Here is an uncomfortable thought to begin with. An Indian company spends months negotiating a cross-border deal, pores over financial statements, agrees on a valuation, and walks away convinced it knows exactly what it is buying. The balance sheet says so. The share purchase agreement says so. But the real story of the business may still lie somewhere else in a local joint-venture partner, a company chop, or governance mechanisms that were never fully understood.

Apollo Tyres encountered precisely this challenge in 2013 when its proposed acquisition of Cooper Tire & Rubber Company unravelled after disputes involving Cooper's China joint venture. The local joint-venture partner opposed the transaction, operations at the Chinese plant came to a standstill, financial information ceased to flow, and while the contractual battle over the merger agreement was fought in the Delaware courts, the underlying corporate deadlock over control of the subsidiary ultimately rested within the exclusive domain of Chinese regulatory authorities and courts. The transaction ultimately collapsed. The lesson was not that China is unpredictable; it was that effective cross-border legal due diligence must examine not only legal ownership, but also the governance structures and practical control mechanisms that determine how a business actually functions.

The Apollo Tyres case raises an obvious question: where do Indian companies usually go wrong? More often than not, it is not because they fail to conduct due diligence, but because they assume the process in China is not different from elsewhere. The most common mistaken assumption include:

1) Company Chop & Legal Representative: Unlike India/West where agency rests with directors, Article 11 of China's Company Law makes the "Legal Representative" the absolute statutory face of the firm. Additionally, under Article 62 of the PRC Civil Code, physical custody of the registered corporate chop equals total corporate assent. Without them, shareholder agreements are unenforceable on the ground.

2) Overseas Arbitration: A foreign arbitral seat (SIAC, LCIA) covers contractual breaches but cannot touch internal corporate governance. The PRC Civil Procedure Law mandates Exclusive Jurisdiction for Chinese courts over domestic entity dissolution, resolution validity, and licensing, rendering foreign arbitral orders on corporate control legally void inside China.

3) Data Room Assumptions: Reliance on contractual representations is dangerous because foreign court judgments are largely unenforceable in mainland China. Under Article 544 of the PRC Civil Procedure Law Interpretation, Chinese courts reject foreign rulings absent strict bilateral treaties or proven judicial reciprocity, making independent verification by local counsel and accountants your only real safety net.

4) Labour & Union Dynamics: Unlike India's factory-centric union laws, Article 4 of the PRC Labor Contract Law forces mandatory consultation with unions or staff representatives for any corporate restructuring or integration that impacts employee interests. Local labour has immediate statutory leverage to stall a merger.

5) India's FEMA Compliances: While target-country laws focus strictly on inbound capital, India's FEMA (Overseas Investment) Rules 2022 bind the buyer indefinitely. Filings such as Form FC & Annual Performance Reports (APR) are rigid statutory mandates; missing them triggers compounding financial penalties and blocks all subsequent outward remittances.

The last assumption deserves a closer look. Even if the target-country has been thoroughly vetted, an Indian company when entering cross border corporate-transactions cannot overlook the Indian regulatory framework governing overseas investments.

In fact, that is only half the compliance story. An investment into China is governed by two independent regulatory regimes India’s overseas investment framework under Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022, and China's foreign investment regime. Clearing one does not clear the other. Before the first rupee leaves India, the investor must satisfy both sets of regulatory requirements.

So, What Should an Indian Company Actually Do?

Knowing where transactions go wrong is only half the battle. The real value of cross-border legal due diligence lies in knowing what to do before, during and after the investment. Signing the transaction documents is not the finish line. It is merely the starting whistle. The companies that avoid expensive surprises are usually the ones that treat legal due diligence as a continuous exercise rather than a pre-closing formality.

· Before the transaction, identify whether the target's business falls within China's Negative List and determine whether the investment qualifies under the Automatic or Approval Route under India's Overseas Investment framework. File Form FC early, obtain the Unique Identification Number (UIN) before remitting funds, independently verify who controls the company chop and the registered legal representative, and engage local Chinese counsel to validate corporate records, litigation, labour liabilities and the proposed investment structure.

· During the transaction, complete all China-side registrations, including the applicable MOFCOM filing or approval, SAMR registration and SAFE registration for capital contributions. Ensure transaction documents reflect commercial reality, recognising that disputes involving corporate control may ultimately require proceedings before Chinese courts. Where the target handles personal or important data, undertake a dedicated review under China's cybersecurity and data protection laws.

· After the transaction, compliance does not end with closing. Calendar India's Annual Performance Report (31 December) and FLA Return (15 July) separately from China's annual reporting and tax obligations. Ensure timely repatriation of funds in accordance with FEMA and China's foreign exchange procedures, settle employee obligations before any restructuring or exit, and complete the necessary disinvestment filings, tax clearances and deregistration formalities with the relevant Indian and Chinese authorities.

In cross-border investments, the transaction closes on paper. The compliance journey does not.

By HSILF Team.