RBI proposes fresh Regulations under Foreign Exchange Management Act, 1999 for Cross Border Mergers and Acquisitions
The Reserve Bank of India (RBI) on Wednesday, April 26, 2017, proposed a fresh set of regulations regarding Mergers and Acquisitions (M&A) which seek reporting of all deals which are not on the automatic route, to be more stringent, time-bound and provide for mandatory permission
The RBI Regulations followed the new regulations notified by Ministry of Corporate Affairs (MCA) under the Companies (Compromises, Arrangements and Amalgamation) Amendment Rules of 2017 issued on 13 April, 2017.
The MCA notified Section 234 of the Companies Act 2013 (2013 Act) which permits cross border mergers with effect from 13 April 2017. Further, in consultation with the Reserve Bank of India (RBI), the MCA has also notified corresponding amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 (Merger Rules) by inserting a new Rule 25A effective from 13 April 2017, which deals with cross border mergers.
The proposed Regulations by RBI will be under the Foreign Exchange Management Act, 1999 (FEMA) in order to address the issues that may arise when an Indian company and a foreign company enter into Scheme of merger, demerger, amalgamation, or rearrangement. These Regulations stipulate conditions that should be adhered to by the companies involved in the Scheme. The Regulations shall be named Foreign Exchange Management (Cross Border Merger) Regulations.
The Draft Regulations make (reporting) rules for the company in relation to,
- Issue/ transfer of securities in case of inbound M&A /holding of securities in case of outbound mergers;
- Repayment of (overseas) borrowings, as the case may be;
- Acquisition/holding of assets in or outside India as the case maybe;
- In the event the Foreign Exchange Management Act does not permit holding/acquisition of securities, repatriation of their sale proceeds to/outside India, as the case maybe.
Additionally, the valuations for both companies for the purpose of cross border merger shall be done as per internationally accepted pricing methodology, certified by a chartered accountant/ public accountant/merchant banker authorized to do so in either jurisdiction.
The RBI is accepting public comments till May 9, 2017.
The Indian Lawyer