ownership of at least three-quarters of the amalgamating company’s shares becoming the ownership of the amalgamated company is known as amalgamation, according to the Act.[7]
Legal Challenges in Cross-border Mergers
Regulatory Ambiguities
Getting the required licenses from several Indian regulatory organizations is a major obstacle for foreign firms. Foreign investments are governed by the Foreign Exchange Management Act (FEMA), and Reserve Bank of India (RBI) compliance is required. Mergers are also examined by the Competition Commission of India (CCI) to make sure they don’t undermine market competition. Certain industries, like defense and telecommunications, could need extra certifications from regulators exclusive to that sector.
Due Diligence
Due diligence is crucial before international mergers and acquisitions. It’s similar to thoroughly investigating the business before closing the deal. This review covers the company’s finances, contracts, pending lawsuits, legal concerns, and other practices. This aids in addressing any potential legal issues that the business may encounter following mergers or acquisitions.
IT & Data Privacy
The second legal issue that arises during international mergers and acquisitions has to do with information technology and data privacy. Combining two systems is very expensive and dangerous. The business must make sure that it complies with each nation’s data protection regulations. Any improper handling of data could result in lawsuits and severe fines. Prior to a cross-border merger or acquisition, the company’s cybersecurity must be examined.
Political & Economic Risks
An alteration in the governing system may cause the cross-border merger and acquisition agreement to collapse. Trade conflicts may develop or the nation’s economy may deteriorate. There may also be more restrictions and checks on specific items. Currency fluctuations or restrictions on money transfers may occur. Therefore, it is essential to keep an eye on the political and economic aspects in advance, or the business should have a backup plan in case something goes wrong.
Taxation Issue
In cross-border mergers and acquisitions, taxes are a significant factor. If the business doesn’t have a well-thought-out plan, it may have to pay a lot of taxes. Numerous other regulations pertaining to internal transfers, audits, etc., must be handled with extreme caution to prevent any losses for the business. Interest, dividend, and royalties taxes have an impact on a lot of other things.
Recent Development in Cross-border M & A
India has grown in popularity among international investors in recent years. The new initiatives, programs, and treaties are the driving force behind this. The Indian government launched the Atma Nirbhar Bharat project with the goal of facilitating and enhancing commerce in India. Numerous overseas investors have been drawn to this. This has led to massive cross-border mergers and acquisitions in sectors like technology and pharmaceuticals.
Conclusion
The economic and international commercial landscapes of India are significantly shaped by cross-border mergers and acquisitions. India’s dedication to bringing its business practices into line with international norms is demonstrated by the legal structure that governs such transactions, which includes the Companies Act, FEMA, SEBI regulations, the Income Tax Act, and sector-specific recommendations. An important turning point was the Companies Act of 2013’s recognition of both inbound and outbound mergers, which demonstrated a forward-thinking approach to international corporate integration.
Nevertheless, cross-border M&As in India still encounter difficulties in spite of these legal protections. Seamless execution is frequently thwarted by regulatory uncertainties, procedural complexity, sectoral limits, data privacy concerns, and taxation challenges. Transaction delays, higher compliance expenses, or even deal failures may arise from these obstacles.
Simplifying regulatory approvals, improving interagency collaboration, clarifying foreign investment regulations, and implementing uniform tax laws are all critical to maximizing the potential of cross-border M&As. To further protect the interests of stakeholders, strong due diligence procedures and data security plans need to be established.
In conclusion, even though India has made great progress in easing cross-border mergers, long-term economic growth and the promotion of sustainable international partnerships depend on a more business-friendly, transparent, and unified regulatory framework.
References
[1] http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf
[2] https://www.karboncard.com/blog/cross-border-mergers-in-india-regulations-examples#difference-between-cross-border-merger-and-acquisition
[3] Report on Company Law, Jamshed J. Irani Committee Report
[4] Companies Act, 2013, Section 234
[5] Foreign Exchange Management (Cross-Border Merger) Regulation, 2018 https://enforcementdirectorate.gov.in/sites/default/files/Act%26rules/Foreign%20Exchange%20Management%20%28Cross%20Border%20Merger%29%20Regulations%2C%202018_0.PDF
[6] SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, Regulation 2(b).
[7] Income Tax Act, 1961, Section 2(1B)
