17 Sep 2024
The central government has amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 to fast-track the merger and amalgamation process of foreign holding companies and their Indian subsidiaries. The amendment is aimed at streamlining the approval process to support the trend of ‘reverse flipping’ transactions.
The Ministry of Corporate Affairs (MCA) has published the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2024 (Amendment) with the objective of easing ‘reverse flipping‘ norms in India. The Amendment is effective from 17 September 2024.
The trend of ‘reverse flipping‘ has become increasingly popular, particularly amongst start-ups in India. Start-ups which were initially set up overseas due to favourable local tax and regulatory frameworks are returning to India considering the easing regulatory norms, increasing government incentives and the growing IPO markets which provide desirable valuations and exit strategies for investors.
Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (Merger Rules) permits companies incorporated overseas to merge with an Indian company by seeking prior approval of the Reserve Bank of India (RBI) and the National Company Law Tribunal (NCLT). The process of obtaining an approval from the NCLT was often time consuming due to backlog of cases, resulting in a delay in the mergers.
The Amendment introduces Rule 25A(5) to the Merger Rules, permitting the merger or amalgamation of a foreign holding company into an Indian subsidiary to be undertaken through the fast-track merger scheme set out under Section 233 of the Companies Act, 2013 (Companies Act). A fast-track merger would not require an approval from the NCLT, which would streamline the process and significantly reduce the costs and time required for a merger.
Previously, the fast-track merger route was reserved for mergers between Indian holding companies and their subsidiaries, between start-up companies, or between start-up companies with small companies (i.e., companies with a paid-up share capital of less than INR 4,00,00,000 (~USD 476,000) and turnover of less than INR 40,00,00,000 (~USD 4,760,000).
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