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MCA Amends Rule 25A to Facilitate Reverse Flipping
A noteworthy amendment to Rule 25A of the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 has been introduced by the Ministry of Corporate Affairs on September 9th, 2024, with the addition of subrule (5). The new subrule outlines the process to be followed in case of a merger or amalgamation between a transferor foreign company incorporated outside India being a holding company and the transferee Indian company being a wholly owned subsidiary company incorporated in India.
The amendment mandates the prior approval of the RBI for both the companies, application to the Central Government, and compliance with Section 233 by the transferee Indian company. The provisions of Rule 25 shall apply to such application and declaration under Rule 4 in Form No. CAA-16 shall be made at the stage of filing the application under Section 233.
The compliance rules have been streamlined by the government to enable reverse flipping, which means that the companies that were originally incorporated abroad, shift their bases back to India for regulatory and tax benefits as well as the strong IPO market, which favours investors. The move is also aimed at offsetting the delays caused by the overburdened national Company Law Tribunals (NCLT) and providing an impetus to Indian startups that had opted for overseas domicile but later returned to India, such as PhonePe, Razorpay and Flipkart.
Rule 25A was added via notification dated 13.04.2017 that provided for the merger of a foreign company with an Indian company and vice versa after obtaining prior approval from the RBI and complying with provisions from 230-232. This rule was first amended on 30.05.2022 to add a subrule (4) to provide for a declaration to be filed in case a merger, demerger or compromise is taking place between an Indian company and a company incorporated in a country sharing a land border with India. The provision has now been amended once again to add this subrule (5) which shall be effective from 17th September 2024.
