MERGERS AND ACQUISITIONS

A. Domestic M and A:
The term ‘merger’ is not defined under the Companies Act, 1956 (“CA 1956”), and under
Income Tax Act, 1961 (“ITA”). However, the Companies Act, 2013 (“CA 2013”) without
strictly defining the term explains the concept. A ‘merger’ is a combination of two or more
entities into one; the desired effect being not just the accumulation of assets and liabilities of
the distinct entities, but organization of such entity into one business.

An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling interest in the

share capital or of all or substantially all of the assets and/or liabilities, of the target.

MAJOR REGULATIONS:

1. The Companies Act, 2013

 Prescribes the general framework governing companies in India, including, the
manner of issuance and transfer of securities of a company incorporated in
India and the process for schemes of arrangements of such companies
2. The Indian Contract Act,1872
 Governs contracts and the rights that parties can agree to contractually under
Indian laws
3. The Specific Relief Act,1963
 Primarily provide guidance on the nature of rights that the parties can agree to
contractually, and the remedies that can be availed by the parties for a breach
of the contract
4. The Income tax Act 1961
 Governs the tax treatment of M&A transactions in India.
5. The Competition Act,2002 and The Competition Commission of India (Procedure in
regard to the Transaction of Business relating to Combinations) Regulations, 2011
 Govern the manner in which the CCI will regulate combinations which have
caused or are likely to cause an appreciable adverse effect on competition
(“AAEC”) in India.
 Competitions Act, Section 3 (anti competition agreement), section 4 (Abuse of
dominance) and Section 5, 6, 20, 29, 30 and 31 contain some provisions that
are related to combinations.
6. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,2011
 Govern M&A transactions which involve the acquisition of a substantial stake
in a publicly listed company.
 Restricts and regulates the acquisition of shares, voting rights and control in
publicly listed companies.
7. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
 Conditions to be followed by a listed company while making an application
before the NCLT, for approval of a schemes of
merger/amalgamation/reconstruction
 8. Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2018
 Applicable in case If the acquisition of an Indian listed company involves the
issue of new equity shares or securities convertible into equity shares
(“Specified Securities”) by the target (issuer) to the acquirer.
9. SEBI (Prohibition of Insider Trading) Regulations, 2015
 prohibits communication and receipt of unpublished, price-sensitive
information (UPSI) in relation to listed companies
10. The Insolvency and Bankruptcy Code, 2016
11. The Indian Stamp Duty Act, 1899
 Provides for stamp duty on transfer/issue of shares at the rate of 0.25%. In
case the shares are in dematerialised form, there would be no stamp duty on
transfer of shares.
12. Sector-specific federal legislations, including the Indian Telegraph Act, 1885, the
Drugs and Cosmetics Act, 1940, the Insurance Act, 1938, the Air Act, 1981, the
Water Act, 1974, and the Environment (Protection) Act, 1986 and multiple
employment and labour related legislations
13. Patents Act, 1970, Copyright Act, 1957, and Trade Marks Act, 1999 for safeguarding
Intellectual Property Rights

Listed Company :
SEBI (Takeover
Code)
Stock Purchase
Unlisted
Company

Acquisitions

Slump Sale

M and A Asset Purchase

Itemized Sale

Companies Act,
Mergers 2013 (Section 230-
232)

Step Wise Process for a domestic merger (Amalgamation):

 It is checked whether the companies are authorised to merge according to their MoA

If yes, a draft scheme of merger is prepared

Meetings of Board of Directors of respective companies are convened for discussion and approval of
proposed scheme

If approved, an authorised personnel is appointed to file the scheme and representation in court.

The scheme is filed in the respective NCLT where the registered office is situated.

Apply to the court for directions to convene a general meeting by way of a judge’s summons supported by an
affidavit and the proposed scheme is attached to the affidavit.

The NCLT issues directions and fix the date for convening respective meetings of the shareholders and
creditors and also appoint chairpersons of such meetings

Notices and explanatory statements are approved by the NCLT registry and signed by the court appointed
chairman.

The notice is printed, dispatched and also advertised in an English and regional newspaper as per the
directions of NCLT

An affidavit is filed with the NCLT (not less than 7 days before the meetings) is filed by the chairpersons
showing that directions regarding the issue of notices and advertisements have been duly complied with.

Shareholder and Creditors meetings are held to approve the scheme (Has to be approved by a majority,
holding 3/4thth in value)

The chairperson reports to the High Court the results of the meeting within the time frame fixed by the High
Court or within 7 days

Both the Companies file confirmation Petitions and obtaining final order

Post-final order Compliances

B. Inbound M and A
 Foreign Exchange Management (Cross Border Merger) Regulations, 2018
(“CMR”). defines an inbound merger as a merger between an Indian and a
foreign company where the resultant company is an Indian company and
which takes over the assets and liabilities of the merging companies.
 Section 234 of the Companies Act read with Rule 25A of the CAA Rules
provide that every company proposing a cross-border merger must take prior
approval from RBI before filing application for sanction to NCLT. Also, a
cross-border merger which adheres to the CMR regulations will be deemed to
be approved by RBI.

ADDITIONAL REGULATIONS:
1. Foreign Exchange Management Act, 1999
 Regulates foreign exchange transactions, acquisitions of movable and
immovable property by persons resident in India, foreign investment into
Indian Companies and overseas direct investment by Indian Companies.
2. Foreign Exchange Management (Cross-Border Merger) Regulations, 2018
 Address specific issues that may arise in such cross-border deals.
3. FDI Policy
 Sets out terms, conditions and the procedure to be followed for investment in
India
 The Foreign Direct Investment Policy prescribes certain conditions for making
investments in India in different sectors, such as maximum permissible limits
on investment by a foreign party, pricing guidelines to be adhered to for
making the investments, lock-in requirements of such foreign investment, etc.

ESSENTIALS OF AN INBOUND MERGER:

 Merger Regulations allow transfer of securities to a foreign shareholder, subject to
compliances applicable to a foreign investor under the foreign direct investment
regulations (“FDI Registration”).
 . Where the cross border merger results in transfer of securities of a joint venture
(“JV”) or a wholly owned subsidiary (“WOS”) of an IC, situated in a foreign
jurisdiction, the same is subject to compliance, such as pricing of shares in a specified
manner, any outstanding’s owed to the IC being cleared prior to such transfer, etc. set
out under the Foreign Exchange Management (Transfer or Issue of Any Foreign
Security) Regulations 2004).
 If the cross-border merger results in acquisition of a step-down subsidiary (situated in
a foreign jurisdiction) of the JV/WOS, by an IC, then certain additional conditions
laid down in the Foreign Exchange Management. (Transfer or issue of any foreign
security) Regulations 2004 will have to be complied with.
  The IC has to ensure that the overseas borrowings of the foreign company, proposed
to be taken over by it, are compliant with the provisions of the overseas borrowing
Regulations under Indian law (“Overseas Borrowing Reg.”) within a period of 2
(Two) years from the date of sanction of the scheme pertaining to such cross-border
merger by the relevant authority. However, the IC cannot remit any monies from
India for repayment of such overseas borrowings.
 Further, it is to be noted that the Overseas Borrowing Reg. inter-alia stipulates
specified interest rates, maturity, end use restrictions, on borrowings, from overseas,
by an IC (however, end use restrictions are not applicable to an IC per the Merger
Regulations).

Mechanics of an Inbound merger and respective regulations:

Foreign Exchange Management (Transfer or Issue of Security by a

Person Resident Outside India) Regulations, 2017.
Transfer of Securities Foreign Exchange Management (Transfer or Issue of any Foreign
Security) Regulations, 2004 (ODI Regulations).

Foreign Exchange Management (Foreign Currency Account by

Branch/office outside India a Person Resident in India) Regulations, 2015.

Borrowings RBI External Commercial Borrowings (ECB) Policy

Transfer of Assets Companies Act 2013

Opening of overseas bank Foreign Exchange Management (Cross Border Merger)

account for resultant Company Regulations, 2018