Cross-Border Mergers in India: RBI and NCLT Approvals

Regulatory Framework for Cross-Border M&A in India

Cross-border corporate mergers in India require coordination between the Ministry of Corporate Affairs (MCA), the RBI, and the CCI. Misinterpreting regulatory thresholds can invalidate a transaction and trigger financial penalties.

The MCA handles the legal merger process through the NCLT under the Companies Act. The RBI monitors cross-border capital flows under FEMA. The CCI assesses large transactions to prevent monopolies. Closing a deal requires managing these regulatory filings in parallel.

An inbound merger occurs when a foreign company merges into an Indian company, with the Indian entity surviving. An outbound merger happens when an Indian company merges into a foreign entity.

Cross-Border M&A Compliance Checklist

Use this checklist to structure your transaction timeline and track mandatory filings.

Phase 1: Pre-Merger Preparation

• Conduct financial, legal, and tax due diligence on the target entity.
• Obtain a valuation report from a SEBI-registered Merchant Banker or practicing Chartered Accountant.
• Draft the Scheme of Arrangement to outline merger terms, share swap ratios, and employee transition plans.
• Secure draft Scheme approval from the Board of Directors of both entities.

Phase 2: Regulatory Filings and Approvals

• Evaluate the deal against CCI thresholds and file for antitrust approval if required.
• File the joint application under Section 234 of the Companies Act, 2013 with the jurisdictional NCLT.
• Obtain No-Objection Certificates (NOCs) from sector-specific regulators like IRDAI or TRAI.
• Ensure the structure complies with the Foreign Exchange Management (Cross Border Merger) Regulations, 2018.

Phase 3: Tribunal Hearings and Post-Closing

• Hold NCLT-directed meetings of shareholders and creditors to vote on the Scheme.
• Attend the final NCLT hearing to secure the formal sanction order.
• Pay state-level stamp duty on the NCLT merger order.
• File the finalized NCLT order with the Registrar of Companies (ROC) and submit compliance certificates to the RBI.

FEMA and RBI Requirements

The RBI governs foreign capital flows through the Foreign Exchange Management (Cross Border Merger) Regulations. If a cross-border merger complies with FEMA regulations, the Foreign Direct Investment (FDI) policy for inbound mergers, or the Overseas Direct Investment (ODI) guidelines for outbound mergers, the RBI grants deemed approval.

A managing director or whole-time director must submit a compliance certificate with the NCLT application. Deals that deviate from standard pricing guidelines, sectoral caps, or permitted borrowing limits require manual prior approval from the RBI. This review process can delay closing by three to six months.

NCLT Approval Timeline and Process

Securing NCLT approval is a mandatory court process that takes 6 to 12 months based on deal complexity and tribunal backlogs. NCLT approval is required for formal statutory mergers, amalgamations, and demergers. Standard share purchases or asset slump sales do not require NCLT approval.

The process begins when companies file the Scheme of Arrangement with the NCLT bench holding jurisdiction over the Indian company's registered office. The NCLT orders the companies to hold formal meetings of their equity shareholders and creditors. The scheme requires a 75 percent majority approval by value.

After internal approval, the NCLT invites representations from the Income Tax Department, the ROC, the RBI, and the Official Liquidator. Acquirers must resolve any objections from these authorities before the NCLT issues its final sanction order. State-level stamp duty applies to this final order. Rates vary by state and are often calculated as a percentage of the transferred property value or issued shares.

Valuation Requirements

Cross-border valuations must follow internationally accepted pricing methodologies mandated by the RBI. For inbound mergers where an Indian company issues shares to a foreign entity, the issuance price cannot fall below the fair value. This value must be determined by a SEBI-registered Merchant Banker or Indian Chartered Accountant. Foreign entities cannot use their own domestic valuation experts for RBI compliance.

Issuing shares below fair market value triggers tax liabilities under Section 56 of the Income Tax Act. Parties must also account for currency exchange rate fluctuations between the valuation date and the closing date. The RBI evaluates compliance based on the exact capital brought into India.

Antitrust Review and CCI Thresholds

Mergers exceeding specific asset or turnover thresholds require prior approval from the Competition Commission of India. The CCI determines if the transaction causes an Appreciable Adverse Effect on Competition (AAEC) in India.

The Competition (Amendment) Act, 2023 introduced a Deal Value Threshold (DVT). Foreign acquirers must notify the CCI if the global transaction value exceeds INR 2,000 crore (about 240 million USD) and the target company has substantial business operations in India. Transactions with no horizontal market overlap or vertical supply chain integration may qualify for the Green Channel route. This route grants deemed antitrust approval on the day the notification is filed.

Managing Restructuring Risks

Escrow mechanisms and deferred consideration holdbacks help manage risks from pending tax litigation or undisclosed creditor claims. FEMA limits deferred consideration in foreign investments to 25 percent of the total consideration. This deferred amount must be paid within 18 months.

Indian labor laws restrict the unilateral transfer or termination of employees during a merger. Acquirers must audit employment contracts to verify proper notice and severance provisions are in place before closing.

Common Legal Misconceptions

Many foreign investors misunderstand Indian corporate and foreign exchange laws. One misconception is that the RBI manually approves every cross-border merger. Under the 2018 regulations, the RBI grants deemed approval through a filed compliance certificate. Direct RBI interaction occurs only if the deal breaches standard FDI guidelines.

Another misconception is that merging entities can expedite the NCLT timeline. The NCLT process follows strict statutory notice periods, including a 30-day window for statutory authorities to respond. These notice periods cannot be bypassed or shortened.

When to Hire an M&A Lawyer in India

An Indian M&A lawyer helps ensure the transaction complies with FEMA pricing rules and sectoral investment caps. Engaging counsel before signing a Term Sheet helps map a tax-efficient structure. Specialized domestic representation is necessary to draft the Scheme of Arrangement, manage NCLT filings, and submit CCI notifications without application rejections.

Next Steps

1. Determine if the transaction is a formal statutory merger requiring NCLT approval or a direct share acquisition.
2. Hire an Indian valuation expert to calculate the target entity's fair market value using recognized methodologies.
3. Compare the global transaction value against the CCI Deal Value Threshold to check for early antitrust notification requirements.
4. Consult with merger and acquisition lawyers in India to draft the Scheme of Arrangement and prepare FEMA compliance certificates.