13 September 2024
MCA notifies changes concerning mergers and acquisitions
 
The Ministry of Corporate Affairs (MCA) recently introduced changes concerning mergers and acquisitions transactions. The gist of the changes are summarized below:

1. MCA amends the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (Merger Rules)

MCA has issued the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2024 (Rules), amending Rule 25A of the existing Merger Rules. These amendments will take effect from 17 September 2024. The key highlights of the Rules are as follows:
  • The Rules regulate mergers between a holding company situated outside India and its wholly owned subsidiary in India (Indian WOS), wherein the holding company shall be the transferor company and the Indian WOS transferee company.
  • Both companies shall obtain prior approval from the Reserve Bank of India (RBI).
  • Indian WOS needs to follow the process of merger under Section 233 of the Companies Act, 2013 (which regulates mergers between certain classes of companies) and seek approval of the Central Government (powers delegated to the Regional Director, MCA).
  • If the holding company is located in a country sharing a land border with India, prior approval under the FEM (Non-debt Instruments) Rules, 2019, is required, along with a declaration at the time of application under Section 233.

2. MCA issues Competition (Minimum Value of Assets or Turnover) Rules, 2024 (De Minimis Exemption)

Effective from 10 September 2024, the MCA has introduced rules regarding the De Minimis Exemption. The exemption retains the recently updated deal values, exempting certain transactions from the notification requirement under the Competition Act, 2002. A transaction is exempt if the target company (i.e., acquiree or transferor) has:
  • Assets in India of not more than INR 4.5 billion; or
  • Turnover in India is not more than INR 12.5 billion.

Our Comments
The amendment to the Merger Rules requires companies to obtain prior approval from both the RBI and the Central Government for mergers involving a foreign holding company and an Indian WOS. This eliminates the need for approval through the National Company Law Tribunal (NCLT), enabling foreign holding companies especially startups headquartered abroad to reverse-flip into an Indian WOS and capitalize on growth opportunities in India. However, these mergers will undergo close scrutiny by the RBI and the Central Government.

Interestingly, the merger of an Indian WOS into a foreign holding company appears to remain outside the scope of the Central Government and will continue to be processed via the NCLT.

In regard to the De Minimis Exemption, MCA has codified the revised deal values, maintaining a liberal approach and this is a welcome move.
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