Disclaimer: The views expressed here are solely those of the author in private capacity and do not in any way represent the views of the Legal Ocean or its editors, or any other representatives associated with Legal Ocean.

This article primarily deals about the procedure and steps to be looked upon while the amalgamation of an Indian company with its foreign subsidy in India. By amalgamation, we mean that the newly amalgamated company is constituted in India. Now let us look into the main content of this article that deals with all the necessities that are to be adhered to by the company to complete such amalgamation.

The amalgamation of an Indian Company with its foreign subsidy

Amalgamation refers to the merger of two or more companies with another company or companies which result in the formation of another company. The amalgamation takes place in such a manner that the property, liabilities of the companies become the property, liabilities of the amalgamated company. Further, shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company.[1]

Implications under the Companies Act

The best is the Conglomerate merger[2] between the Indian Company (IC) and its foreign subsidy (FS). This means that FS will transfer its shares into IC, to form a new company incorporated in India. Section 234 of Companies Act, 2013 provides for amalgamation of an Indian company with a foreign company. The section lays down that schemes of mergers and amalgamations between companies registered under the companies act and companies incorporated in the jurisdictions of such other countries as notified by the central government shall operate.

Note: Foreign Company means any company or body corporate incorporated outside India irrespective of it having a place of business in India.

Therefore, by the virtue of the above-mentioned section, the said amalgamation between IC and FS is legally feasible.

Tax Implications

Section 47 of the Income Tax Act, 1995, talks about the transactions that are not regarded as transfer. Hence nothing contained in Sec.45[3] of the said act will apply to those transfers. Section 47(vi) of the Act applies to this particular form of transaction which says that any transfer of capital assets in a scheme of amalgamation, by the amalgamating company to the amalgamated company and the amalgamated company should be an Indian company. Thus any capital gains that would arise in the said transaction between the Indian company and its foreign subsidiary during the amalgamation are exempted from income tax in Indian law under the above-said provision.

Required approvals

The following are the approvals required from various authorities:

Prior approval of RBI

Section 234(2) of Companies Act 2013 states that a foreign company may merge with a company registered under this Act or vice-versa. However, such a merger requires prior approval of the Reserve Bank of India. The scheme of merger may inter alia provide for payment of consideration in Cash or in Depository Receipt or a combination of the two

Approval of the National Company Law Tribunal

The Companies Act 2013 creates a new regulator, N.C.L.T who upon its constitution will assume the jurisdiction of High Courts for sanctioning mergers. The Tribunal will consider the merger application thereafter company concerned has obtained approval from the R.B.I and complied with the provisions of section 230 to 232 of the Companies Act, 2013 and the Rules.

Stamp Duty

Under Article 246[4], stamp duties on documents specified in Entry 91 of the Union List which includes transfer of shares, are levied by the Union but under article 268, each State, in which they are levied, collects and retains the proceeds except in the case of Union Territories in which case the proceeds form part of the Consolidated Fund of India.

In the case Hero Motors Limited v. State of U.P. and Ors [5] it was held that the consideration of transfer under a scheme of arrangement would be the shares allotted by the transferee company to the shareholders of the transferor company. The valuation of the shares would, therefore, be the consideration upon which stamp duty would be payable at the rate provided for the conveyance of movable property. A going concern or an undertaking transferred under a scheme of arrangement would, therefore, be ‘movable property’.

Pursuant to section 3 of the Stamp Act read with the judicial pronouncements, the stamp duty is levied on the instruments and not on the transaction.

The implication of Foreign Exchange law

When the result of the cross border acquisition is an Indian company, it is an inbound merger. Since the resultant company birthing out of the amalgamation is an Indian company, the following aspects must be complied with as per the Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2017 and Foreign Exchange Management (Borrowing or lending in foreign exchange) regulations, 2000

Issue/ Transfer of securities

  • The conditions prescribed by the Indian party shall apply when the foreign company is a Joint venture or wholly-owned subsidiary of the Indian company regarding the transfer of shares as stated in the Foreign Exchange Management Regulations, 2004 (TIFS)
  • Regulations 6 and 7 of the TIFS shall apply to the joint venture or wholly-owned subsidiary which turn into the acquisition of a lower subsidiary of a joint venture or a wholly-owned subsidiary of the Indian party by the resultant company. The said regulations provide permission for direct investment in certain cases and investments by Indian party engaged in financial services sector respectively.


All the borrowings of the foreign company from outside the territory of India for the purpose of the resultant company must comply to the Foreign Exchange Management (Borrowing or lending in foreign exchange) regulations, 2000 or the Foreign Exchange Management (Guarantee) Regulations, 2000 within a period of two years.


The resultant company has the same rights to acquire, hold and transfer property outside India as an Indian company under FEMA. Nothing can be done in contravention of FEMA.

Sale of assets

When the FEMA provisions do not permit the acquiring or holding assets, such assets must be sold within two years from the date of sanction of the cross border merger plan and the same must be repatriated to India immediately.


The Foreign Exchange Management (Foreign Currency Account by a person resident in India) Regulations, 2015 provides that the after the sanction of the scheme of the cross border merger, an office outside India of the foreign company shall be the branch of the resultant company.


In the context of an acquisition, an Indian company may propose to acquire a foreign unrelated company which may be engaged in trading, service or manufacturing business. The key challenge in this regard would be in discharging the considerations to the foreign shareholders. As the unrelated foreign companies are not direct WOS of the Indian company, it may first acquire the shares of the unrelated foreign company and thereafter proceed to merge the overseas business. Incidentally, the Cross-Border regulations provide for the discharge of consideration (in our case the purchase consideration is paid via the transfer of shares) by the resultant Indian Company to FC on deemed approval basis.


Thus the above mentioned are the regulations and process that a company needs to adhere to if they plan to amalgamate an Indian company and its foreign subsidy to constitute the resultant amalgamated company in India. The most beneficial scheme available to the companies is that they are exempted to pay tax under the Income Tax Act, 1995 as all the capital gains that would arise comes under sec.47 of the same act. Hence this method can be considered to be one of the most tax-efficient restructuring methods given the situation that a company could adopt.

[1]Income Tax Act § 2, cl. 1B.

[2] Conglomerate merger is a merger between two companies that have no common business areas. It refers to the combination of two firms operating in industries unrelated to each other. The business of the target company is entirely different from the acquiring company.

[3] Capital Gains, Income Tax Act § 45.

[4] Indian Constitution art.246.

[5] Hero Motors Limited v. State of U.P. and Ors, AIR 2009 All 93.

Leave A Comment

Your email address will not be published. Required fields are marked *