On 9th September 2024, the Ministry of Corporate Affairs (MCA) issued a notification (G.S.R. 555(E)) amending the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The amendments, made under Sections 233, 234, and 469 of the Companies Act, 2013, aim to enhance procedural clarity and compliance in mergers and amalgamations between foreign holding companies and their wholly-owned Indian subsidiaries. These Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2024 will come into effect on 17th September 2024.
The most notable change is the addition of Sub-rule (5) to Rule 25A, which specifically addresses mergers where a foreign holding company is merging with its wholly-owned Indian subsidiary. The amendment outlines four key requirements for these transactions:
- RBI Approval: Both the foreign holding company and the Indian subsidiary must obtain prior approval from the Reserve Bank of India (RBI). This ensures compliance with India’s foreign exchange regulations and provides oversight for cross-border financial transactions.
- Compliance with Section 233: The Indian subsidiary must comply with Section 233 of the Companies Act, 2013, which governs simplified fast-track mergers. This provision simplifies the merger process for qualifying companies, such as holding and subsidiary companies, reducing the need for prolonged legal proceedings.
- Application to Central Government: The Indian subsidiary must apply to the Central Government under Section 233, following the procedural guidelines outlined in Rule 25 of the original rules.
- Declaration Requirement: A declaration, as specified in Sub-rule (4) of Rule 25A, must be submitted to ensure compliance with the Companies Act and other regulatory obligations during the merger application.
These changes are designed to streamline cross-border mergers, especially within multinational corporate groups, by making the process more transparent and efficient. The requirement for RBI approval adds financial integrity, while the fast-track provisions of Section 233 allow these transactions to avoid lengthy court procedures.
In conclusion, the 2024 Amendment Rules provide a clear and efficient framework for cross-border mergers involving foreign holding companies and their wholly-owned Indian subsidiaries, improving regulatory compliance while simplifying the process for multinational companies operating in India.
