Introduction
Cross-border M&A is rarely a straight cash purchase. Over the past decade buyers and sellers have increasingly used equity as transaction currency, equity swaps, share-for-share consideration and scheme-based exchanges let parties preserve cash, align incentives and stitch together complex multi-jurisdictional combinations. In practice, however, India was long a reluctant participant in that part. The domestic rules governing the issue and transfer of Indian company shares to non-residents (the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, the FEMA NDI rules allowed share-swap structures only in a narrow set of circumstances and carried with them additional pricing and approval frictions. Those frictions namely, a need for specific valuation certifications, interpretive uncertainty about whether a swap could be effected by primary issuance or secondary transfer, and a tendency to push borderline cases into the prior-approval (instead of automatic) route, made many sellers and foreign bidders avoid swap structures even where commercial logic favoured them. The result was routine deal-desk workarounds. Cash tranches, earn-outs, reverse-flips and other structurally burdensome steps that added cost and tax complexity.
That picture changed materially when the Ministry of Finance has, by way of Notification dated August 16, 2024, amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (‘FEMA NDI Rules’)[1] with effect from the date of the Notification (‘Amendment’)[2]. Corporate arrangements where two or more companies agree to exchange the equity-based asset of one with that of another such as through a share exchange or stock-for-stock exchange are categorized as a “share swap.”[3] The amendment now expressly permits an Indian company, subject to the applicable Central Government rules and RBI regulations, to issue or transfer equity instruments to a person resident outside India by way of a swap of equity instruments or a swap of the equity capital of a foreign company. To put it simply, the amendments have now enabled ‘FDI-ODI’ swap meaning the swap of shares of an Indian company against the shares of a foreign company. The notification and accompanying government commentary framed the move as an ease-of-doing-business step intended to align India’s practical M&A toolkit with global practice and to enable Indian companies to pursue outward acquisitions and foreign acquirers to use stock as consideration when buying into India.
What Exactly Did the FEMA NDI Amendment Do?
When we talk about the 2022–24 reform of India’s foreign exchange regime for share swaps, it is important to be precise about what changed in the law itself. Until recently, theNDI Rules, read with the Consolidated FDI Policy and RBI master directions, permitted issuance or transfer of shares to non-residents by way of subscription or sale. However, they were silent and therefore vague and ambiguous on whether shares could be issued or transferred in consideration of other securities (that is, in a swap).
Any swap transaction was often pushed into the “government approval route,” requiring prior approval of the Foreign Investment Promotion Board (until its abolition) and then the Department for Promotion of Industry and Internal Trade (DPIIT) and RBI. At the heart of the constraint was Rule 9(6) of the NDI Rules, which mandated that any issue of shares to a non-resident must be priced in accordance with a valuation report prepared by a SEBI registered merchant banker or chartered accountant as per internationally accepted pricing methodologies. This rule was applied even to share swaps, forcing parties to produce elaborate reports even where the ratio had already been vetted by a High Court/NCLT.
The Fourth Amendment to the NDI Rules, 2024 (Notification No. S.O. 3422(E) dated 16 August 2024)[4] made the critical insertion. It now explicitly recognises that equity instruments of an Indian company may be issued or transferred to a person resident outside India “by way of a swap of equity instruments” or in exchange for equity capital of a foreign company. This simple textual addition has far-reaching consequences. It places share swaps squarely within the legal framework, rather than in a grey zone of “permissible by approval only.” Equally important, it de-links the swap from the earlier mandatory valuation-report requirement when the swap is undertaken as part of a merger, demerger, or amalgamation sanctioned by the National Company Law Tribunal (NCLT) or other competent court/tribunal. In other words, if the swap is part of a scheme approved under sections 230–232 of the Companies Act, the regulator no longer insists on an external valuer’s certificate as a pre-condition.
The focus is now on ensuring corporate and judicial approvals rather than duplicative valuation paperwork. It means inbound acquirers can use stock as currency to buy into Indian companies more easily, and Indian companies can pursue outbound M&A with greater agility, both of which were long-standing demands of the market.
Impact on Deal Structuring: Inbound vs. Outbound Transactions
Cross-border share swaps are now a clear, rule-based option rather than a grey, ad-hoc workaround, and that clarity changes how parties think about structuring both inbound and outbound transactions. The government’s press release[5] and the amendment text make plain that the NDI Rules were revised to permit issuance or transfer of Indian equity in exchange for foreign equity instruments. The legal permission that many deals previously sought by detours. This textual recognition removes the basic question of permissibility that previously forced acquirers and targets into cash tranches, earn-outs, reverse flips and other compromise structures simply to avoid regulatory friction.
Inbound Deals
For inbound deals, foreign companies buying into India, now must face the practical consequence which is, an overseas bidder can now more readily offer its listed (or unlisted) shares as consideration for Indian equity, making stock-for-stock acquisitions commercially feasible in situations where cash would be inefficient or unaffordable. Where sectoral policy permits, such swaps can proceed under the automatic route and be implemented through the normal AD bank channels, subject to the usual pricing norms and reporting requirements. Subsequent RBI clarifications highlight that AD banks will look to the NCLT order, the scheme documentation and the prescribed filings rather than insist on a separate mandatory valuation certificate for every swap that forms part of a court-ordered scheme. That reduces friction for inbound strategic buyers who prefer equity consideration as a way to preserve cash and align incentives without a large immediate cash outlay.[6]
Outward Deals
For outward deals, Indian acquirers using their stock to buy foreign targets, as per the amendment is equally enabling but works through a different compliance pathway. For instance, an Indian company planning to issue its shares to acquire foreign equity must still comply with the Overseas Direct Investment (“ODI”) framework and make the necessary filings under FEMA’s ODI Rules[7]. The mechanics therefore involve both company-law approvals and foreign-investment reporting. An Indian acquirer will typically document the swap as part of a scheme or share-purchase agreement, secure board and shareholder approvals where necessary, and then make ODI filings and notifications (including any requisite approvals where sectoral ceilings or government routes apply).[8]
That said, the reform is simplification, not elimination, of compliance. Sectoral ceilings, pricing norms, disclosure requirements and RBI/AD bank checks remain active constraints on deal design. Practical guidance (and early market commentary) suggests deals will be faster and cleaner when they can be routed through an NCLT scheme and when sectoral policy allows automatic-route treatment But parties should still expect careful scrutiny of the swap ratio, corporate authorisations, tax implications and anti-money-laundering checks
The New Valuation Dynamics and Strategic Considerations
Even though companies no longer need a mandatory valuation certificate in some cases, the way ownership is divided still depends on the same valuation principles. Dealmakers usually look at a mix of methods involving comparing market values when the companies are listed, using earnings multiples (like P/E or EV/EBITDA) or industry-specific benchmarks for operating businesses, applying discounted cash flow models when future growth and cash generation matter most and adding a premium for factors like gaining control or access to new markets.
Due diligence is still king.
The amendment may have removed one layer of paperwork but it makes careful checks before a deal even more important. With fewer valuation certificates required in NCLT approved schemes, companies must now rely on strong due diligence to defend the swap ratio to their boards and regulators. This means looking closely at financial, tax, legal, IP, and commercial issues so that the deal story holds up under scrutiny. Key filings like FC-GPR or FC-TRS (for inbound deals) and ODI forms (for outbound deals) still need accurate details, and AD banks will carefully review scheme documents and board approvals. The RBI has also reminded the market that even under the automatic route, it can still question complex structures such as round-tripping or layered holdings.
Conclusion
The recent FEMA NDI amendments mark a decisive shift in India’s approach to cross-border deal-making. By easing the rules around “share swaps” and aligning them more closely with the liberalised overseas investment methodology, the government has cleared a long-standing roadblock in structuring global mergers and acquisitions. The simplification not only reduces compliance friction but also allows Indian and foreign companies to conserve cash, optimise valuations, pursue expansion through equity-driven strategies rather than purely cash-intensive transactions.
For Indian companies, this opens the door to more ambitious outbound acquisitions, while inbound investors now find it easier to use stock as currency to enter or strengthen their presence in the Indian market. Together with broader reforms in the foreign investment regime, these changes underline India’s commitment to fostering an investor-friendly regulatory environment and positioning itself as an active player in global M&A.
[3] Navigating Primary and Secondary Cross-border Share Swaps in Indian Mergers & Acquisitions
[4] Department of Economic Affairs amends Foreign Exchange Management (Non-debt Instruments) Rules, 2019 in pursuance of Union Budget 2024-25 announcement
[5] Supra
[6] Updated Master Direction on Foreign Investment in India: Clarifications to the Regulatory Framework
[8] Amendments to FEMA rules — facilitating ease of business in the Indian landscape
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