Introduction
In recent years, many Indian companies have taken the opportunity to bring their foreign operations back home to India. This process of moving back to India has been termed as ‘reverse-flipping’ or ‘internalization’. This move has become much more viable because of the new reforms and schemes setup by the Government of India, better access to capital in the country and simplified regulatory environment. Companies have been noticing growing consumer base in India and an increase in investor interest which is caused by stable investment environment including viable exit opportunities driven by public offerings. Further, reduced business operational costs owing to business activities being condensed in one country has led to this trend of internalization.
Recently in April 2025, Pine Labs had its reverse-flip plan approved by the National Company Law Tribunal (‘NCLT’)[1], the second major fintech company to do so after Groww. This should ideally allow it to tap deeper into Indian capital markets and simplify its corporate and tax structure by consolidating its operations in India. Other prominent examples of companies which concluded their reverse flip in the last of couple of years includes PhonePe, Pepperfry, Zepto and Meesho.
Reverse – Flipping and its structuring
Reverse-flipping is a process wherein an Indian company (usually a startup) which previously set up a foreign holding company (typically for access to overseas capital or tax advantages in a foreign country), now decides to shift its base of operations and ownership back to India. This shift usually involves the foreign company merging with its wholly owned Indian subsidiary. This results in the Indian subsidiary now becoming the main base of operations with all shareholders and assets moved under its name.
There are two main structures for carrying out the reverse flip: –
- Inbound cross-border merger
In this structure, the foreign holding company is merged into its Indian subsidiary and is usually what is thought of as the simplest method to carry out reverse-flipping. Post the merger, the Indian Company holds all the operations and assets of the foreign company, and the shareholders of the foreign company are issued shares of the Indian Company as consideration. This method was used by Groww and Pine Labs when they reverse-flipped back to India.
2. Share swapping
This is another structure which is commonly used for reverse flipping which is carried out in two steps; (i) firstly, the shareholders of the foreign company (‘Foreign Investors’) swap their shares in the foreign holding company for shares of a new Indian company, functionally making the new Indian company, as the parent company of the foreign holding company; (ii) then the foreign holding company is liquidated as per the laws of the foreign country and thereby all the assets including the shares of the Indian subsidiary devolve upon the new Indian company. As a result, the Foreign Investors directly hold shares in the new Indian company (being the new parent entity) and the new Indian company holds shares in the Indian subsidiary, thereby bringing all assets and operations back to India. Companies are inclined towards using the share swap structure for reverse flip due to the recent amendments brought in the Indian exchange control laws in the year 2024. The government has eased the process of share swaps by bringing the necessary clarifications and specifically allowing Indian companies to swap their own shares/other Indian entities shares in exchange of foreign company’s shares, but in any case not resulting in a structure with more than two layers of subsidiary.
Simplified Process of Approval
The trend of reverse-flipping has grabbed much more attention recently, mainly due to the amendment to Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (‘CAA Rules’) by the Ministry of Corporate Affairs (‘MCA’) in 2024. This new amendment is meant to simplify and quicken the process of reverse-flipping by reducing the time, costs and procedural burden.
Through this amendment, sub-rule (5) to Rule 25A has been added which specifies the pre-requisites of merger of a foreign company incorporated outside India (transferor) being a holding company and the Indian Company (transferee) being a wholly owned subsidiary incorporated in India: –
“(i) both the companies shall obtain the prior approval of the Reserve Bank of India;
(ii) the transferee Indian company shall comply with the provisions of section 233;
(iii) the application shall be made by the transferee Indian company to the Central Government under section 233 of the Act and provisions of rule 25 shall apply to such application; and
(iv) the declaration referred to in sub-rule (4) shall be made at the stage of making application under section 233 of the Act.”
Previously, companies seeking to undertake reverse mergers were required to approach NCLT for approval and were required to follow the procedure prescribed under Sections 230 to 232 of the Companies Act, 2013 (‘Companies Act’). This has been an infamous time-consuming process. By amending the Rule 25A of CAA Rules, MCA has introduced the fast-track merger route as contemplated under Section 233 of the Companies Act for reverse flipping. Razorpay recently concluded its reverse flip under the fast-track merger route.
While the amendment has been brought to simplify the process of reverse flipping, there is an anomaly when the amendment is read with the Companies Act. The amendment through its wording makes it mandatory to approach the Central Government for seeking approval for the cross border inbound mergers. This brings up a contradiction with Section 233 (14) of the Companies Act, whereby the option is left to the companies whether they want to take the faster route or go to the NCLT for approval. So, the question arises – which is it? By the amendment’s statement, going to the NCLT would be violative of the procedure. While there is still some ambiguity on this question, there may be some answer to this question in the case of Mega Corporation Ltd. v. Nil.[2] Section 233 (14) was interpreted in this case, and it was held that it should be presumed that the intention of the legislators of the Companies Act was to keep the applicants’ options open, which is why the provision was drafted as it was. The applicants could choose to seek approval from the NCLT if that is their wish and they cannot be prevented from that. But once they have made their choice, they cannot then go to the Central Government at the same time and must follow proper procedure under the statute.
“…if appellant, keeping in view of sub-section (14), preferred to resort to Section 232, the applicants cannot be faulted with. Only thing is that, then they have to go through the procedure as u/s 232 of the Act.”
Further, in the case of J.K. Industries Ltd. v. Union of India,[3] it was held that when a rule is in conflict with a statute, the statute will prevail. Thus, the wording of the Companies Act should prevail over the wording of the CAA Rules. However, it would be noteworthy to see how the NCLT interprets this contradiction in the CAA Rules and the Section 233 (14) of the Companies Act.
There is also notably a regulation under the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 (‘2018 Regulations’), which through interpretation, imply that inbound mergers can only take place after approval from the NCLT. As a result, the 2018 Regulations also need to be amended.
Other Regulatory Compliances and Challenges
Reverse Mergers
Despite the attempt to ease the process of reverse mergers, there are other regulatory compliances and some practical hurdles that must be considered. If going for the merger route for reverse flipping, companies must consider the following compliances/ practical challenges:
- Companies are required to seek approval from the Reserve Bank of India (RBI) according to the CAA Rules. However, the requirement of taking specific RBI approval under the CAA Rules is not required if the reverse merger is in accordance with the 2018 Regulations and a certificate to that effect is furnished by the Managing Director / Whole Time Director and Company Secretary of the concerned companies.
- If the foreign company is incorporated in a country that shares land border with India, a declaration form is required to be filed at the time of submission of application.[4]
- The issuance of shares by the Indian company to the foreign company’s shareholders, post the merger must comply with the entry routes, sectoral caps, pricing guidelines and other conditions as specified under the Indian exchange control laws.
- Further, if the foreign company holds assets abroad that are not permitted to be held under Indian exchange control laws, examples being certain foreign securities or properties, these must be disposed of within two years, and the proceeds must be repatriated back to India.[5]
- If there are any guarantees or outstanding borrowings of the foreign company from overseas sources which will be transferred to the Indian subsidiary, then such overseas borrowings must conform to the external commercial borrowing norms or trade credit norms or other foreign borrowing norms, as laid down under Indian exchange control laws, within a period of two years.
- Apart from the compliances to be satisfied as per Indian laws, there may be many conditions to be fulfilled for reverse mergers in foreign countries, which would depend from jurisdiction to jurisdiction. For instance, in Singapore, the law requires that for any untested outgoing mergers with foreign countries, prior clarification and clearance from relevant regulatory authorities must be taken before proceeding. These compliances show that this would be a time-consuming process for companies and requires proper planning before assessing the reverse flipping structure.
These compliances and practical hurdles indicates that the process of reverse merger can be logistically complex and may impact business operations during the transition.
Share swap route
Moving onto the share swap route, which while at first glance would seem like the easier method, still has some considerations to be kept in mind. Companies must follow the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (2019 Rules) and the Foreign Exchange Management (Overseas Investment) Rules, 2022. For share swaps, most of the challenges revolve around taxation. Capital gains tax would levy on the difference between the current fair market value of the Indian shares they receive, and the original cost at which the foreign shares were acquired. This shows the potential heavy tax burden incurred by companies in this process. Further, there can still be some conflicts with regards to the valuation of the entity and the acquisition costs.
Though tax considerations are the most significant hurdle in the share swap route, there may be hurdles in the jurisdiction of the foreign holding company which companies might have to face in this route. Since the last step of this structure involves liquidation of the holding company, this may pose certain challenges in countries where the process of liquidation is a lengthy and costly process.
Conclusion
Reverse flipping has emerged as a compelling option for Indian companies that once moved their corporate structures overseas but now find greater value and opportunity in returning to India. With the Indian regulatory and capital market landscape becoming more favorable, and with clearer frameworks under Indian laws, the path to home is more accessible than ever before. The recent amendment to Rule 25A has added momentum to this trend by introducing a faster, Central Government-approved route to inbound mergers. However, conflicting legal interpretations, prolonged regulatory timelines, cross-border tax consequences, and jurisdictional compliance issues means that the process is far from automatic. The choice between a formal merger and a share-swap structure should be guided not just by speed or simplicity, but by a thorough analysis of tax exposure, investor implications, and asset repatriation requirements.
[1] CP (CAA) No. 43/CHD/HRY/2024, NCLT Chandigarh Bench.
[2] 2018 SCC ONLINE NCLAT 353
[3] (2007) 13 SCC 673
[4] Rules 25A(4) of the CAA Rules.
[5] Regulation 4(5) of the Foreign Exchange Management (Cross Border Merger) Regulations, 2018.
