What Is a Cross Border Merger? Section 234

A cross border merger under Indian company law runs on a single section and two gates. Section 234 of the Companies Act, 2013 applies the whole Chapter on compromises, arrangements and amalgamations to schemes between a company registered under the Act and a company incorporated abroad, but only where the other jurisdiction has been notified by the Central Government and, for the merger itself, only with the prior approval of the Reserve Bank of India. This page reads section 234 as printed.

What does section 234 say about a cross border merger?

It borrows the rest of the Chapter rather than writing new machinery. Sub-section (1) provides that the provisions of this Chapter unless otherwise provided under any other law for the time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between companies registered under this Act and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the Central Government.

Two limits are built into that sentence. The Chapter applies unless otherwise provided under any other law, which subordinates it to exchange control and sectoral statutes. And it reaches only such countries as may be notified, so the counterparty's jurisdiction has to be on a list for the section to operate at all.

The rule making power that follows is unusual in naming its consultee. The Central Government may make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations provided under this section.

Which direction can a cross border merger run?

Both, and the Act says so in three words. Sub-section (2) provides that a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa.

An inbound merger, where the foreign company disappears into the Indian one, and an outbound merger, where the Indian company disappears into the foreign one, are on the same footing in the text. The sub-section opens subject to the provisions of any other law for the time being in force, which repeats the deference in sub-section (1).

How are shareholders paid in a cross border merger?

In cash, in Depository Receipts, or in a mix. The terms of the scheme may provide, among other things, for the payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose.

The words among other things matter. The sub-section names consideration as one thing the scheme may address rather than fixing an exhaustive list of permitted terms.

Why does section 234 define foreign company again?

Because it needs a wider meaning than the Act's general one, and it says so. The Explanation provides that for the purposes of sub-section (2), the expression "foreign company" means any company or body corporate incorporated outside India whether having a place of business in India or not.

Set that beside the definition in section 2(42), which reads "foreign company" means any company or body corporate incorporated outside India which has a place of business in India and conducts any business activity in India in any other manner. The general definition is gated on presence in India. The section 234 Explanation removes the gate for merger purposes, which is what allows an Indian company to merge into an overseas company that has never traded here.

How does a cross border merger relate to the rest of the Chapter?

It sits on top of it. Because the Chapter applies mutatis mutandis, the meetings, disclosures and order machinery that govern a domestic scheme are the starting point, which means the section 230 route described in what is a scheme of arrangement and the merger specific rules in a merger under section 232 supply the procedure that section 234 does not repeat. The Tribunal's continuing role after sanction is set out in the power to enforce a scheme.

For an investor, the disclosure trail is the same as any other scheme. A listed company proposing a cross border merger files the draft scheme with the exchanges, publishes the voting results, and files the Tribunal order, each with a date attached.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.