Regulations 5 to 8 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.
In an outbound cross border merger, an Indian company merges into a foreign company, and the foreign company is the "resultant company". Regulation 5 of the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 sets seven rules for this case: what residents may hold, what happens to the Indian company's office and liabilities in India, a two-year sale period for assets that cannot be held, and a Special Non-Resident Rupee account. Regulations 6, 7 and 8 deal with valuation, compensation and prior regulatory actions, and reporting. Regulation 9, on deemed approval, is not explained here.
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), which substituted "Competent Authority" for "NCLT" in regulations 4, 5, 7 and 9. Later amendments should be checked. The preamble cites "sub-section (3) of section (6) read with section 47" of the Foreign Exchange Management Act, 1999; the Act text now prints sub-section (3) of section 6 as omitted; see our articles on section 6 and sections 47 and 48. Definitions and inbound mergers are in our article on regulations 1 to 4. For an outbound merger, our legal consultation service can help with the FEMA and company-law steps together.
In an outbound merger (resultant company is a foreign company), a resident may hold securities of the resultant company under the 2004 foreign security regulations as printed; a resident individual may acquire securities abroad only if their fair market value is within the Liberalised Remittance Scheme limits. The Indian company's India office is deemed a branch office of the resultant company. Indian liabilities follow the scheme, but need a no-objection certificate from Indian lenders. Assets that cannot be held must be sold within two years of sanction. Valuation follows rule 25A of the 2016 Companies Rules, and the Reserve Bank may prescribe reports.
Regulation 5: outbound merger
| Sub-regulation | What it says |
|---|---|
| (1) Resident holders | A person resident in India may acquire or hold securities of the resultant company in accordance with the Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004 |
| (2) Resident individual | May acquire securities outside India provided that the fair market value of such securities is within the limits prescribed under the Liberalized Remittance Scheme laid down in the Act or rules or regulations |
| (3) India office | An office in India of the Indian company, after sanction of the scheme, may be deemed a branch office in India of the resultant company in accordance with the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016; the resultant company may undertake any transaction permitted to a branch office under those Regulations |
| (4) Guarantees and borrowings | Guarantees or outstanding borrowings of the Indian company which become liabilities of the resultant company shall be repaid as per the scheme sanctioned in terms of the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016 |
| (5) Assets in India | The resultant company may acquire and hold any asset in India which a foreign company is permitted to acquire under the Act, rules or regulations, and transfer such assets in any manner for a permissible transaction |
| (6) Assets that cannot be held | The resultant company shall sell such asset or security within two years from the date of sanction of the scheme and the sale proceeds shall be repatriated outside India immediately through banking channels; repayment of Indian liabilities from sale proceeds within the two years is permissible |
| (7) SNRR Account | The resultant company may open a Special Non-Resident Rupee Account in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 for transactions under the Regulations; it shall run for a maximum of two years from the date of sanction of the scheme |
In sub-regulations (6) and (7) the sanction is by the Competent Authority since the 2026 amendment (formerly the NCLT).
Sub-regulation (1): the 2004 regulations
The 2004 foreign security 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 this reference; the reader should check the current instrument for what a resident may hold.
Sub-regulation (2): the Liberalized Remittance Scheme
The text refers to the Scheme but prints no figure, and none is given here. For the Scheme see our article on the Liberalised Remittance Scheme.
Sub-regulation (4): the proviso on lenders
Two provisos follow sub-regulation (4): the resultant company shall not acquire any liability payable towards a lender in India in Rupees which is not in conformity with the Act or rules or regulations; and a no-objection certificate to this effect should be obtained from the lenders in India of the Indian company.
Regulation 6: valuation
"The valuation of the Indian company and the foreign company shall be done in accordance with Rule 25A of the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016." The Regulations name rule 25A; the Companies rules are not in the texts consulted and nothing is said here about their content. Regulation 6 applies to both inbound and outbound mergers.
Regulation 7: miscellaneous
- Compensation (sub-regulation (1)): compensation by the resultant company to a holder of a security of the Indian company or the foreign company, as the case may be, may be paid in accordance with the scheme sanctioned by the Competent Authority (formerly the NCLT).
- Prior regulatory actions (sub-regulation (2)): the companies involved "shall ensure that regulatory actions, if any, prior to merger, with respect to non-compliance, contravention, violation, as the case may be, of the Act or the Rules or the Regulations framed thereunder shall be completed". The Regulations do not say how, or by whom, completion is confirmed.
Regulation 8: reporting
The resultant company and the companies involved in the cross border merger "shall be required to furnish reports as may be prescribed by the Reserve Bank, in consultation with the Government of India, from time to time". The Regulations prescribe no form, period or content, and none is given here.
Regulation 9 is separate
Regulation 9 (deemed approval and the certificate of the Managing Director or Whole Time Director and Company Secretary) is explained, sub-regulation by sub-regulation, in our article on cross-border mergers under regulation 9 and deemed RBI approval. For the Companies Act side see section 234 of the Companies Act, 2013.
A worked example
Crestview Metals Limited, an Indian company, merges into Delmar Metals Inc., a foreign company, in an outbound merger. A resident shareholder who is an individual receives securities of Delmar; their fair market value must be within the Liberalized Remittance Scheme limits under regulation 5(2). Crestview's Pune office becomes Delmar's branch office in India. A rupee loan from an Indian lender passes to Delmar; the lender's no-objection certificate has to be obtained, and any rupee liability not in conformity with the law cannot be acquired. A plot Delmar cannot hold in India has to be sold within two years of sanction, and the proceeds go outside India immediately through banking channels. The names are invented.
Need help with an outbound merger?
The branch, the lenders' certificates, the two-year sale and the SNRR account all have clocks tied to the sanction date. Our legal consultation team can set out the steps with the scheme drafting.
Key takeaways
- The resultant company in an outbound merger is a foreign company; its India office is deemed a branch office.
- A resident individual may acquire securities abroad only within the Liberalized Remittance Scheme limits (no figure in the Regulations).
- Indian liabilities follow the sanctioned scheme; lenders' no-objection certificates are needed and non-conforming rupee liabilities cannot be taken.
- Assets that cannot be held are sold within two years of sanction; an SNRR account may run for two years.
- Regulation 6 points to rule 25A for valuation; regulation 8 leaves reports to the Reserve Bank.
Read next
- Inbound merger: regulations 1 to 4
- Cross-border mergers under regulation 9 and deemed RBI approval
- Merger, demerger and amalgamation: rule 19 of the Non-debt Instruments Rules
- Section 232 of the Companies Act, 2013: merger
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.