According to a notification from the Ministry of Corporate Affairs (MCA) released on Tuesday, any such merger or amalgamation will now require approval from the Reserve Bank of India (Reserve Bank of IndiaIn addition to the government’s approval, the law will also require its approval. It will come into force on September 17.
Experts say the move will primarily benefit startups created by Indians who are based abroad but now want to return to India through such mergers to better tap the country’s strong growth prospects. The term “reverse flipping” is often used to refer to such homecomings.
The Ministry has now introduced a new sub-rule (5) to Rule 25A of the Companies (Compromises, Arrangements and Mergers) Amendment Rules, 2024, under which both the foreign transferor holding company and its wholly-owned Indian subsidiary would have to obtain RBI approval for mergers or amalgamations.
At the same time, the Indian transferee company will have to file an application with the government under Section 233 of the Companies Act, 2013 and Rule 25 of the Companies (Compromises, Arrangements and Mergers) Rules, 2016, to seek approval for such inbound mergers into India.
The requirement for Indian subsidiaries to seek NCLT approval used to delay mergers as the court is overloaded with a large number of cases, experts said.
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The notification will help the “trend of investment reversal” that has been the “norm for many startups in recent times, driven by more favourable valuations in Indian capital markets, strong government support, simplified regulatory frameworks and easier access to capital,” said Sandeep Jhunjhunwala, partner at Nangia Andersen LLP.
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