Given India's significance as a market for multinational corporations, M&A
transactions are likely to increase in the coming years. In addition, at a time
when businesses are looking to diversify and de-risk their supply chains, India
is an appealing place to set up manufacturing operations and grow inorganically.
Several legislative, regulatory, and bureaucratic changes have been implemented
in the last few years in order to make doing business in the country easier. As
India positions itself to attract more foreign investment and boost domestic
growth, this process can accelerate.
Successfully closing an M&A deal in the United Kingdom, as in other
jurisdictions, necessitates experience and comprehension of regulatory criteria,
as well as the ability to manage the processes efficiently. Depending on the
form, structure, and method of the transaction, as well as the size and market
share of the companies involved, regulatory requirements can differ.
Mergers and acquisitions in India are governed by a variety of important laws.
Corporations are governed by laws.
The Indian Companies Act of 2013 (Companies Act) is the primary piece of Indian
legislation that regulates the formation and management of businesses in India.
It also contains mergers and acquisitions rules (sections 230 to 240) and
regulations. Although the Companies Act does not define "merger
specifically, it does define it broadly as:
"the transfer of all or any part of an undertaking, properties and/or
liabilities of one or more companies to another existing or new company, or the
division of all or any part of an undertaking, property or liabilities of one or
more companies to another existing or new company."
If a company is private or public, and whether it is listed on a stock exchange,
the Companies Act applies differently.
It is backed by international capital and is subject to the oversight of each
These variables would have an effect on the mechanism and manner in which an M&A
transaction is carried out.
Several authorities, including the Registrar of Companies (ROC), Regional
Director (RD), Official Liquidator (OL), and National Company Law Tribunal (NCLT),
may play a role in an M&A transaction, depending on the type of organisation and
industry. Any merger would require final approval from the NCLT.
Companies who want to merge must file a petition with the NCLT (along with a
detailed merger scheme) in order for the proposed merger scheme to be accepted.
Before the NCLT will consider a merger, the shareholders and creditors of the
companies that make up 75 percent of the equity of the creditors or
representatives must vote in favour of it at meetings held in the NCLT's
If the companies have affidavits of creditors with a combined value of at least
90% confirming their approval of the proposed merger scheme, the NCLT which
waive the requirement of holding creditors meetings. Although there is no
explicit provision for the NCLT to waive the requirement of a member meeting, if
90% or more members consent to the proposed merger by affidavit, the NCLT which
waive the meeting requirement at its discretion. Only shareholders with at least
10% of the company's stock or creditors with unpaid debt equalling at least 5%
of total outstanding debt as of the most recent audited financial statement will
object to the merger.
The ROC, the Reserve Bank of India (RBI), the Securities and Exchange Board of
India (SEBI), the OL, the respective stock exchanges, the Competition Commission
of India (CCI), and other government authorities or sectoral regulators are also
told of the meetings in order to receive any concerns or representations
regarding the proposed merger. If no announcement is made by the regulator, it
is assumed that the regulator has nothing to say about the proposals. SEBI
regulations must be observed if one or more of the parties to a proposed merger
are publicly listed companies.
Within 30 days of obtaining the certified copy of the NCLT's order, the scheme
of merger must be submitted with the ROC for registration. The merger process
could take anywhere from a few months to a few years, depending on the size of
the deal, stakeholder objections, the industry in which the companies operate,
and other factors.
The Companies Act provides a fast-track merger process to allow mergers between
small businesses or between a holding company and its wholly owned subsidiary to
take place without the NCLT's involvement. In such cases, the merger scheme is
deemed agreed if no objections are filed with the RD, ROC, or OL, and it is
approved by a majority of the companies' shareholders and creditors, accounting
for 90% of their total number of shares and 90% of the value of their creditors.
The Companies Act also allows for cross-border mergers (i.e., a merger between a
foreign company and an Indian company or vice versa).
The word "acquisition" is used in M&A transactions in addition to business
mergers. According to market practise, an acquisition is normally made by
exchanging existing shares or subscribing to new shares of a business.
Mergers and acquisitions affecting publicly listed companies are governed by
laws in India
Additional regulatory compliances are expected in the case of a merger or
acquisition of shares in a listed company under the Securities and Exchange
Board of India Act 1992 (SEBI Act) and the rules and regulations framed
thereunder. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations
2011 (Takeover Regulations); SEBI (Issuance of Capital and Disclosure
Requirements) Regulations 2018 (ICDR Regulations); SEBI (Listing Obligations and
Disclosure Requirements) Regulations 2015 (Listing Obligations and Disclosure
Requirements) Regulations 2015 (Listing Obligations and Disclosure Requirements)
Regulations 2015 (Listing Obligations and Disclosure Requirements) (LODR
The Takeover Regulations apply to all direct and indirect acquisitions of
shares, voting rights, or influence in a listed company in India, with the
exception of companies listed on a stock exchange's institutional trading
platform without having a public offering.
Both direct and indirect acquisitions of shares, voting rights, or power in an
Indian publicly traded company are covered by the Takeover Regulations. An open
offer for purchasing securities must be for at least 26% of the total shares in
the target company.
Certain types of acquisitions, such as inter se transfers of shares among
immediate relatives, promoters, and so on, are exempt from the requirement of
making an open offer to shareholders under the Takeover Regulations. The
cumulative shareholding after the open offer does not exceed the maximum
permissible non-public shareholding (i.e., 75 per cent)
Any fee charged or agreed to be paid to the promoters for their services should
be factored into the share price.
Regulations governing competition law
The Competition Act prohibits combinations that cause or are likely to cause an
appreciable adverse effect on competition (AAEC) within the relevant market in
India. Any such Combination would be meaningless and unusable. The CCI must
approve a Combination that is subject to a notification clause before it can be
completed. Until March 26, 2022, the de minimis exemption is in effect. The de
minimis exemptions are excluded from the pre-notification clause under the
The Competition Act exempts the de minimis exemptions from the pre-notification
provision. Small aim exemptions are exempted under the Act for transactions that
are unlikely to harm market competition. The asset or turnover requirement for
mandatory pre-Notification is set in terms of assets or turnover in India and
abroad. A small target exemption will not be available until 2022, and a de
minimis exemption will not be available until 2023, according to the act.
According to the Act, the maximum amount of assets that can be included in a
Combination in India is 3.5 billion Indian rupees in value or less than 10
billion Indian rupees in turnover. A 'gang' is described as two or more
companies that have the power to exercise 26 percent or more of the voting
rights in the other company, either directly or indirectly.
Until March 3, 2021, the Indian government has exempted classes with less than
50% voting rights in other companies from the laws regulating combinations. In
most mergers and acquisitions, the acquirer is responsible for notifying the CCI,
although in some cases, both parties are jointly responsible for filing the
A notice to the CCI outlining the details of the proposed Combination must be
given within 30 days of the execution of any agreement or other document for
acquisition or acquiring control. The Indian government has issued a waiver from
the country's stringent reporting requirements. Extraterritorial implementation
of the Competition Act means that the CCI's jurisdiction applies to transactions
that take place outside of India.
Combinations involving properties or turnover in India will be scrutinised even
if the purchasers, sellers, or target organisations are located outside of
India. Deals involving foreign exchange in India, like cross-border M&As, are
governed by the Foreign Exchange Management Act 1999 (FEMA), which is regulated
by India's central bank (the RBI).
The Foreign Exchange Management (Non-debt Instruments) Regulations 2019 (NDI
Regulations), Foreign Exchange Management (Debt Instruments) Regulations 2019
(DI Regulations), and Foreign Exchange Management (Cross-Border Merger)
Regulations 2018 are the major regulations (Cross-Border Merger Regulations).
Furthermore, the Indian government, through the Ministry of Commerce and
Industry's Department for Promotion of Industry and Internal Trade, issues
policy guidelines on foreign direct investment in India from time to time (FDI
Guidelines). The FDI Guidelines and the regulations stated above regulate the
manner in which foreign investment can flow into and out of India, the
instruments that can be used, the sectoral caps for foreign investments, and the
entry conditions associated with them Norms for minimum capitalization, lock-in
periods, and local sourcing, for example, are examples of such conditions.
According to the FDI Guidelines, acquiring an Indian company can be achieved
either via the "automatic path
" or the "approval route
acquirer, non-resident investor, or Indian company does not need the government
of India's approval for the acquisition or investment under the automatic path.
The approval road' necessitates prior approval from the Indian government. The
extent of the acquisition of shares and control of the Indian goal or investee
company, as well as the need to follow the approval path, are largely determined
by the Indian company's business activities. It also depends on the source
country of the investment flowing into India in a few cases.
Regulations pertaining to cross-border mergers
The RBI has released the Cross-Border Merger Regulations, which provide the
operational basis for the enabling provisions under the Companies Act regarding
cross-border mergers. A cross-border merger is a combination, amalgamation, or
agreement between an Indian and a foreign company. Inbound or outbound
cross-border mergers are possible. An inbound merger is a cross-border merger
that results in a corporation that is based in India. A cross-border merger in
which the resulting entity is a foreign company is known as an outbound merger.
An Indian or foreign company that takes over the assets and liabilities of the
companies concerned is referred to as a resultant company.
In the case of an inbound merger, the following are the steps to take:
- Following the NDI Rules' pricing guidelines, entry routes, and sectoral
caps, the resulting Indian company is allowed to issue or pass any
protection to a non-resident outside India.
- After a merger, a foreign company's office outside India is considered
to be a branch of the resulting Indian entity, and the resulting Indian
entity is free to transact in any way.
- Any borrowings by the foreign company from overseas sources that become
borrowings of the resultant Indian entity or are entered into the resultant
Indian company's books as a result of the merger must comply with the RBI's
guidelines for external commercial borrowing within two years, provided that
no remittance for repayment of such liability is made from India.
A foreign company may merge with an Indian company if it is incorporated in
one of the notified foreign jurisdictions. The informed foreign jurisdiction
includes countries whose stock market regulator is a signatory to the
International Organization of Securities Commissions' Multilateral Memorandum of
Understanding or a signatory to the bilateral memorandum of understanding with
SEBI. whose central bank is a member of the Bank for International Settlements;
and that are not listed in the Financial Action Task Force's (FATF) public
statement as a jurisdiction with strategic anti-money laundering or
counter-terrorist financing deficiencies to which countermeasures apply, or as a
jurisdiction that has not made sufficient progress in addressing the
deficiencies, or as a jurisdiction that has not made sufficient progress in
addressing the deficiencies, or as a jurisdiction that has not made sufficient
progress in addressing the deficiencies, or as Any transaction involving a
cross-border merger that is carried out in accordance with the above-mentioned
regulations is deemed to have been authorised by the RBI.
The involvement of a court or tribunal
In India, the merger process, including cross-border mergers, is governed by the
courts, and must be approved by the NCLT. An agreement between the parties could
start the process, but that would not be enough to give the transaction legal
When supervising mergers, the NCLT considers a number of factors, including:
- Deciding the class of creditors or members who must attend meetings to
discuss the proposed merger; Determining the values of the creditors or
members who must attend meetings.
- Determining the quorum, process, and voting method to be used at
shareholder and creditor meetings; and
- Sending notifications to the central government, the ROC, the IRS, the
RBI, SEBI, the CCI, and stock exchanges, as necessary.
The NCLT also has the authority to guide provisions relating to dissenting
parties and employee treatment to the transaction.
When the NCLT approves the merger arrangement, it becomes legally binding on all
creditors, shareholders, and companies participating in the merger.
Acquisition of distressed properties through the insolvency phase of a
The IBC's main goal is to establish a unified legal structure for corporate
reorganisation and insolvency resolution. Although the IBC does not specifically
address mergers and acquisitions, the insolvency process provides an incentive
for potential acquirers to acquire assets from troubled firms at a lower price
than under normal circumstances.
Under the IBC, the procedure of acquiring a corporation (corporate debtor)
starts with the prospective acquirer (resolution applicant) submitting a
resolution plan to the resolution professional proposing the purchase,
accompanied by acceptance of the resolution plan by the corporate debtor's
committee of creditors, and finally authorization of the resolution plan by the
Other regulatory considerations
Regulations that apply to particular industries
There are several industry-specific rules and regulators in place to oversee
acquisitions in these industries. As a result, additional approvals from certain
regulators may be needed before an M&A transaction can be completed. Approval
from the Insurance Regulatory and Development Authority of India, for example,
is needed in the case of an insurance business acquisition. Acquisitions of
banking companies and non-banking financial companies need RBI approval (NBFCs).
Insurance firms are subject to sector-specific regulations that are triggered
based on the acquirer's shareholding percentage that include provisions such as
lock-in periods, capital infusions at regular intervals, and so on.
Similarly, the Reserve Bank of India's Master Direction Amalgamation of Private
Sector Banks, Directions 2016 provides guidelines for merging two banking
companies, merging an NBFC with a banking company, and merging a banking company
with an NBFC.
When the ownership or management of an undertaking is transferred to a new
employer, a qualified employee is entitled to notice and retrenchment
compensation from the employer of such undertaking, according to section 25FF of
the Industrial Disputes Act 1947.
However, such reimbursement is not available if the employee's service is
terminated: has not been disrupted by such transition; the current terms and
conditions of service available to the employee following such transfer are not
less favourable to the employee; and the new employer is legally obligated to
compensate the employee in the case of retrenchment under the terms of such
Employees cannot be compelled to operate under a new management without their
permission, according to the Supreme Court, and if they do not consent to such a
move, they are entitled to retrenchment compensation. Although sanctioning a
scheme of amalgamation, the NCLT is also empowered to issue appropriate
directions on the care of the workforce.