Amendment in the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016
In furtherance to its initiatives to improve vigilance / monitoring of directors of foreign nationals, sharing land borders with India, the Ministry of Corporate Affairs (MCA) has issued a Notification No. G.S.R. 401(E) dated 30th May, 2022, thereby, amending the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“Rules”), which shall be effective from 30th May 2022 . The said amendment shall affect any Indian company with any arrangement, merger or demerger taking place with a company incorporated in a country sharing a land border with India (i.e., China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan). The key highlights of the amendment are as follows:
I. Mandate of undertaking in the event of a compromise, arrangement, merger or demerger between companies / body corporates of India and neighboring countries
As per the notification, it has been clarified that any body corporate or company from a country sharing land borders with India, intending to enter into any form of a compromise, arrangement, merger or de-merger with an Indian company or body corporate would need to provide an undertaking as per a new Form No. CAA- 16, which has been duly provided under the notification. For the purpose of the same, sub-rule (4) has been inserted under Rule 25A which states as follows:
“(4) Notwithstanding anything contained in sub-rule (3), in case of a compromise or an arrangement or merger or demerger between an Indian company and a company or body corporate which has been incorporated in a country which shares land border with India, a declaration in Form No. CAA-16 shall be required at the stage of submission of application under section 230 of the Act.”
(i) The amendment shall mandate the transferee and transferor companies to provide a declaration under FORM No. CAA 16, while filing an application for merger and amalgamation under Section 230 of the Companies Act, 2013, before the Hon’ble National Company Law Tribunal (“NCLT”).
(ii) The said FORM No. CAA 16 shall become mandatory to be attached along with an application under Section 230 of the Companies Act, 2013, wherein the declaration shall clarify whether the company / body corporate requires any prior approval under the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 (if sharing land border with India, such as China, Pakistan, Bhutan, Myanmar, Afghanistan, Nepal, and Bangladesh), and if required, to be furnished along with the said FORM.
(iii) This amendment shall apply prospectively for any arrangement taking place on or after 30th May, 2022.
II. Details of the Declaration under FORM No. CAA 16
The details of Form No. CAA-16 has been reproduced hereinbelow:
“FORM NO. CAA.16
[Pursuant to section 230 and rule 25A]
In Company Petition No. …………………
Declaration in terms of Rule 25A
An application under section 230 is being made before the National Company Law Tribunal for merger and amalgamation between:
1. M/s. _______________(details of transferee company/body corporate)
2. M/s.________________(details of transferor company/body corporate)
And in compliance with Rule 25A,
I ____________duly authorised representative of ¬¬¬__________________(details of company/body corporate) do hereby solemnly declare that–
_________ the company/body corporate is not required to obtain prior approval under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019; or
___________ the company/body corporate is required to obtain prior approval under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and the same has been obtained and is enclosed herewith.
(Tick whichever is applicable)
Approval under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.”
IMPACT OF THE AMENDMENT:
The intent of the amendment quite evidently focuses upon the level of scrutiny over mergers and amalgamations between Indian and foreign companies (belonging to countries sharing land borders with India). Such foreign companies intending to merge or amalgamate with an Indian company shall now be required to obtain prior approval under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and thereafter be required to furnish the same along with FORM CAA 16, while filing an application under Section 230 of the Companies Act, 2013 before the Hon’ble NCLT. The said form and mandate shall hereby act as a declaration for such foreign companies belonging to countries, sharing land borders with India, and would act as an additional procedural step required to be undertaken by such foreign companies, devoid of which the Tribunal may not approve the merger / amalgamation scheme of the transferor and transferee companies.