The Scheme
Cross-border mergers represent a distinctive challenge within Indian corporate law, requiring the coordination of multiple statutory regimes and regulatory authorities. The decision of the NCLT Chandigarh in CP (CAA) No. 30/Chd/Hry/2024, arising from the cross-border amalgamation of FIM Holdco I Limited and Ariston Investments Sub A Limited (both Mauritius companies) with One World Center Private Limited (an Indian company), illuminates the procedural pathways available to petitioners when initial applications encounter obstacles.
The scheme contemplated an inbound merger under Sections 230-232 of the Companies Act, 2013, read together with Section 234, which governs cross-border mergers. Additionally, the transaction was required to comply with the Foreign Exchange Management Act (Exemption) Third Amendment Rules, 2018, commonly referred to as the FEMA (Cross Border Merger) Regulations, 2018. The complexity of such a transaction, involving both corporate and foreign exchange dimensions, necessitated careful attention to regulatory compliance.
First Motion and Dismissal
The first motion filed by the petitioners was dismissed by the NCLT on 22.04.2024. The Tribunal’s dismissal was grounded in a material deficiency: the share exchange ratio had been substantially altered after the filing of the initial petition. The Tribunal correctly recognized that such alterations, undertaken without fresh compliance with statutory procedures and without renewing the requisite approvals from shareholders and creditors, rendered the application incomplete. The Tribunal did not foreclose the remedy; rather, it indicated that the petitioners could cure this defect by filing a fresh motion with the requisite compliance steps.
Appellate Intervention
The petitioners pursued an appeal before the National Company Law Appellate Tribunal. On 19.07.2024, the Appellate Tribunal set aside the dismissal order, recognizing that a petitioner should have the opportunity to cure procedural defects where the underlying commercial transaction remains viable. This appellate intervention was significant, as it established that dismissal orders under Section 230-232 proceedings need not be final where the defect is remediable through fresh compliance.
The Order and Conditions
The petitioners thereafter filed a second motion in compliance with the Appellate Tribunal’s directions. The NCLT approved the scheme, but imposed several conditions reflecting the multi-layered regulatory framework governing inbound cross-border mergers. These conditions included approval from the Reserve Bank of India, deposit of Rs. 1,00,000 with the Regional Director as prescribed under the Companies Act, compliance with the laws of Mauritius governing the transferor companies, and transfer of all property, liabilities, and employees of the transferor companies to the transferee. The Tribunal also mandated preservation of all tax liabilities of the transferor companies, ensuring that the Department of Income Tax retained its rights to pursue assessments and recovery against the transferee for any liabilities incurred by the transferors prior to the merger.
Significance
This decision demonstrates several important principles in cross-border merger jurisprudence. First, the NCLT recognizes a distinction between fundamental defects that preclude jurisdiction and procedural defects that can be cured through subsequent motions. Second, the Tribunal’s approach to imposing conditions reflects its function as custodian of creditor and shareholder interests in a cross-border context, where the enforcement mechanisms against foreign transferor companies are necessarily limited. Third, the conditions imposed underscore the coordinated regulatory approach necessitated by cross-border transactions, wherein the NCLT cannot operate in isolation but must ensure that other regulators, including the RBI and the Revenue authorities, retain their respective powers and protections.
The judgment exemplifies how procedural law and substantive corporate law must work in concert. While procedural compliance is imperative, the law provides remedies for petitioners to cure defects and advance commercially sound transactions that satisfy the requisites of fairness and regulatory alignment.
Ms. Munisha Gandhi, Senior Advocate, Mr. Vaibhav Sharma, Advocate, and Ms. Salina Chalana, Advocate, appeared for the Petitioners, i.e., FIM Holdco I Limited, Ariston Investments Sub A Limited, and One World Center Private Limited.