Cross Border Mergers And Acquisitions


‘Cross border merger’ means any merger, amalgamation or arrangement between an Indian Company and Foreign Company, in accordance with Companies (Compromises, Arrangements, and Amalgamations ) Rules, 2016 notified under the Companies Act, 2013.  There are two types of Cross border mergers – Inbound Merger and Outbound Merger.

An Inbound Merger is a Cross border merger in which the Resultant Company[1] is an Indian Company.  In simpler terms, it means a foreign company merges with an Indian company in a result of which an Indian Company is formed.

An Outbound Merger is a Cross border Merger in which the Resultant Company is a Foreign Company[2]. In a layman language it means, Indian Company merged with a foreign company as a result of which a foreign company is formed.

Since Cross border mergers and acquisitions involve two countries, according to the legal terminology, the acquiring company in other countries is referred to as the Home Country, while the country where the target company is situated, is referred to as Host Country.  The underlying motive of Cross border M&A cannot be separated from globalization. In a combination with other trends such as increased deregulation, privatization, and corporate restructuring, globalization has lead to an unparalleled surge in cross border M&A. It has become the easiest way of Internationalization and fundamental feature of global business landscapes.


If we look at the structure of the entire process there arise three reasons in relation to the acquiring companies, as to why they seek this category of M&A. The reasons are-:

RESOURCE SEEKER- The acquiring company is looking for the resources or labor at cheap prices; such deals are usually targeted in developing countries as the labor there is quite cheap. Or there is non-availability of resources in their home country.

STRATEGIC SEEKER- This kind of acquisition is usually in relation to the assets. This is done either to enhance their International Competition or to weaken that of their competitors by acquiring the assets of foreign corporations. The motive behind this is to enhance its existing product portfolio.

MARKET SEEKER- The agenda behind this is to expand and strengthen its operations and position outside the home country.


Globalization of financial markets, market pressure, and falling demand due to International Competition: MNCs consider it important to have a physical presence in leading markets served by its competitors and construct production units and research centers. This enables them to adapt their products to local needs.  Local firms have better information about the economic development and environment of their country than the foreign company[3]. Subsidiaries in foreign location reduce the production and transaction cost compared to export from the home market.

Geographical Diversification & seek new market opportunities: Companies look for funding or capital outside their territory when they increase in size, to further advance their growth and expansion drive. According to the recent trends, MNCs move to emerge markets in order to establish control in those markets and enjoy a monopoly in it.

To increase profitability and revenue enhancement: One of the main motives of Cross border M&A is a financial motive. A lot of M&A happens due to challenges in sourcing for more funds. These motives are underlined with several activities like- economies of scale, increased revenue, increased market share, etc. They seek to diversify risk and deepen economies of scope.

Increase the scale of production: Diversification creates an opportunity for investors to develop on a large scale and increase company efficiency in producing the goods and services it deals in. And to move forward in today’s global business along with technological enhancements.


Capital Build up: Capital accumulation on a long term basis serves as the biggest merit of these deals. Undertaking investment tangible assets like plants, buildings, machinery, and intangible assets like technology, skills, goodwill, etc, serves as the basis of long term investment. It shows the bigger picture behind such M&A.

Employment Creation: It is a general belief that the companies whose country’s currency have appreciated are more likely to be acquiring company and the countries whose currencies are depreciated are more likely to have target companies. One of the reasons is cheap labor, resources, and lower cost of production. This in return generates employment opportunities in the targeted company’s country or there might be a generation of new departments within the company which will in return create more jobs.

Technology Handover: While some countries or companies might have exhausted all of their technological resources others might be existing with underutilized technologies. Thus the transfer of technologies, sharing of best management skills and practices lead to innovation and inventions.

Growth of Economy: Companies that have been successful with their product within the national market tends to turn to Cross border M&A to further expand their revenue and profits. It facilitates the company with the opportunity to tap into a new market rather than being stuck in the internal market. It opens larger doors for the company to diversify and increase their products reach while serving its own purpose as well.

The synergy of Companies Combination: The purpose of these combinations is to either increase revenue or reduce cost through these synergies. It expands operations without having to start ground up.


Political Scenario: In a country like India, this plays an active role in these deals. For instance, with the current scenario, it will be hard for Chinese companies or investors to merge or acquire any of the Indian entities. The further political scenario also comes into play in case of companies or industries which are politically sensitive- defense, space, etc.

Cultural Challenges- Every country has different roots and cultures. Differences can arise because of cultural backgrounds, languages, and dissimilar business practices. For instance, Mac Donald’s can’t serve the beef burgers in India as it can in America.

Legal Considerations: Every country has its own legal formalities that need to be abiding by.

While the above three are the major issues generally faced in these deals.  Infrastructure, currency, tax, and accounting standards are also some of the issues faced.


1. FEMA REGULATIONS: In exercise of the power conferred by sub-section(3) of section 6 read with section 47 of Foreign Exchange Management Act, 1999, the Reserve Bank of India has made regulations regarding merger, acquisition, and amalgamation between Indian Companies and Foreign Companies. These regulations are called the Foreign Exchange Management (Cross Border Merger) Regulations, 2018.

First, we will talk about Inbound Mergers. Under the conditions for the transfer of security by the Resultant Company, compliance is required with FEMA regulations concerning inbound investments[4], including price guidelines, entry routes, sectoral caps, attendant conditions, and reporting requirements.  Additionally, compliance is required with FEMA regulations concerning outbound investments[5] in the following cases: where transferor foreign company is a joint venture (JV)/ wholly-owned subsidiary (WOS) of the Indian company or where the merger results in the acquisition of a step-down subsidiary of JV/ WOS outside India. Any office outside India of the foreign company will be deemed to be a branch office outside India of the Resultant Company according to the relevant regulations to be complied with[6]. As respect to the guarantees and outstanding borrowings of the foreign company from overseas sources which becomes the guarantees and borrowings of the Resultant Company, shall conform within a period of two years to the External Commercial Norms or Trade Credit Norms or Foreign borrowing norms as laid down under FEMA regulations[7]. Further, the Resultant Company is permitted to open a bank account in foreign currency in the overseas jurisdiction for putting through transactions incidental to the merger. This bank account can be maintained for a maximum period of two years.  Last but not the least, Resultant Company can acquire and hold any asset outside India to the extent permitted under FEMA guidelines. Assets and securities not permitted to be acquired or hold should be sold within two years from the date of sanction by NCLT[8] and the sale proceeds shall be repatriated to India immediately after the sale. These proceeds can be used to pay any overseas liability not allowed to e held under FEMA regulations.

Now we come towards Outbound Merger. In outbound mergers, a person resident in India can acquire or hold securities of the Resultant Company according to the regulations concerned[9]. An office in India of the Indian Company may be deemed to be a branch office[10] in India of the Resultant Company. The Resultant Company shall not acquire any liability payable to local Indian lenders, which is not in conformity with the Act or rules. The guarantees or outstanding borrowings of the Indian Company which become the liabilities of the resultant company shall b repaid as per the terms of scheme sanctioned by the NCLT[11]. The Resultant Company is permitted to open a Special Non-Resident Rupee Account for a maximum period of two years in accordance with FEMA regulations[12].  Under Outbound Merger, the Resultant Company can acquire and hold any asset in India which a foreign company is permitted to acquire. Where the assets or security in India cannot be held by the resultant company, the company shall sell such assets or security within a period of two years and the sale proceeds can be used for repayment of Indian liability within two years period.

2. Companies ACT, 2013: Before the 2017 Amendment, an Inbound Merger was allowed but an Outbound Merger was prohibited. The rationale behind this was that the company that continues after the merger was an Indian Company and the Indian regulatory authorities can continue to exercise their control over it. But after the amendment both- Inbound Merger as well as Outbound Merger, are allowed to take place in the country. A Foreign Company can merge with the Indian company provide that- Section 230 (Power to compromise or make arrangements with creditors and members), Section 231 (Power to Tribunal to enforce compromise or arrangement) and Section 232(Merger and Amalgamation of companies) of the Act are complied with, RBI prior approval is obtained and the concerned company files an application with NCLT in accordance with section 230 to 232. Section 234 of the Companies Act provides for a scheme of Mergers and Amalgamations between the companies registered under the act and the foreign Companies.

An Indian Company, on the other hand, can merge with the foreign company, provided that- RBI prior approval is obtained, Section 230 to 232 of the Act, as stated above, are complied with, further the transferee company ensures that the valuation is in accordance with the internationally accepted principles of accounting and valuations and a declaration to that effect is filed with the RBI. The valuation is only required in the case of Outbound Mergers. Further the Rule 25A in Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 states that an Indian Company can merge with foreign companies located in the allowed jurisdiction only. Specifically, North Korea, Iran, France, Afghanistan, Yemen, Bosnia, Ethiopia, Lao PDR, Syria, Uganda, Herzegovina, and Vanuatu are the companies that come under this jurisdiction[13]. This restriction of Jurisdiction is only applicable to Outbound Mergers.

3. INCOME TAX ACT, 1961: In case of Inbound Mergers tax neutral status is declared for the merging company as well as it’s shareholders in case all the assets and liabilities are transferred and continuity shareholders are holding 75% of shares. No exemption is provided in case of an outbound merger, it is subject to tax in the hands of both the Indian Company as well as their shareholders.

4. SEBI REGULATIONS: In case of Inbound Merger, if the company is listed on a Stock Exchange then it has to comply with Regulation 11 read with Regulation 37 & 94 and schedule 11 of SEBI (Listing obligations and Disclosure Requirements) Regulation, 2015, where the scheme before filled in with NCLT or any court, it shall be filled with the concerned Stock Exchange as well as SEBI and shall obtain NOC from the concerned stock exchange. In addition to the above complied with incase of Outbound Merger, Foreign Company may have to issue the IDRs for Indian Shareholders and has to comply with the relevant scheme.

5. Valuation and Accounting Standards: Tribunal will not sanction the scheme of Merger, Acquisition, or Amalgamation unless accounting treatment prescribed in the scheme is in compliance with the notified Accounting Standards & a certificate to that effect by the company’s auditor has been filed with the Tribunal. The onus lies on the auditor to confirm that the accounting standard has been followed.

Apart from these laws and regulations the indirect tax matters also play a role in it.

Some Famous Cross Border M&A including Indian Companies

  • Tata Steel acquiring Corus Group PLC now known as Tata Steel Europe Ltd.
  • Reliance Brands, Subsidiary of Reliance Industries acquired British toy retailer Hamley.
  • Walmart acquired Flipkart.
  • Topcoder Inc acquired by WIPRO.
  • Reliance Industries acquired Radisys.
  • Google acquired Sigmond LABS.


Cross Border M& A brings global economies closer and opens a host of opportunities by facilitating global acquisitions, sale transactions, consolidations, and restructuring for Indian Companies. It provides greater ease and flexibility in making strategic business decisions.  It is a restructuring of industries’ assets and liabilities and production structure on a worldwide basis. In short, it is a boon provided to the companies to enhance their capital, revenue, and standing in the global structure.

[1] Resultant company’ means an Indian company or a foreign company which takes over the assets and liabilities of the companies involved in the cross border merger.

[2] Foreign company’ means any company or body corporate incorporated outside India whether having a place of business in India or not;

Explanation: for the purpose of outbound mergers, the foreign company should be incorporated in a jurisdiction specified in Annexure B to Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

[3] Hymer, S. (1960) the International Operations of National Firms: A Study of Direct Foreign Investment.

[4] 1 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017

[5] Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004

[6] 4 Foreign Exchange Management (Foreign Currency Account by a person resident in India) Regulations, 2015

[7] Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 or Foreign Exchange Management (Borrowing or Lending in Rupees) Regulations, 2000 or Foreign Exchange Management (Guarantee) Regulations, 2000, as applicable .

7 ‘NCLT’ means National Company Law Tribunal as defined under the Companies Act, 2013 or rules framed there under.

8Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004

9Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016.

10In accordance with Companies (Compromises, Arrangement or Amalgamation) Rules, 2016.

11Foreign Exchange Management (Deposit) Regulations, 2016.

[13] a jurisdiction whose securities market regulator is (a) signatory to the International Organisation of Securities Commission’s Multilateral Memorandum of Understanding, or (b) signatory to the bilateral Memorandum of Understanding with Securities and Exchange Board of India; or a jurisdiction whose central bank is a member of the Bank for International Settlements; and a jurisdiction which is not identified in the public statement of Financial Action Task Force (“FATF”) as: (i) a jurisdiction having strategic ‘Anti-Money Laundering or Combating the Financing of Terrorism’ deficiencies to which counter measures apply; or (ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies.

This article is written by Anjali Singh, first-year law student at GJ Advani Law College.

Also Read – A Guide To Taxation Of Mergers And Acquisitions In India

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