Regulations 1 to 4 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
When a foreign company merges into an Indian company, the Reserve Bank's Foreign Exchange Management (Cross Border Merger) Regulations, 2018 say what the resulting Indian company may do with the securities, debts, borrowings and assets it takes over. Regulations 1 to 3 give the title, the definitions and the general bar on acquiring or transferring securities, debt or assets across the border on account of a cross border merger. Regulation 4 sets six rules for an "inbound merger", several of them with a two-year clock. This article reads regulations 1 to 4 as amended.
This article states the position as the Regulations were notified on 20 March 2018 (Notification No. FEMA.389/2018-RB) and as amended on 29 May 2026 (Notification No. FEMA 389(1)/2026-RB); later amendments should be checked. The Companies Act side of cross border mergers is in our article on section 234 of the Companies Act, 2013. For a cross border merger that needs a structured FEMA review, our legal consultation service can help.
A cross border merger is any merger, amalgamation or arrangement between an Indian company and a foreign company under the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016. In an inbound merger, where the resultant company is an Indian company: it may issue securities to non-residents per the pricing guidelines, entry routes, sectoral caps and conditions for foreign investment; foreign borrowings must conform within two years; assets not permitted must be sold within two years of the sanction and proceeds repatriated immediately; and a foreign currency account may run for at most two years. Since the 2026 amendment, "Competent Authority" replaces "NCLT".
Regulation 1: title
The Regulations may be called the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, and came into force on the date of their publication in the Official Gazette.
The preamble and the Act
The Regulations are made "in exercise of the powers conferred by sub-section (3) of section (6) read with section 47 of the Foreign Exchange Management Act, 1999", quoted as printed, including "section (6)". The Act text now prints sub-section (3) of section 6 as omitted with effect from 15 October 2019, and section 47(3) keeps earlier Reserve Bank regulations in force until amended or rescinded. See our articles on section 6 of the Act and on sections 47 and 48. The 2026 amendment cites section 47 alone.
Regulation 2: definitions, as amended
| Clause | Term | Meaning |
|---|---|---|
| (i) | Act | The Foreign Exchange Management Act, 1999 |
| (ii) | Companies Act | The Companies Act, 2013 |
| (iia) | Competent Authority | Inserted on 29 May 2026: any authority empowered under the Companies Act, 2013 or any subordinate legislation made under it to approve a scheme of merger or amalgamation |
| (iii) | Cross border merger | Any merger, amalgamation or arrangement between an Indian company and a foreign company in accordance with the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 notified under the Companies Act, 2013 |
| (iv) | Foreign company | Any company or body corporate incorporated outside India whether having a place of business in India or not; for outbound mergers, it should be incorporated in a jurisdiction specified in Annexure B to those 2016 Rules |
| (v) | Inbound merger | A cross border merger where the resultant company is an Indian company |
| (vi) | Indian company | A company incorporated under the Companies Act, 2013 or any previous company law |
| (viii) | Outbound merger | A cross border merger where the resultant company is a foreign company |
| (ix) | Resultant company | An Indian company or foreign company which takes over the assets and liabilities of the companies involved |
| (x) | Undefined words | Same meaning as in the Act |
Clause (vii), which defined "NCLT" as the National Company Law Tribunal under the Companies Act, 2013, was omitted by the 2026 amendment. The 2026 amendment also substituted "Competent Authority" for "NCLT" wherever it occurs in regulations 4, 5, 7 and 9. The Companies Act rules are named as printed; they are not explained here. The merger rules of the Non-debt Instruments Rules are in our article on merger, demerger and amalgamation under rule 19.
Regulation 3: the general bar and pending mergers
"Save as otherwise provided in the Act or rules or regulations framed thereunder or with the general or special permission of Reserve Bank, no person resident in India shall acquire or transfer any security or debt or asset outside India and no person resident outside India shall acquire or transfer any security or debt or asset in India on account of cross border mergers."
The Explanation says cross border mergers pending before the competent authority on the date of commencement of the Regulations are governed by them.
Regulation 4: inbound merger
Sub-regulation (1): securities issued to non-residents
The resultant company may issue or transfer any security or a foreign security to a person resident outside India "in accordance with the pricing guidelines, entry routes, sectoral caps, attendant conditions and reporting requirements for foreign investment as laid down in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017". The Non-debt Instruments Rules, 2019 were made in supersession of those 2017 Regulations, as their preamble says, and the present rules are the place to look; check the current instrument. Two provisos:
- (i) where the foreign company is a joint venture or wholly owned subsidiary of the Indian company, it shall comply with the conditions for transfer of shares of such JV or WOS by the Indian party in the Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2004; and
- (ii) where the inbound merger of the JV or WOS results in acquisition by the resultant company of the step down subsidiary of the JV or WOS of the Indian party, the acquisition should comply with regulations 6 and 7 of those 2004 Regulations.
The 2004 Regulations were superseded by the Overseas Investment Rules, 2022, as the preamble of those Rules says; see our article on the scope of the Overseas Investment Rules. The 2026 amendment did not change these names; check the current instrument.
Sub-regulation (2): foreign offices
An office outside India of the foreign company, after sanction of the scheme, is deemed to be a branch or office outside India of the resultant company under the Foreign Exchange Management (Foreign Currency Account by a person resident in India) Regulations, 2015, and the resultant company may undertake any transaction permitted to a branch or office under those Regulations.
Sub-regulation (3): guarantees and borrowings, two years
Guarantees or outstanding borrowings of the foreign company from overseas sources which become the borrowing of the resultant company, or any borrowing from overseas sources entering the books of the resultant company, "shall conform, within a period of two years, to the External Commercial Borrowing norms or Trade Credit norms or other foreign borrowing norms", as laid down in the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, the (Borrowing or Lending in Rupees) Regulations, 2000 or the (Guarantee) Regulations, 2000, as applicable. Provisos: no remittance for repayment of such liability may be made from India within the two years; and the conditions with respect to end use shall not apply. The Guarantees Regulations, 2026 replace the 2000 guarantee regulations and are covered in our article on cross border guarantees; the Borrowing and Lending Regulations, 2018 have live articles on this site, for instance ECB eligibility under Schedule I. Check the current instruments.
Sub-regulation (4): assets outside India
The resultant company may acquire and hold any asset outside India which an Indian company is permitted to acquire under the Act, rules or regulations, and may transfer such assets in any manner for a transaction permissible under them.
Sub-regulation (5): assets that cannot be held, two years
Where an asset or security outside India is not permitted to be acquired or held by the resultant company, it "shall sell such asset or security within a period of two years from the date of sanction of the Scheme by and the sale proceeds shall be repatriated to India immediately through banking channels". A liability outside India that cannot be held may be extinguished from the sale proceeds within the two years.
Sub-regulation (6): foreign currency account, two years
The resultant company may open a bank account in foreign currency in the overseas jurisdiction for transactions incidental to the cross border merger for a maximum of two years from the date of sanction of the scheme by the Competent Authority.
A worked example
Piper Dynamics Limited, an Indian company, absorbs Stoke Dynamics B.V., a foreign company, in an inbound merger sanctioned by the Competent Authority. Stoke had a foreign loan that now sits in Piper's books. Under regulation 4(3) the loan must conform, within two years, to the applicable foreign borrowing norms, and no repayment may be remitted from India in that period. Stoke also held a foreign security that Piper may not hold; under regulation 4(5) Piper must sell it within two years of the sanction and bring the proceeds to India immediately. Piper may keep a foreign currency account for the incidental transactions for up to two years under regulation 4(6). The names are invented.
Where regulation 9 and the rest are covered
Regulations 5 to 8 are explained in our article on outbound mergers, valuation and reporting, and regulation 9 on deemed approval is in our article on cross-border mergers under regulation 9. For an overview of the compliance heads, see inbound mergers under FEMA: five compliance heads.
Need help with a cross border merger?
The two-year clocks in regulation 4 start at the sanction of the scheme, and the instruments they refer to have changed since 2018. Our legal consultation team can set out the FEMA steps with the Companies Act process.
Key takeaways
- "Competent Authority" has replaced "NCLT" in regulations 4, 5, 7 and 9 since 29 May 2026.
- Regulation 3 bars cross border acquisition or transfer of securities, debt or assets on account of a merger, except as the law, the Reserve Bank's permission or the Regulations allow.
- Inbound merger: securities to non-residents per foreign investment norms; foreign borrowings conform within two years; disallowed assets sold within two years with proceeds repatriated immediately; foreign currency account for at most two years.
- The names of the 2017, 2004 and 2000 regulations are quoted as printed; the current instruments should be checked.
Read next
- Outbound merger: valuation and reporting, regulations 5 to 8
- Cross-border mergers under regulation 9 and deemed RBI approval
- Merger, demerger and amalgamation: rule 19 of the Non-debt Instruments Rules
- Cross border mergers: Indian and foreign companies
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.