The Ministry of Corporate Affairs has announced the Companies Amendment Rules, 2024, according to which both foreign and Indian companies must obtain prior approval from the Reserve Bank of India (RBI) before any merger or amalgamation. This is likely to majorly impact startup deals.
The updated rules aim to ensure smoother cross-border transactions, enhance transparency in mergers involving foreign entities, and streamline the compliance process for Indian companies involved in mergers.
The amendment will come into effect from September 17, 2024, according to a Ministry of Corporate Affairs (MCA) notification.
These new rules introduce significant changes, particularly in regulating mergers and amalgamations involving foreign holding companies and their wholly-owned Indian subsidiaries.
The Indian subsidiary, as the transferee, is also required to comply with the Companies Act, 2013, and submit an application to the Central government, ensuring stricter regulatory oversight.
A new sub-rule of the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, mandates that a declaration of compliance be made at the time of applying for a merger or amalgamation. This move is expected to provide greater transparency and oversight in case of cross-border transactions, particularly in the rapidly-growing startup sector.
Commenting on the new amendments, Shravan Shetty, Managing Director of Primus Partners, told Moneycontrol, “The legislation stipulates that both companies (foreign and local) must provide information to the RBI, which will help in better tracking of cross-border merger transactions, especially in the startup space.”
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