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The document discusses the applicability of Sections 233 and 234 of the Companies Act, 2013 regarding mergers involving foreign companies, stating that Section 234 is applicable in such cases. It also explains the implications of Section 2(19AA) of the Income Tax Act in relation to demergers under Section 232 of the Companies Act, 2013, affirming that tax neutrality benefits remain. Additionally, it outlines FEMA regulations on pricing for foreign and Indian resident investments and stamp duty implications for mergers in Maharashtra, emphasizing compliance with pricing guidelines and the calculation of stamp duty based on property or share values.

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Rafique Khan
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22 views2 pages

Sample Answers

The document discusses the applicability of Sections 233 and 234 of the Companies Act, 2013 regarding mergers involving foreign companies, stating that Section 234 is applicable in such cases. It also explains the implications of Section 2(19AA) of the Income Tax Act in relation to demergers under Section 232 of the Companies Act, 2013, affirming that tax neutrality benefits remain. Additionally, it outlines FEMA regulations on pricing for foreign and Indian resident investments and stamp duty implications for mergers in Maharashtra, emphasizing compliance with pricing guidelines and the calculation of stamp duty based on property or share values.

Uploaded by

Rafique Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Q1.

Applicability of Section 233 or Section 234 in case of a foreign company merging


with an Indian company

Section 233 of the Companies Act, 2013, deals with fast-track mergers, and Section 234
specifically deals with mergers or amalgamations of Indian companies with foreign
companies. When a foreign company is involved in the merger, Section 234 takes precedence
as it governs mergers between Indian and foreign companies. Section 233, which deals with
fast-track mergers, would not be applicable in this case. Therefore, only Section 234 would
apply for such mergers.

Q2. Implication of Section 2(19AA) of the Income Tax Act in light of Section 232 of the
Companies Act, 2013

Section 2(19AA) of the Income Tax Act defines demerger in reference to Sections 391-394 of
the Companies Act, 1956. Since the Companies Act, 1956, has been replaced by the
Companies Act, 2013, demergers are now governed under Section 232 of the 2013 Act.
However, the Income Tax Act has not yet been updated to directly reference Section 232.
Despite this, judicial and legislative intent would interpret demergers under Section 232 as
falling under the definition of demergers in Section 2(19AA) of the Income Tax Act.
Therefore, demergers under Section 232 would continue to enjoy the tax neutrality benefits
provided under Section 2(19AA).

Q3. FEMA Implications for Foreign Resident and Indian Resident Investments at a
Price Higher/Lower than Fair Market Value (FMV) or Arms' Length Price (ALP)

Under FEMA, the pricing guidelines for investments by foreign residents into Indian
companies and Indian residents into foreign companies are strict:

 For foreign residents investing in an Indian company: If the investment is at a


price lower than the fair market value (FMV), it is not allowed, as it would result in
the Indian company receiving less value. If the investment is higher than FMV, the
investment may still proceed, provided it adheres to sectoral caps and other regulatory
requirements.

If the investment is made below the FMV, the RBI might disapprove of the transaction, as it
would violate the pricing guidelines, and penal actions may be imposed under FEMA
regulations.
 For Indian residents investing in a foreign company: The situation is the reverse.
Indian residents cannot invest in a foreign company at a price higher than FMV, as it
may be seen as an attempt to transfer funds out of India at an inflated value. However,
if they invest at a price lower than FMV, it could be allowed, subject to other
approvals.

Non-compliance with pricing guidelines can attract penalties under FEMA, including
compounding of offenses.

Q4. Stamp Duty Implications under the Maharashtra Stamp Duty Act for a Merger of
Wholly Owned Subsidiary into Parent Company

In Maharashtra, stamp duty on mergers is typically levied based on the order of the High
Court or NCLT sanctioning the scheme of amalgamation. When a wholly owned subsidiary
merges into a parent company:

 The stamp duty is calculated on the value of immovable property transferred as part of
the merger, or on the value of the shares issued in connection with the merger,
whichever is higher.

For example, assuming:

 The immovable property transferred is valued at ₹10 crore.

 The shares issued as part of the merger are valued at ₹12 crore.

The stamp duty would be calculated based on ₹12 crore (the higher value). The rate of stamp
duty on such mergers in Maharashtra is typically 1% of the value, so the stamp duty payable
would be ₹12 lakh. If no shares are issued in the merger (since it's a wholly owned
subsidiary), the stamp duty would be based on the value of the immovable property

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