New Amendment: Streamlined Mergers for Foreign Companies with Indian Subsidiaries under Section 233

India’s Ministry of Corporate Affairs (MCA) issued a notification on September 9, 2024, introducing amendments to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016. These changes, effective from September 17, 2024, simplify the process for foreign companies to merge with their wholly owned subsidiaries in India. This revision, officially termed the Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2024, introduces a significant shift by fast-tracking such mergers.

Key Changes Introduced:??

Rule 25A has been updated to include a new sub-rule that directly impacts mergers between foreign holding companies and their Indian subsidiaries. The specific conditions for these mergers are as follows:

1.??? RBI Approval: Both the foreign parent company and the Indian subsidiary must seek prior approval from the Reserve Bank of India (RBI).

2.??? Compliance with Section 233 of the Companies Act: The Indian subsidiary is required to comply with Section 233, which provides a simplified framework for mergers and amalgamations.

3.??? Application to the Central Government: The Indian entity must file an application with the Central Government under Section 233. The application is subject to the procedures outlined in Rule 25.

4.??? Submission of Declarations: A declaration, as mentioned in sub-rule (4), must accompany the application filed under Section 233.

Furthermore, for mergers involving companies from nations that share a land border with India (e.g., China), a specific declaration in Form No. CAA 16 must be submitted through the jurisdictional Regional Director to the Central Government.

Companies in India can pursue mergers through two primary routes:

1.??? NCLT Route: A formal petition is filed with the NCLT, which is a longer and more time-consuming process.

2.??? Section 233 Route: Mergers between small companies, start-ups, or mergers involving a parent and its wholly owned subsidiary can be processed without NCLT approval under Section 233 of the Companies Act. This method is faster and more cost-effective.

A "start-up company" refers to a private company incorporated under the Companies Act and recognized as such by the Department for Promotion of Industry and Internal Trade (DPIIT), as per their February 19, 2019, notification.

Benefits of the Amendment:??

The amendment reduces the burden of time-consuming processes by bypassing the requirement for National Company Law Tribunal (NCLT) approval. This is particularly advantageous for foreign start-ups or technology companies looking to merge with their Indian subsidiaries. It simplifies the process and encourages efficient business restructuring, especially for Indian companies that were initially structured as wholly owned subsidiaries of foreign entities.

Industry Implications:??

This change is particularly relevant for companies considering a "reverse flip"—a process in which Indian-founded start-ups or companies, initially structured as offshore subsidiaries, relocate their parent entities back to India. With the Indian government’s recent reforms, many tech and fintech companies are seizing the opportunity to move their operations back to India, benefiting from the country’s growing investor confidence, business-friendly environment, and robust capital markets.

This amendment is expected to accelerate such shifts, as it provides a smoother pathway for restructuring and relocation. Investors and companies alike are drawn to India’s favourable valuations and strong exit opportunities, making the country an increasingly attractive hub for global businesses looking to expand or relocate operations.