CROSS BORDER PARTNERSHIP AND COLLABORATION
Author: Pooja Heda, Kes Jayantilal H Patel College Of Law, Mumbai
In this article, I am going to explain about what is cross border partnership and collaboration How does it works? What does it really imply? How to it is beneficial for other countries? About India’s Partnerships, if any. About the results of cross border partnerships in detail and rules regulations and procedure of it. I am also going to talk about the challenges faced by the country for it.
Cross border partnership is significantly essential with the amount of globe getting smaller in size.Moreover, India is climbing the ease of business ranking and become favoured by other countries for business destination. Such as a conductive economic environment of surpassed growth of cross border Partnership.
A cross border merger explained in simplistic terms is a merger of two companies which are located in different countries resulting in a third company. A cross border merger could involve an Indian company merging with a foreign company or vice versa. A company in one country can be acquired by an entity (another company) from other countries. The local company can be private, public, or state-owned company. In the event of the merger or acquisition by foreign investors referred to as cross-border merger and acquisitions. Cross border merger will result in the transfer of control and authority in operating the merged or acquired company. Assets and liabilities of the two companies from two different countries are combined into a new legal entity in terms of the merger, while in terms of Cross border acquisition, there is a transformation process of assets and liabilities of local company to foreign company (foreign investor), and automatically, the local company will be affiliated.
It involves two countries according to the applicable legal terminology: –
A.) The state where the origin of the companies that make an acquisition (the acquiring company) in other countries: – “Home Country”.
B.) A country where the target company is situated refers to as the “Host Country”.
Benefits of Cross Border Partnership
- Expansion of Market.
- Geographic and industrial diffraction.
- Technology Transfer
- Avoiding entry barrier and industrial conditions.
- Tax planning and Benefits.
- Foreign exchange earnings & Accelerating growth
- Utilisation of material and labour at lower costs
- Increased customers base & Competitive advantage
Challenges of Cross Border Partnerships
- Legal issues in different countries
- Accounting challenges & Taxation aspects
- Technological differences
- Political landscape & Strategic issues
- Overpayment in the deal
- Failure to integrate & HR challenges
Cross-border mergers and acquisitions have been rapidly ascending in quantum and value in recent years.
Laws that govern by Cross Border Partnership in India
Section 234 of the Companies Act, 2013 notified by the Ministry of Corporate Affairs provides the legal framework for cross border mergers in India. This has been brought into effect from 13th April, 2017, hence operationalising the concept of cross border merger.
The following laws govern cross border mergers in India:
- Companies Act, 2013
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- Foreign Exchange Management (Cross Border Merger) Regulations, 2018
- Competition Act, 2002
- Insolvency and bankruptcy Code, 2016
- Income Tax Act, 1961
- The Department of Industrial Policy and Promotion (DIPP)
- Transfer of Property Act, 1882
- Indian Stamp Act, 1899
- Foreign Exchange Management Act, 1999 (FEMA)
- IFRS 3 Business Combinations
Types of Border Mergers
The most popular types of mergers are horizontal, vertical, market extension or marketing/technology related concentric, product extension, conglomerate, congeneric and reverse. Recently, the concept of inbound and outbound mergers was also introduced in the Companies Act, 2013 as part of Section 234 of the Act.
In this process foreign company mergers with or acquires an Indian company.
E.g. Daichii Acquiring Ranbaxy
In this process an Indian company merger with or acquires a foreign company.
E.g. Tata steel Acquires Corus
Procedure of “Merger or Amalgamation of Company with Foreign Company u/s 234 of Companies Act, 2013—
(1) The provisions of this Cross-border merger unless otherwise provided under any other law for the time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between companies registered under this Act. And, companies incorporated in the jurisdictions of such countries as may be notified from time to time by the Central Government. Provided that the Central Government may make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations provided under this section.
(2) Subject to the provisions of any other law for the time being in force, a foreign company, May with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa. And, the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose.
(3) A foreign company incorporated outside India may merge with an Indian company after obtaining prior approval of Reserve Bank of India and after complying with the provisions of sections 230 to 232 of the Act and these rules.
(4) A company may merge with a foreign company incorporated in any of the jurisdictions specified in Annexure B after obtaining prior approval of the Reserve Bank of India and after complying with provisions of sections 230 to 232 of the Act and these rules
(5) The transferee company shall ensure that valuation is conducted by valuers who are members of a recognised professional body in the jurisdiction of the transferee company and further that such valuation is in accordance with internationally accepted principles on accounting and valuation. A declaration to this effect shall be attached with the application made to Reserve Bank of India for obtaining its approval under clause (a) of this sub-rule.
Recently, the cross-border cooperation agreement acquires increasingly more important in the context of cooperation policy developed by the European Union on the Member states or the European neighbourhood policy. As much amount of collaboration would be done that would be good for both country and world to grow in a better and more improved place.