Inbound Cross-Border Merger Sanctioned Under S.234 Companies Act Based on 'Deemed' RBI Approval: NCLT Mumbai - 2025-09-12

NCLT Mumbai Sanctions Inbound Cross-Border Merger of Seychelles Firm into Indian Company

MUMBAI, INDIA – The National Company Law Tribunal (NCLT), Mumbai Bench, has sanctioned a Scheme of Merger by Absorption involving a foreign entity, marking a significant application of India's cross-border merger framework. In an order dated September 12, 2025, the bench comprising Smt. Lakshmi Gurung (Member, Judicial) and Sh. Hariharan Neelakanta Iyer (Member, Technical) approved the merger of Seychelles-based Bhagyam Investment Holding Limited (Transferor Company) into Mumbai-based Lennox Investment Private Limited (Transferee Company).

The decision hinged on compliance with Section 234 of the Companies Act, 2013, and notably relied on the "deemed approval" provision under the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, circumventing the need for a separate prior approval from the Reserve Bank of India (RBI).

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Background of the Merger

The petition was filed by Lennox Investment Private Limited seeking approval for the absorption of Bhagyam Investment Holding Limited, an international business company incorporated in Seychelles. The appointed date for the merger was set as April 1, 2023.

The primary rationale presented for the amalgamation included:

* Reduced Compliance: Streamlining legal and regulatory obligations by consolidating into a single entity.

* Cost Efficiency: Eliminating administrative costs associated with maintaining two separate companies.

* Asset Management: Enabling the Indian transferee company to better manage and exploit illiquid Redeemable Preference Shares of Ruchi Infrastructure Limited currently held by the Seychelles-based transferor.

* Enhanced Flexibility: Creating a more robust financial and operational structure to pursue future growth.

As per the scheme, shareholders of Bhagyam Investment will receive 8.3 Compulsorily Convertible Preference Shares (CCPS) of ₹10 each in Lennox Investment for every one equity share of USD 1 held.

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Key Legal Arguments and Regulatory Compliance

A central issue in the proceedings was adherence to Indian regulations governing foreign mergers.

Petitioner's Submissions: The petitioner company argued that the scheme fully complies with Sections 230 to 232 and Section 234 of the Companies Act, 2013. A critical point was the satisfaction of Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, which mandates prior RBI approval for such mergers.

The company contended that under Regulation 9 of the FEMA (Cross Border Merger) Regulations, 2018, the transaction is "deemed" to have prior RBI approval, as they had furnished the required certificate from the Whole-Time Director and Company Secretary.

Regional Director's Observations: The Regional Director (RD), Western Region, raised several observations, to which the petitioner provided undertakings and clarifications. These included:

* RBI Approval: The RD questioned the absence of a prior RBI approval. The petitioner reiterated its reliance on the "deemed approval" clause.

* Compliance with Seychelles Law: The petitioner confirmed that under Section 205 of Seychelles' International Business Companies Act, 2016, no prior approval from the foreign government or registrar was necessary for the scheme's sanction.

* Beneficial Ownership: The RD highlighted that Form BEN-2, for declaring Significant Beneficial Owners (SBO), had not been filed. The company explained that due to a complex cross-holding structure among its corporate shareholders (Frame Wing Investment, Small Biz Wisdom Investment, and Uprise Investment), no single individual or entity held a majority stake, thus not triggering the SBO rules.

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Tribunal's Pivotal Reasoning

The NCLT, after reviewing the submissions and the RD's report, found no major impediments to sanctioning the scheme. The bench took note of the undertakings provided by the petitioner company in response to the RD's concerns.

On the issue of beneficial ownership, the Tribunal noted, "It shall be open to the Competent Authority to decide and take action against the Petitioner Company if violation is found regarding the BEN-2. Their right shall not be affected in any manner by sanction of this Scheme."

The order also referenced the Supreme Court's decision in Miheer H. Mafatlal vs. Mafatlal Industries Ltd , emphasizing that the commercial wisdom of shareholders and creditors, who have approved the scheme, should not be lightly interfered with.

The Tribunal concluded that the scheme was fair, reasonable, and not contrary to public policy.

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Final Decision and Directions

The NCLT sanctioned the Scheme of Merger with an appointed date of April 1, 2023. The order made it clear that the approval does not grant immunity from future regulatory scrutiny. Key directions included:

• The sanction will not prevent authorities like the Income Tax Department or the Registrar of Companies from investigating past affairs or taking action for any violations.
• The Transferee Company must comply with all applicable laws, including stamp duty and tax payments.
• All employees of the Transferor Company will be transferred to the Transferee Company without any break in service and on terms no less favorable.

This judgment reinforces the procedural pathway for inbound cross-border mergers in India and clarifies the application of the "deemed approval" mechanism under FEMA regulations, providing valuable precedent for similar corporate restructuring arrangements.