[Dev Goyal and Manas Divetia are IV Year B.B.A. LL.B. (Hons.) students at Gujarat National Law University, Gandhinagar]
India’s reverse‑flip moment is here, with major transactions demonstrating the practical benefits of its improved regulatory framework. Groww’s May 2024 return from Delaware coincided with impressive performance gains for the company, including a tripling of net profit to INR 1,819 crore and substantial revenue growth in FY 2025. Zepto’s January 2025 reverse merger from Singapore notably utilized the fast-track merger route, made possible by the 2024 addition of Rule 25A(5) to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“CAA Rules”). Pine Labs’ and Meesho’s NCLT‑approved returns, coupled with Razorpay’s fast-tracked flip and Flipkart’s board approval for reverse flipping, signal a fintech-led momentum with even mature players embracing India’s reverse‑flip advantages.
However, the question still persists: can India transform its evolving framework into a competitive edge against Singapore and Delaware while leveraging hubs like GIFT City? This post maps the opportunities and prescribes solutions to explores India’s potential to anchor capital and innovation at home, and the reforms needed to make reverse mergers a true success.
Catalysts Behind India’s Reverse-Flip Surge
The 2024 amendment to the CAA Rules had extended the fast-track merger route to foreign holding companies looking to merge into their Indian wholly owned subsidiaries, significantly reducing dependence on National Company Law Tribunal (“NCLT”) approvals and streamlining the path for companies seeking to relocate their headquarters back to India. Combined with FEMA’s 2018 Cross Border Merger Regulations’ deemed-approval architecture and SEBI’s scheme oversight, this created an integrated corridor for compliant reverse flips that can compress approval timelines from the previous 6-9 months to significantly shorter periods.
Another key enabler of reverse flipping has been the simplification of share swap arrangements through the 2024 amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules, 2019”). Under the amended rules, Indian companies can now issue their own shares to existing shareholders of the foreign holding company in exchange for their foreign shares, all under the automatic route, without requiring prior regulatory approval. These amendments have brought about a transformative shift in the pace and ease for startups to restructure ownership and bring their parent entity back to India.
The policy drivers behind these developments go beyond merely simplifying regulations. They also include strategies to retain foreign direct investment (“FDI”) within India. The government seeks to keep capital, intellectual property, and strategic control anchored in India by accelerating cross-border mergers and making them more predictable. These efforts align with broader initiatives to improve the ease of doing business and create a more conducive environment for businesses to scale operations and access capital markets domestically.
For many years, numerous startups chose to incorporate their holding companies in jurisdictions like Singapore or Delaware, attracted by the ease of incorporation, investor-friendly legal frameworks, strong protections for shareholders, and favorable tax structures, advantages that India did not always offer. Singapore’s rapid company registration process, stable regulatory environment, effective creditor and shareholder safeguards, and respected intellectual property enforcement provided a reliable platform for cross-border investments and exits. Likewise, Delaware’s flexible corporate laws and well-established judiciary offered clear guidance on fiduciary duties and minority rights, lowering transaction costs and ensuring dependable dispute resolution for global investors and entrepreneurs.
However, these benefits also underscored some of India’s earlier regulatory hurdles, including tribunal-dependent merger approvals, overlapping regulatory requirements, lengthy procedures, and uncertainties related to taxation and foreign exchange compliance. The recent reforms, such as the introduction of Rule 25A(5), expedited fast-track merger approvals, and the “deemed approval” mechanism under FEMA, specifically address these issues by cutting approval times from the earlier 8-12 months to as little as 3-4 months in many cases.
Furthermore, India’s growing capital markets, increasing domestic investor interest, and reforms aimed at more easily facilitating IPOs are now making staying local a competitive option. Companies like PhonePe, Groww, Zepto, and Pine Labs are a perfect example of this shift, opting for domestic incorporation to benefit from easier access to India’s expanding funding ecosystem, reduced regulatory barriers for local operations, and better alignment with their plans for Indian IPOs or acquisition exits.
The Need to Confront Existing Hurdles
The 2024 amendment to the CAA Rules, despite its displayed merits, introduced a critical interpretative challenge through Rule 25A(5)(iii)’s mandatory language (“shall”), creating uncertainty over whether the NCLT route remains available for cross-border reverse mergers. The use of “shall apply” makes the fast-track route under Section 233 appear obligatory, implying that companies may be legally bound to adopt it even where a tribunal-led procedure would be more appropriate.
In contrast, had the provision used the phrase “may apply,” it would signify discretion, thereby permitting companies to select between the fast-track mechanism and the traditional NCLT process based on the complexity of the transaction. This lack of clarity on whether the provision is mandatory or directory constrains companies’ ability to choose a suitable procedural route, contradicting Section 233’s original intent to provide alternative pathways rather than exclusive ones. Regional Directors overseeing fast-track mergers sometimes lack the expertise for complex cross-border transactions, as seen in cases like Asset Auto v. Union of India, leading to unnecessary objections or referrals back to NCLT, undermining the predictability that the framework aims to provide. An amendment to rectify this issue would preserve the fast-track route’s efficiency advantages while maintaining flexibility for sophisticated transactions that might require comprehensive tribunal oversight, thereby enhancing, rather than constraining the regulation’s effectiveness.
Another hurdle in smooth reverse flipping are the tax considerations. Under the General Anti-Avoidance Rules (“GAAR”) framework, companies must demonstrate genuine business rationale beyond tax benefits while managing significant fiscal costs that can make reverse flips prohibitively expensive. The GAAR provisions empower revenue authorities to scrutinize arrangements lacking commercial substance, requiring extensive documentation and creating uncertainty around tax treatment that can deter companies despite the fast-track procedural frameworks. Extending tax neutrality provisions, similar to domestic amalgamation under Section 2(1B) of the Income Tax Act, 1961, to reverse merger transactions which are able to meet specific anti-abuse conditions, such as minimum holding periods and operational substance tests, could address the current tension between policy objectives encouraging reverse flips and the tax frameworks that treat these transactions as taxable events.
Finally, creating a unified digital platform that brings together approvals from MCA, RBI, SEBI, and other regulatory bodies, similar to the National Single Window System (“NSWS”), would help streamline the complex approval process that companies currently face. It could standardize documentation requirements, enable different agencies to process applications simultaneously, and provide clear timelines for each stage of approval. Such a system would demonstrate India’s commitment to making business processes more efficient and could further reduce the time needed to complete reverse flipping transactions.
GIFT City’s Potential to “Onshore the Offshore”
The Gujarat International Finance Tec-City (“GIFT City”) represents India’s most strategic response to international competition, positioned as both a testing ground for reverse flipping mechanisms and a bridge between domestic and international capital markets. GIFT City offers compelling economic incentives designed to attract reverse flipping transactions and global financial services operations. The framework provides 10-year tax holidays, significantly longer than standard Special Economic Zone (“SEZ”) benefits, making it financially attractive for companies considering re-domiciliation. These incentives are complemented by SEZ-level infrastructure benefits and the ability to operate in USD, which reduces the complexity in currency conversion for international businesses.
The Padmanabhan Committee report, in 2023, specifically recommended tax-neutral treatment for reverse-flipping transactions within GIFT City, along with relaxations on ESOP exercise taxation and dividend payment requirements. Although these recommendations were not complemented by regulatory action, if implemented, they would create a preferential regime for companies undertaking reverse flips through the GIFT City route, and potentially establish it as India’s premier destination for such transactions. Moreover, International Financial Services Centres Authority’s (“IFSCA’s”) fintech incentive scheme, which specifically targets both domestic companies seeking global expansion and foreign entities looking to establish Indian operations, can further ignite the reverse flipping trend in the fin-tech industry.
The IFSC also enables direct listing of Indian companies on international exchanges within Indian territory, providing an alternative route for companies seeking international capital while maintaining domestic regulatory oversight. This creates opportunities for seamless capital flows between international and domestic markets, supporting the broader objective of “onshoring the offshore”.
Conclusion
India’s regulatory framework for reverse flips has reached an important stage, having made significant progress while still needing careful adjustments to reach its full potential. The introduction of fast-track procedures and cross-border merger rules shows real advancement, and the GIFT IFSC offers a lot of promise to the cause. The ongoing issues with unclear regulations, tax problems, and coordination challenges highlight the need for further improvements, but the government’s willingness to listen to feedback and adapt regulations suggests that current challenges can be overcome rather than being permanent barriers.
Getting this framework right is crucial for India’s broader economic goals. As global investors increasingly prefer countries with clear and efficient regulations, India’s success in perfecting its reverse merger rules will determine whether it gains the full benefits of companies moving back to India. The importance goes beyond individual deals to include India’s position as a top destination for international investment and its growth as a major global financial centre. India’s proven commitment to improving policies step by step, combined with strong institutions and a growing market, certainly gives a reason for optimism.
– Dev Goyal & Manas Divetia