Legal Requirements For The Cross-Border Transaction Business In India

Guiding Businesses

Legal Requirements For The Cross-Border Transaction Business In India


Any form of business or services transaction done with the involvement of two or more countries is called Cross Border Transaction. There are two Acts in India that deals with an individual (particularly an Indian Resident or Foreign Resident) who undertakes border transactions and hence these two laws are – (i) Foreign Exchange Management Act of 1999 and (ii) Companies Act, 2013. It is very pertinent to note that both the above laws must be complied with while entering into a Cross Border Transaction. 

Cross border merger and acquisitions are deals between foreign companies and domestic firm in the target country. The trend of increasing Cross – border Merger and Acquisition has accelerated with the globalization of the world economy. 

On the other hand, it is being observed that there has been an increase in the number of Cross – border mergers and acquisition taking place. When there is a merger, amalgamation or arrangement between an Indian Company and a Foreign Company, the same is known as Cross – border merger and amalgamation. 

On 13th April, 2017, the Ministry of Corporate Affairs enabled Cross – border mergers by notifying Section 234 of the Companies Act, 2013. Whereas, the Companies Act of the year 1956 only permitted inbound mergers, where the resultant company is an Indian Company. Pursuant to Section 234 of the Act, foreign companies from only certain jurisdictions notified by the Indian government can be the “transferee company”, with reference to Section 384 (4) (b) of the 1956 Act. Subsequently, the 2016 Rules (C.A.A. Rules) were enacted to facilitate the sanctioning of both inbound and outbound mergers (where the resultant company is a Foreign Company) and other arrangements before the National Company Law Tribunal. After which the Reserve Bank of India had also notified the Foreign Exchange Management (Cross Border Merger) Regulations of 2018 in order to deal with issues arising out of cross – border deals. 


Section 234 clause (2) read with Rule 25 – A of C.A.A. Rules of the 2013 Companies Act states that a foreign company may merge with the company registered under the Act or vice – versa. Such a merger requires mandatory prior approval of the Reserve Bank of India.  


Section 234 clause (1) of the Act provides that rules can be made by the Central Government, in consultation with the R.B.I in connection with mergers and amalgamation.  


The 2013 Companies Act creates a new regulator, the Tribunal who upon its constitution will assume the jurisdiction of the High Courts for sanctioning mergers. The Tribunal in such case will consider the application of merger after the company concerned has obtained approval from the Reserve Bank of India and complied with the provisions of Section 230 to Section 233 of the Act and the Rules. 


With reference to the flow of transactions, Cross – border merger and acquisition could be Inbound (when foreign businesses are investing in India) or Outbound (when Indian business making investment outside India). Some of the considerations are common to cross – border merger and acquisition, such as follows –  

  • The impact of governmental regulations at all levels such as licensing, employment law, taxation and subject matter regulation. 
  • The difficulty of complying with both the country laws. 
  • The obstacles to integration posed by different cultures and languages. 
  • Barriers to the procedure of due diligence. 

Also, the Cross Border Merger Regulation of 2018 (hereby referred as C.M.R.) defines an inbound merger as a merger between an Indian and a Foreign Company where the resultant company is an Indian company and which takes over the assets and liabilities of the merging companies. An outbound merger is between an Indian and a foreign company where the foreign entity is the resultant company.  


In the case of Inbound Merger, the Indian company may issue or transfer securities to a person residing outside India in accordance with Foreign Exchange Management Regulation of 2000.  

All borrowings of the transferor foreign company which becomes the borrowing of the resultant company must conform with the external commercial borrowing norms or trade credit norms or other foreign borrowing norms as laid down under the Foreign Exchange Management Regulation 2000. 

The resultant India Company may acquire or hold assets abroad as the same is permitted under the provisions of FEMA and rule and/ or regulations framed there under. For instance, the resultant company may acquire immovable property abroad for its business and for resident purposes for itself in accordance with Regulation of the Foreign Exchange Management Regulation of 2015. 

The resultant company may be either of the above, which takes over the assets and liabilities of the companies involved in the Cross – border merger and acquisition procedure. 


In case of an Outbound mergers where the resultant company is a Foreign Company as mentioned above. 

The acquisition and holding of securities in the resultant company by an Indian resident shall be in accordance with Foreign Exchange Management Regulation of 2000 or the provision of the Liberalized Remittance Scheme as applicable. The resultant foreign company shall be liable to repay outstanding or impending borrowings as per the scheme sanctioned by the Tribunal as per the terms of the Companies (Compromise, Arrangement or Amalgamation) Rules of 2016. 

The resultant foreign company can acquire or hold any assets in India or transfer such assets within the permissible limits under the provisions of the FEMA. 

In case both Inbound and Outbound mergers, if such assets or securities acquired or hold by the resultant company in contravention of the provision of FEMA, the resultant company shall sell out all the assets or security within a period of 180 day from the sanction date of the Cross – border merger scheme and the sale proceeds to be repatriated to India or outside India as the case may be immediately through banking channels.  

The Draft Regulations require all transactions arising due to Cross – border merger to be reported to the Reserve Bank of India by the Indian company and foreign company involved in the Cross – border merger as may be prescribed from time to time. 


Cross border M&A, now a day has become a useful tool for expansion of the business. Before, we had several obstacles and companies were then bound by several obligations while entering the outer world. Whereas, the new companies act of the year 2013 is a step forward towards globalization. It opens up ways for Indian company access global market capital and vice – versa. As per the new Act, both inbound and outbound mergers have been allowed with those foreign entities permitted by the Central Government in its amended Rules. Section 234 of the 2013 Act has been relied upon as the provision deals with Cross – border merger concerning merger/ amalgamation of an Indian company with a foreign company and the other way round. The introduction of this provision is a welcome step.  

However, the restriction on Cross – border merger (both ways) of Indian companies with foreign companies of only notified countries in Section 234 is not regressive but also the protectionist mindset of the government authority. 

About the author: Pranjali Pandya is a 5th year law student at National Law University, Visakhapatnam. She exhibits remarkable interest in the field of Criminal Law and Humanitarian law and is sensitive towards the causes of Child Welfare Rights. She has interned under various content writing sectors and has experience as an editor at International Review of Human Rights Law and other well-known organizations. She believes in practical experiencing and is fond of learning and exploring new areas. 

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