On September 9, 2024, the Ministry of Corporate Affairs (“MCA”), Government of India introduced a much-awaited amendments to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 to be effective from September 17, 2024 (“the amendment”). With an aim to simplify the compliance process for reverse flipping of companies incorporated outside India with an Indian subsidiary by way of inbound merger resulting into direct holding by ultimate shareholders in an Indian entity where essentially businesses is conducted.
Reverse flipping facilitates elimination of multiple international layers for an entity thereby reducing the impact of tax outgo at multiple jurisdiction. With India gaining traction as a preferred location for doing business and its booming IPO market, many companies having multi layered structures at various jurisdiction are resorting to reverse flip structures in order to create their base in India. The introduction of the Amendment provides compliance guidelines for ease of implementation.
One of the key factor in the ease of implementation is the timeline involved in the execution to achieve a resultant structure. The Amendment addresses this concern whereby companies seeking reverse flip are permitted to adopt route as prescribed under section 233 of the Companies Act 2013, in relation to fast-track merger process, after obtaining RBI approval. The Amendment ensures reduction of compliance timeline significantly as a fast-track merger is approved by the Regional Director (RD) and does not require an approval from the NCLT.
The conditions laid down in the Rule 25A(5) are as follows:
- both the transferor and transferee companies shall obtain the prior approval of the Reserve Bank of India;
- the transferee Indian company shall comply with the provisions of Section 233;
- the transferee Indian company shall make an application to the RD under Section 233 of the Companies Act and provisions of Rule 25 of the Merger Rules shall apply to such application; and
- a declaration, if the foreign company is incorporated in a country which shares a land border with India, shall be made that the approval had been obtained under the FEMA regulations, at the time of making application with the RD.
MCA’s move to boost reverse flipping structures are welcoming and a step towards ease of doing business in India. While Indian regulatory laws provides ease in implementing such structures, various other factors such as tax cost, compliance cost, stamp duty cost in India and overseas would play a major role in successful implementation of reverse flip structures. In the recent past companies like PhonePe, Razorpay and Groww have completed reverse flip of their holding company back into India. It would be interesting to see how many such reverse flip takes place in the coming years.
For detailed discussion on the above topic, please feel free to contact devadhaantu@devadhaantu.in
