MERGERS AND ACQUISTIONS

Provisions under the Companies Act, 2013

Sections 230 to 240 of the Companies Act, 2013 (Earlier Sections 391 to 396A of
the Companies Act, 1956) contain provisions with respect to mergers and
acquisitions (M&A).

A merger or acquisition may involve arrangement or compromise with the

creditors or members of the transferee company. In fact, there can hardly be any
reconstruction or amalgamation which does not involve a compromise or
arrangement between the company and its creditors or members.

A petition for reconstruction or amalgamation, in most of the cases, is therefore

accompanied by a petition relating to ‘arrangement’ and ‘compromise’.

Besides acquisition, M&A may take the form of amalgamation, reconstruction

or demerger.

The High Court of Madhya Pradesh in Patrakar Prakashan (P). Ltd., In re

(1997) SCL XIII (MP) has held that the term ‘amalgamation’ includes the term
‘compromise or arrangement’.

According to Palmer, referred sometimes as ‘father of company law’,

‘arrangement’ and reconstruction’ include:

• any form of internal reorganization of the company and its affairs;

• schemes for the merger of two or more companies;

• division of one company into two or more companies

Provisions relating to amalgamation, reconstruction, arrangement and compromise
as contained in sections 230 to 239 of the Companies Act, 2013 are being
discussed hereunder:

Companies Act, 2013 has different provisions in relation to different types of re-
structuring process. These provisions may be discussed under the following four
heads:

• Compromise or Arrangements - Sections 230-231

• Amalgamations including Demergers – Section 232

• Amalgamation of Small Companies – Section 233

• Amalgamation of Foreign Companies – Section 234

Compromise or Arrangement (Section 230)

Compromise or Arrangement includes:

• Consolidation or sub-division of company’s shares of different classes,
for instance, offering preference shareholders to accept equity shares; or
• An arrangement with the company’s creditors to forego a portion of
their claim.
PROCEDURE FOR COMPROMISE OR ARRANGEMENT
• Application to the Tribunal (presently, the Court) to call a meeting of
the Members /Creditors: Any member/creditor or liquidator (in case of
winding up) may make an application to the Tribunal (presently, the Court)
to call a meeting of the Members /Creditors. The Tribunal may order the
calling, holding and conducting the meeting in the manner, it may so
direct.
• Disclosure to the Tribunal by Affidavit: The Tribunal may ask
the applicant to disclose to the Tribunal by affidavit—
(a) all material facts relating to the company, such as the latest financial
position of the company, the latest auditor’s report on the accounts of the
company and the pendency of any investigation or proceedings against
the company;
(b) reduction of share capital of the company, if any, included in
the compromise or arrangement;
(c) any scheme of corporate debt restructuring consented to by not
less than seventy-five per cent of the secured creditors in value,
including—
(i) a creditor’s responsibility statement in the prescribed form;
(ii) safeguards for the protection of other secured and unsecured
creditors;
(iii) report by the auditor that the fund requirements of the
company after the corporate debt restructuring as approved
shall conform to the liquidity test based upon the estimates
provided to them by the Board;
(iv) where the company proposes to adopt the corporate debt
restructuring guidelines specified by the Reserve Bank of India, a
statement to that effect; and
(v) a valuation report in respect of the shares and the property and
all assets, tangible and intangible, movable and immovable, of the
company by a registered valuer.
3. Notice of the Meeting: Where a meeting is proposed to be called in
pursuance of an order of the Tribunal under sub-section (1), a notice of such
meeting shall be sent to:
 (i) all the creditors or class of creditors;
(ii) to all the members or class of members; and
(iii) the debenture-holders of the company,
individually at the address registered with the company.
The notice should be accompanied by:
• a statement disclosing the details of the compromise or arrangement,
• a copy of the valuation report, if any, and
• explaining the effect of compromise/arrangement on creditors, key
managerial personnel, promoters and non-promoter members, and
the debenture-holders and the effect of the compromise or
arrangement on any material interests of the directors of the company
or the debenture trustees, and such other matters as may be
prescribed:
Moreover, such notice and other documents shall also be placed on the
website of the company, if any, and in case of a listed company, these
documents shall be sent to the SEBI and stock exchange where the
securities of the companies are listed, for placing on their website and
shall also be published in newspapers in such manner as may be
prescribed:
Where the notice for the meeting is also issued by way of an
advertisement, it shall indicate the time within which copies of the
compromise or arrangement shall be made available to the concerned
persons free of charge from the registered office of the company.
The notice should mention that the persons to whom the notice is sent may
vote in the meeting either themselves or through proxies or by postal
ballot to the adoption of the compromise or arrangement within one
month from the date of receipt of such notice:
 It may be noted that objection to the compromise or arrangement can
be made only by:
• persons holding not less than ten per cent of the shareholding;
or
• having outstanding debt amounting to not less than five per cent
of the total outstanding debt as per the latest audited financial
statement.

Notice along with all the documents in such form as may be

prescribed shall also be sent to:
(i) the Central Government,
(ii) the income-tax authorities,
(iii) the Reserve Bank of India,
(iv) the Securities and Exchange Board,
(v) the Registrar, the respective stock exchanges,
(vi) the Official Liquidator,
(vii) the Competition Commission of India, if necessary, and
(viii) such other sectoral regulators or authorities which are likely to be
affected by the compromise or arrangement.
Representations, if any, by any of the above authorities must be made by
them within a period of thirty days from the date of receipt of such notice,
failing which, it shall be presumed that they have no representations to make
on the proposals.

4. If majority of persons representing three-fourths in value of the

creditors, or class of creditors or members or class of members, as the
case may be, voting in person or by proxy or by postal ballot, agree to
 any compromise or arrangement and if such compromise or
arrangement is sanctioned by the Tribunal by an order, the same shall
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be, or, in case of a
company being wound up, on the liquidator and the contributories of the
company.

5. An order made by the Tribunal under sub-section (6) shall provide for
all or any of the following matters, namely:—

(a) where the compromise or arrangement provides for

conversion of preference shares into equity shares, such
preference shareholders shall be given an option to either obtain
arrears of dividend in cash or accept equity shares equal to the
value of the dividend payable;
(b) the protection of any class of creditors;
(c) if the compromise or arrangement results in the variation of the
shareholders’ rights, it shall be given effect to under the provisions of
section 48 ;
(d) such other matters including exit offer to dissenting shareholders, if any,
as are, in the opinion of the Tribunal, necessary to effectively implement the terms
of the compromise or arrangement.
However, no compromise or arrangement shall be sanctioned by the Tribunal
unless a certificate by the company's auditor has been filed with the Tribunal
to the effect that the accounting treatment, if any, proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards
prescribed under section 133.
6. The order of the Tribunal shall be filed with the Registrar by the company
within a period of thirty days of the receipt of the order.
7. The Tribunal may dispense with calling of a meeting of creditors or class of
creditors where such creditors or class of creditors, having at least ninety per cent
value, agree and confirm, by way of affidavit, to the scheme of compromise or
arrangement.

8. No compromise or arrangement in respect of any buy-back of securities under

this section shall be sanctioned by the Tribunal unless such buy-back is in
accordance with the provisions of section 68.
9. Any compromise or arrangement may include takeover offer made in such
manner as may be prescribed:
In case of listed companies, takeover offer shall be as per the regulations
framed by the SEBI.
10. An aggrieved party may make an application to the Tribunal in the
event of any grievances with respect to the takeover offer of companies
other than listed companies in such manner as may be prescribed and the
Tribunal may, on application, pass such order as it may deem fit.
Explanation.—For the removal of doubts, it is hereby declared that
the provisions of section 66 shall not apply to the reduction of share
capital effected in pursuance of the order of the Tribunal under this
section.
As per Section 231 (1), where the Tribunal makes an order under section 230
sanctioning a compromise or an arrangement in respect of a company, it shall have
power to:
 • supervise the implementation of the compromise or arrangement; and
• give such directions in regard to any matter; or
• make such modifications in the compromise or arrangement, as it may
consider necessary, for the proper implementation of the compromise or
arrangement.
However, if the Tribunal is satisfied that:
• the sanctioned compromise or arrangement cannot be implemented
satisfactorily with or without modifications, AND
• the company is unable to pay its debts as per the scheme,

it may make an order for winding up of the company.

Section 232(1) makes the aforesaid provisions of Section 230 applicable, mutatis
mutandis, in case of:
• a scheme for the reconstruction of the company, or
• a scheme of merger or amalgamation of any two or more companies, or
• division of a company.

In case of proposed Merger/amalgamation, sub-section (2) of Section 232 requires

the company to circulate the following for the meeting of the members or
creditors so ordered by the Tribunal, namely:—
(a) the draft of the proposed terms of the scheme drawn up and adopted by the
directors of the merging company;
(b) confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) a report adopted by the directors of the merging companies explaining effect of
compromise on each class of shareholders, key managerial personnel, promoters
and non-promoter shareholders laying out in particular the share exchange ratio,
specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual accounts of any of the
merging company relate to a financial year ending more than six months
before the first meeting of the company summoned for the purposes of approving
the scheme.

The Tribunal, after satisfying itself that the procedure specified in sub-sections
(1) and (2) has been complied with, may, by order, sanction the compromise or
arrangement or by a subsequent order, make provision for the following matters,
namely:—
(a) the transfer to the transferee company of the whole or any part of the
undertaking, property or liabilities of the transferor company from a date to
be determined by the parties unless the Tribunal, for reasons to be
recorded by it in writing, decides otherwise;
(b) the allotment or appropriation by the transferee company of any shares,
debentures, policies or other like instruments in the company which, under
the compromise or arrangement, are to be allotted or appropriated by that
company to or for any person;
(c) the continuation by or against the transferee company of any legal
proceedings pending by or against any transferor company on the date of
transfer;
(d) dissolution, without winding-up, of any transferor company;
(e) the provision to be made for any persons who, within such time and in
such manner as the Tribunal directs, dissent from the compromise or
arrangement;
 (f) where share capital is held by any non-resident shareholder under the
foreign direct investment norms or guidelines specified by the Central
Government or in accordance with any law for the time being in force, the
allotment of shares of the transferee company to such shareholder shall be in
the manner specified in the order;
(g) the transfer of the employees of the transferor company to the transferee
company;
(h) where the transferor company is a listed company and the transferee
company is an unlisted company,—
(A) the transferee company shall remain an unlisted company until it
becomes a listed company;
(B) if shareholders of the transferor company decide to opt out of the
transferee company, provision shall be made for payment of the value
of shares held by them and other benefits in accordance with a pre-
determined price formula or after a valuation is made, and the
arrangements under this provision may be made by the Tribunal:
However, it cannot be less than specified by SEBI;
(i) where the transferor company is dissolved, the fee, if any, paid by the
transferor company on its authorised capital shall be set-off against any fees
payable by the transferee company on its authorised capital subsequent to the
amalgamation; and
(j) such incidental, consequential and supplemental matters as are deemed
necessary to secure that the merger or amalgamation is fully and effectively carried
out:
No compromise or arrangement shall be sanctioned by the Tribunal unless a
certificate by the company’s auditor has been filed with the Tribunal to the
effect that the accounting treatment, if any, proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards
prescribed under section 133.

Date from which Scheme shall be Effective

Sub section (6) of Section 232 provides that the scheme shall clearly indicate an
appointed date from which it shall be effective and the scheme shall be deemed
to be effective from such date and not at a date subsequent to the appointed date.
Where Amalgamation/Merger continues beyond One Year
Every company in relation to which the order is made shall, until the
completion of the scheme, file a statement in such form and within such time as
may be prescribed with the Registrar every year duly certified by a chartered
accountant or a cost accountant or a company secretary in practice indicating
whether the scheme is being complied with in accordance with the orders of
the Tribunal or not.

Penalty
Non compliance by the transferor or the transferee company with the
aforesaid provisions will attract a minimum fine of Rs. 1,00,000 which may
extend to 25 lakh rupees and every officer of such transferor or transferee
company who is in default, shall be punishable with imprisonment for a term
which may extend to one year or with fine between one lakh rupees to three lakh
rupees, or with both.

Merger or Amalgamation of Small Companies (Section 233)

Merger or Amalgamation of:

 • two or more small companies, or
• between a holding company and its wholly-owned subsidiary
company, or
• such other class or classes of companies as may be prescribed,
shall be subject to the following, namely:—

• objections or suggestions to the proposed scheme from the Registrar

and Official Liquidators where registered office of the respective
companies are situated or persons affected by the scheme to be
invited within thirty days ;

• the objections and suggestions received should be considered by the

companies in their respective general meetings and the scheme
approved by the respective members or class of members at a
general meeting holding at least ninety per cent of the total
number of shares;
• each of the companies involved in the merger shall file a
declaration of solvency, in the prescribed form, with the
Registrar of the place where the registered office of the
company is situated; and

• the scheme shall be approved by majority representing

nine-tenths in value of the creditors or class of creditors of
respective companies indicated in a meeting convened by
the company by giving a notice of twenty-one days along with
the scheme to its creditors for the purpose or otherwise
approved in writing.
 • The transferee company shall file a copy of the scheme
so approved with:
• the Central Government,
• Registrar, and
• the Official Liquidator.

If the Central Government is of the opinion that such a scheme is

not in public interest or in the interest of the creditors, it may
file an application before the Tribunal within a period of sixty
days of the receipt of the scheme under sub-section (2) stating its
objections and requesting that the Tribunal may consider the
scheme under section 232.

Merger or Amalgamation of Foreign Companies (Section 234)

Same provisions as discussed above, mutatis mutandis, shall apply with respect to
mergers of an Indian company with a foreign company. Foreign company means a
company incorporated outside India whether having a place of business in India or
not.
The Central Government may, however, make rules, in consultation with
the Reserve Bank of India, in connection with such mergers and amalgamations.

Power to Acquire Shares of Shareholders Dissenting from Scheme or

Contract Approved by Majority (Section 235)

The transferee company may, at any time within two months after the approval
of the Scheme by the holders of not less than nine-tenths in value of the shares,
give notice in the prescribed manner to any dissenting shareholder that it desires
to acquire his shares.
The dissenting shareholder may, within one month of receipt of such notice
apply to the Tribunal against such acquisition. In case Tribunal does not make an
otherwise order, the dissenting shareholder will be bound to sell his shares to the
transferee company at the same price as paid to the majority.

Purchase of Minority Shareholding (Section 236)

Relevant in the following situations:

• An acquirer, or a person acting in concert with such acquirer,
becoming registered holder of ninety per cent or more of the
issued equity share capital of a company, or
• In the event of any person or group of persons becoming ninety
per cent majority or holding ninety per cent of the issued equity
share capital of a company, by virtue of an amalgamation,
share exchange, conversion of securities or for any other
reason.
The aforesaid acquirer, person or group of persons, as the case may be,
shall notify the company of their intention to buy the remaining equity
shares. The shares can be acquired at a price determined on the
basis of valuation by a registered valuer in accordance with such
rules as may be prescribed

The majority shareholders shall deposit an amount equal to the

value of shares to be acquired by them in a separate bank account
to be operated by the transferor company for at least one year for
 payment to the minority shareholders and such amount shall be
disbursed to the entitled shareholders within sixty days.

In case of legal successors, the period of one year will stand extended to three
years.

Power of Central Government to provide for Amalgamation of Companies

in Public Interest (Section 237)

Where the Central Government is satisfied that it is essential in the public

interest that two or more companies should amalgamate, the Central Government
may, by order notified in the Official Gazette, provide for the amalgamation of
those companies into a single company with such constitution, with such
property, powers, rights, interests, authorities and privileges, and with such
liabilities, duties and obligations, as may be specified in the order.

In case the interest or rights of any member or creditor in or against the

transferee company are less than his interest in or rights against the original
company, he shall be entitled to compensation to that extent, which shall be
assessed by such authority as may be prescribed and every such assessment shall be
published in the Official Gazette, and the compensation so assessed shall be paid to
the member or creditor concerned by the transferee company.

If such member/creditor is not satisfied with the decision of the assessing

authority, he may prefer an appeal with the Tribunal within a period of 30 days.
 Preservation of books and papers of amalgamated companies (Section
239)

The amalgamating company(ies) shall not dispose of books and papers without
permission from the Central Government.

TAKEOVER CODE REGULATIONS

Mergers and Acquisitions (M&A) activity has always been recognized as one of
the most important means of inorganic growth for corporate world. The swift
globalization and increasing strength and importance of Indian Economy in the
World have created huge interest of world in Indian corporate sector and the
capital market. In the recent past, there has been tremendous increase in the M&As
deals involving Indian companies, both in number and in value terms.
Total value of mergers and acquisitions (M&As) involving
Indian companies surged nearly 63 per cent to $7.8 billion in the first three
months of 2016, primarily spurred by big-ticket disinvestment transactions,
says E & Y Report
The existence of an efficient and smooth–functioning market for takeover plays an
important role in the economic development of a country. It is widely recognized
fact that one of the key elements of a robust corporate governance regime in any
country is the existence of an efficient and well administered set of Takeover
Regulations. In keeping with the forgoing, India also has seen a steady evolution of
a set of capital market regulations in respect of substantial acquisition of shares and
takeovers.
SEBI Takeover Regulations seek to ensure that the takeover markets operate in
a fair, equitable and transparent manner.
The first set of takeover regulations were formulated in 1994, viz., SEBI
(Substantial Acquisition of Shares and Takeover) Regulations, 1994. These were
later replaced in the year 1997and rechristened as SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997. These regulations also
were amended a number of times to address the changing circumstances and needs
of corporate sector and various clarifications, orders and judgments given to
simplify the complexities involved in these regulations. Thus, a need was felt to
review the SEBI Takeover Regulations to remove the ambiguities involved in the
Regulations which have been one of the major causes of defiance with the
Regulations and to bring it at par with the global practices so as to create a level
playing field.

Constitution of Takeover Regulations Advisory Committee (Achuthan

Committee) to review Takeover Regulations

In September 2009, SEBI constituted a multi-disciplinary expert committee,

Takeover Regulations Advisory Committee (TRAC) under the chairmanship of
Sh. C. Achuthan, the former Chairman of Securities Appellate Tribunal, with
terms of reference to examine the existing Takeover Regulations and to suggest
suitable amendments, as deemed fit. The Committee also invited the suggestions
from the Indian corporate, professional bodies and public at large. After a detailed
analysis and considering the views of regulators, corporate bodies and public
comments for about 9 months, the Committee on July 19, 2010 released its
report. The Committee framed the Regulations keeping in view the interest of
public shareholders on one side and that of the Strategic Investors, Private Equity
Players, Target Company and Promoters on the other side.
Presently, takeover of Listed companies is regulated by SEBI’s Takeover
Code, 2011 and Clauses 40A and 40B of Listing Agreement.

Salient Features of SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011

After taking into account the suggestions of the Achuthan Committee and feedback
from the interest groups and general public on such suggestions, the SEBI finally
notified the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (“Takeover Code of 2011”) on 23 September 2011. The
Takeover Code of 2011 became effective from 22 October 2011.

The Takeover Code of 2011 adheres to the framework and principles of the
Takeover Code of 1997 but the changes it brings about are significant. Some of the
key features of Takeover Code, 2011 are discussed below:

• Meaning of Certain Terms

• Acquirer

Acquirer means any person who, whether by himself, or through, or

with persons acting in concert with him, directly or indirectly, acquires
or agrees to acquire shares or voting rights in, or control over a
target company. An acquirer can be a natural person, a corporate
entity or any other legal entity.

• Person Acting in Concert (PACs)

PACs are individual(s)/company (ies) or any other legal entity (ies)

who, with a common objective or purpose of acquisition of shares or
voting rights in, or exercise of control over the target company,
pursuant to an agreement or understanding, formal or informal,
directly or indirectly cooperate for acquisition of shares or voting rights
in, or exercise of control over the target company. SAST
Regulations, 2011 define various categories of persons who are
deemed to be acting in concert with other persons in the same
category, unless the contrary is established.

• Target Company

The company / body corporate or corporation whose equity shares

are listed in a stock Exchange and in which a change of shareholding or
control is proposed by an acquirer, is referred to as the ‘Target
Company’.

• Control

“control” includes the right to appoint majority of the directors

or to control the management or policy decisions exercisable by
a person or persons acting individually or in concert, directly or
indirectly, including by virtue of their shareholding or management
rights or shareholders agreements or voting agreements or in any
other manner.

• Disclosure Requirements

(A) Any person, who along with PACs crosses the threshold limit of
5% of shares or voting rights, has to disclose his aggregate
shareholding and voting rights to the: (i) Target Company at its
registered office; and (ii) to every Stock Exchange where the
shares of the Target Company are listed within 2 working days of
acquisition as per the format specified by SEBI.

(B) Any person who holds 5% or more of shares or Voting rights

of the target company and who acquires or sells shares
representing 2% or more of the voting rights, shall disclose details of
such acquisitions/sales to the Target company at its registered office
and to every Stock Exchanges where the shares of the Target
Company are listed within 2 working days of such transaction, as
per the format specified by SEBI.
 Please note that shares by way of encumbrance will be treated as an
acquisition.

Illustration for the calculation of trigger limits for disclosures

Total Shares/voting capital of the company

• Company A has 100 equity shares, 50 partly convertible

Debentures (PCDs) and 10 GDRs. 1 GDR carries 1 voting right.

• Total shares of company A= 100+50+10 = 160

• Total voting capital of Company A= 100+10=110

Person B’s holding of shares and voting rights:

• Person B has 8 equity shares, 7 PCDs and 1 GDR.

• Person B has 8+7+1 =16 shares (shares for disclosure purpose

includes convertible securities)

• Person B’s holding in terms of shares= 16/160=10% of shares

• Person B’s voting rights= 8+1= 9 voting rights

• Person B’s holding in terms of voting rights = 9/110=8 % of voting

rights

Since person B is holding more than 5% of shares or voting rights, he

is required to make disclosures for any acquisition/ sale of 2% or more
of shares or voting rights.

Acquisition by Person B
 Scenario I

• Person B acquires 2 equity shares and 2 PCDs.

• In terms of shares, person B has acquired 4/160=2.5% of shares

• In terms of voting rights, person B has acquired 2/110=

1.8% of voting rights

• Since acquisition done by person B represents 2 % or more of

shares, the disclosure obligation is triggered.

Scenario II

Person B acquires 20 PCDs

In terms of shares, person B has acquired 20 shares, i.e. 20/160, i.e.

12.5% shares.

In terms of voting rights, he has not acquired a single voting right,

i.e. ‘0’ voting right.

However, since acquisition done by person B represents 2% or more of

shares (though no voting rights), the disclosure obligations is triggered.

• Initial Threshold Limit for Triggering of an Open Offer

An acquirer is mandated to make an open offer if he, alone or through persons

acting in concert, acquires 25% or more of voting rights in the target company.
Therefore, a strategic investor, including private equity funds and minority foreign
investors, can hold up to 24.99% of equity capital of a listed company without
inviting the rigours of Takeover Code.
 • Mandatory open offer need not be made where the company is a distressed
company and the investor (s) is/are new investors. [Source: Economic Times
and Live Mint dated 22 June, 2017]

Objective is to ease the lenders who acquired shares in a distressed company but
could not sell the stake to a new investor because the takeover norms proved
restrictive and reduced the funds available for investment in the stressed firm.

Conditions for availing the aforesaid exemption:

1. Approval by a special resolution (at least 75% shareholders voting in

favour).

2. Secondly, the shares bought by the new investor will also be locked in for at
least three years.

• Creeping Acquisition

 Any acquirer, holding 25% or more but less than the maximum permissible
limit can purchase additional shares or voting rights of up to 5% every financial
year, without being required to make a public announcement for open offer.

Thus, the promoters can increase their shareholding in the company without
necessarily purchasing shares from the stock market.

• Voluntary offer

 Takeover Code, 2011, has introduced the concept of voluntary offer by which an
acquirer who holds more than 25% but less than the maximum permissible limit,
shall be entitled to voluntarily make a public announcement of an open offer for
acquiring additional shares subject to their aggregate shareholding after completion
of the open offer not exceeding the maximum permissible non-public
shareholding.

Restrictions on voluntary open offer

• During the offer period such acquirer shall not be entitled to acquire any
shares otherwise than under the open offer.
• Voluntary offer cannot be made if the acquirer or any person acting in
concert with him had acquired shares of the target company in the
preceding fifty-two weeks.
• An acquirer and persons acting in concert with him, who have made a
public announcement under this regulation to acquire shares of a target
company shall not be entitled to acquire any shares of the target
company for a period of six months after completion of the open
offer. However, the restriction will not apply to acquisition of shares by
way of bonus issue or as a result of split.

• Exemptions from the Requirement of Open Offer 

• Inter-se Transfers

Takeover Code of 2011 does not apply to inter-se transfers between:

a)     Immediate relatives. “Immediate relative” means any spouse of a person,

and includes parent, brother, sister or child of such person or of the spouse.
b)     Promoters;

c)     a company, its subsidiaries, its holding company, other subsidiaries of such
holding company;

d) persons holding not less than 50% of the equity shares of such company;

e)     persons acting in concert for not less than 3 years prior to the proposed
acquisition, and disclosed as such pursuant to filings under the listing agreement.
To avail exemption from the requirements of open offer under the Takeover Code
of 2011, the following conditions will have to be fulfilled with respect to an inter-
se transfer:

-        If the shares of the target company are frequently traded – the
acquisition price per share shall not be higher by more than 25% of the volume-
weighted average market price for a period of 60 trading days preceding the date of
issuance of notice for such inter-se transfer

-        If the shares of the target company are infrequently traded, the
acquisition price shall not be higher by more than 25% of the price determined by
taking into account valuation parameters including, book value, comparable
trading multiples, etc.

2. Rights issue – The Takeover Code of 2011 provides exemption from the
requirement of open offer to increase in shareholding due to rights issue, but
subject to fulfillment of two conditions:

(a)   The acquirer cannot renounce its entitlements under such rights issue; and

(b)   The price at which rights issue is made cannot be higher than the price of the
target company prior to such rights issue.

3. Buyback of shares – The Takeover Code of 1997 did not provide for any
exemption for increase in voting rights of a shareholder due to buybacks. The
Takeover Code of 2011 however provides for exemption for such increase.

Case-Law
Whether passive acquisition of voting rights shall attract provisions of
Takeover Regulations?

Securities Appellate Tribunal, Mumbai (SAT), in the case of Raghu Hari

Dalmia v. Securities and Exchange Board of India[2011] 16 Taxmann.com 100
held ‘No’. In this case, as a result of buy back, percentage shareholding of
appellants in company increased from 62.56 per cent to 75 per cent of total paid-up
capital and SEBI issued to appellants a show cause notice alleging that they had to
make a public announcement to acquire shares from shareholders of company and
not having made a public offer, they violated regulation 11(1) of SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997. SAT held that percentage
increase in voting rights of appellants was not by reason of any act of theirs but
was incidental to buy back of shares of other shareholders by company and such a
passive increase in proportion of voting rights of promoters of company would not
attract regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997.

• Mode of Payment
Regulation 9 provides for the various modes by which payment with respect to
acquisition of shares may be made. As per sub-regulation (1), the prescribed modes
are:
(a) in cash;
(b) by issue, exchange or transfer of listed shares in the equity share capital
of the acquirer or of any person acting in concert;
(c) by issue, exchange or transfer of listed secured debt instruments issued
by the acquirer or any person acting in concert with a rating not inferior to
investment grade as rated by a credit rating agency registered with the
Board;
(d) by issue, exchange or transfer of convertible debt securities entitling the
holder thereof to acquire listed shares in the equity share capital of the
acquirer or of any person acting in concert; or
 (e) combination (a), (b), (c) or (d) above.
• Offer Price in respect of Open Offer (Regulation 8)
The offer price shall be the highest of,—
(a) the highest negotiated price per share of the target company for any
acquisition under the agreement attracting the obligation to make a public
announcement of an open offer;
(b) the volume-weighted average price paid or payable for acquisitions,
whether by the acquirer or by any person acting in concert with him, during
the fifty-two weeks immediately preceding the date of the public
announcement;
(c) the highest price paid or payable for any acquisition, whether by the
acquirer or by any person acting in concert with him, during the twenty-six
weeks immediately preceding the date of the public announcement;
(d) the volume-weighted average market price of such shares for a period
of sixty trading days immediately preceding the date of the public
announcement as traded on the stock exchange where the maximum
volume of trading in the shares of the target company are recorded
during such period, provided such shares are frequently traded;
(e) where the shares are not frequently traded, the price determined by
the acquirer and the manager to the open offer taking into account valuation
parameters including, book value, comparable trading multiples, and such
other parameters as are customary for valuation of shares of such companies.
• Exemptions by SEBI
Regulation 11 empowers SEBI, for reasons recorded in writing, to grant exemption
from the obligation to make an open offer for acquiring shares under these
regulations subject to such conditions as the Board deems fit to impose in the
interests of investors in securities and the securities market.
OPEN OFFER PROCESS
Appointment of a Merchant banker as Manager to the Open Offer
Regulation 12 (1) makes it obligatory upon the acquirer to appoint a
merchant banker registered with SEBI, as the manager to the open offer. The
merchant banker so appointed should not be an associate of the acquirer.
The public announcement of the open offer shall be made through such manager
only.
Timing of Public Announcement (Regulation 13)
(1) The public announcement containing the specified particulars shall be made on
the date of agreeing to acquire shares or voting rights in, or control over the target
company.
(2) Such public announcement,—
(a) in the case of market purchases, shall be made prior to placement of
the purchase order with the stock broker;
(b) in the case of convertible securities with no fixed date of conversion, on
the same day as the date of exercise of the option to convert such securities
into shares of the target company;
(c) in the case of convertible securities with a fixed date of conversion ,
on the second working day preceding the scheduled date of conversion of
such securities into shares of the target company;
(d) pursuant to a disinvestment shall be made on the same day as the date
of executing the agreement for acquisition of shares or voting rights in or
control over the target company;
(g) in case of an acquirer acquiring shares under preferential issue, it
shall be made on the date on which special resolution is passed for
allotment of shares under sub-section (1A) of section 62 of the Companies
Act, 2013;
(3) In case of voluntary acquisition, the public announcement shall be made on
the same day as the date on which the acquirer takes the decision to voluntarily
make a public announcement of an open offer for acquiring shares of the target
company.
(4) Pursuant to the public announcement made under sub-regulation (1) and sub-
regulation (3), a detailed public statement in the prescribed manner shall be
published by the acquirer through the manager to the open offer, not later than five
working days of the public announcement.
Publication of Public Announcement and detailed public statement
(Regulation 14)
(1) The public announcement as well as detailed public statement shall be sent to
all the stock exchanges on which the shares of the target company are listed,
and the stock exchanges shall forthwith disseminate such information to the public.
(2) A copy of the public announcement shall be sent to the SEBI and to the target
company at its registered office within one working day of the date of the public
announcement.
(3) The detailed public statement pursuant to the public announcement referred to
in sub-regulation (4) of Regulation 13 shall be published in all editions of any
one English national daily with wide circulation, any one Hindi national daily
with wide circulation, and any one regional language daily with wide
circulation at the place where the registered office of the target company is
situated and one regional language daily at the place of the stock exchange where
the maximum volume of trading in the shares of the target company are recorded
during the sixty trading days preceding the date of the public announcement.

Filing of letter of offer with SEBI (Regulation 16)

(1) Within five working days from the date of the detailed public statement made
under sub-regulation (4) of Regulation 13, the acquirer shall, through the manager
to the open offer; file with SEBI, a draft of the letter of offer containing such
information as may be specified along with the prescribed fee.
(2) SEBI shall give its comments within fifteen working days of the receipt of the
draft letter of offer/additional information or clarification submitted by the
manager. In case no comments are issued by the Board within such period, it shall
be deemed that the Board does not have comments to offer.
Where the Board specifies any changes, the manager to the open offer and the
acquirer shall carry out such changes in the letter of offer before it is dispatched to
the shareholders.
(3) In the case of competing offers, the Board shall provide its comments on the
draft letter of offer in respect of each competing offer on the same day.
(4) In the event the disclosures in the draft letter of offer are inadequate the Board
may call for a revised letter of offer.
Provision of Escrow Amount (Regulation 17)
Not later than two working days prior to the date of the detailed public statement of
the open offer for acquiring shares, the acquirer shall create an escrow account
towards security for performance of his obligations under these regulations, and
deposit in escrow account such aggregate amount as per the prescribed scale
(Regulation 17(1)).
As per sub-regulation (3), the escrow account referred to in sub-regulation (1) may
be in the form of,—
(a) cash deposited with any scheduled commercial bank;
(b) bank guarantee issued in favour of the manager to the open offer by any
scheduled commercial bank; or
(c) deposit of frequently traded and freely transferable equity shares or other freely
transferable securities with appropriate margin.
In the event of the escrow account being created by way of a bank guarantee or by
deposit of securities, the acquirer shall also ensure that at least one per cent of the
total consideration payable is deposited in cash with a scheduled commercial bank
as a part of the escrow account.

The manager to the open offer shall not release the escrow account until the
expiry of thirty days from the completion of payment of consideration to
shareholders who have tendered their shares in acceptance of the open offer.
In the event of non-fulfillment of obligations under these regulations by the
acquirer the Board may direct the manager to the open offer to forfeit the escrow
account, either in full or in part (Regulation 17(9)).
The escrow account deposited with the bank in cash shall be released only in the
manner prescribed under Regulation 17(10)).

Conditional Offer (Regulation 19)

(1) An acquirer may make an open offer conditional as to the minimum level
of acceptance. However, where the open offer is pursuant to an agreement, such
agreement shall contain a condition to the effect that in the event the desired level
of acceptance of the open offer is not received the acquirer shall not acquire any
shares under the open offer and the agreement attracting the obligation to make the
open offer shall stand rescinded.
Competing Offers (Regulation 20)
(1) Upon a public announcement of an open offer for acquiring shares of a target
company being made, any person, other than the acquirer who has made such
public announcement, shall be entitled to make a public announcement of an open
offer within fifteen working days of the date of the detailed public statement
made by the acquirer who has made the first public announcement.
(2) The open offer made under sub-regulation (1) shall be for such number of
shares which, when taken together with shares held by such acquirer along with
persons acting in concert with him, shall be at least equal to the holding of the
acquirer who has made the first public announcement, including the number of
shares proposed to be acquired by him under the offer and any underlying
agreement for the sale of shares of the target company pursuant to which the open
offer is made.
Every open offer made under sub-regulation (1) and the open offer first
made shall be regarded as competing offers for purposes of these regulations- Sub-
regulation (4).

Unless the open offer first made is an open offer conditional as to the minimum
level of acceptances, no acquirer making a competing offer may be made
conditional as to the minimum level of acceptances- Sub-regulation (6).

Upon the public announcement of a competing offer, an acquirer who had made
a preceding competing offer shall be entitled to revise the terms of his open
offer provided the revised terms are more favourable to the shareholders of the
target company.
Again, the acquirers making the competing offers shall be entitled to make upward
revisions of the offer price at any time up to three working days prior to the
commencement of the tendering period- Sub-regulation (9).

Payment of Consideration (Regulation 21)

The acquirer shall complete payment of consideration whether in the form of
cash, or as the case may be, by issue, exchange or transfer of securities, to all
shareholders who have tendered shares in acceptance of the open offer, within ten
working days of the expiry of the tendering period.
Withdrawal of Open Offer (Regulation 23)
(1) An open offer for acquiring shares once made shall not be withdrawn except
under any of the following circumstances,—
(a) statutory approvals required for the open offer or for effecting the acquisitions
attracting the obligation to make an open offer under these regulations having been
finally refused;
(b) the acquirer, being a natural person, has died;
(c) any condition stipulated in the agreement for acquisition attracting the
obligation to make the open offer is not met for reasons outside the reasonable
control of the acquirer, and such agreement is rescinded, subject to such conditions
having been specifically disclosed in the detailed public statement and the letter of
offer; or
(d) such circumstances as in the opinion of the Board, merit withdrawal.

(2) In the event of withdrawal of the open offer, the acquirer shall through the
manager to the open offer, within two working days,—
(a) make an announcement in the same newspapers in which the public
announcement of the open offer was published, providing the grounds and
reasons for withdrawal of the open offer; and
(b) simultaneously with the announcement, inform in writing to,—
(i) the Board;
(ii) all the stock exchanges on which the shares of the target company
are listed, and the stock exchanges shall forthwith disseminate such
 information to the public; and the target company at its registered
office.

OTHER OBLIGATIONS (Regulations 24 -27)

Directors of the Target Company (Regulation 24)
(1) During the offer period, no person representing the acquirer or any person
acting in concert with him shall be appointed as director on the board of
directors of the target company, whether as an additional director or in a casual
vacancy. However, after an initial period of fifteen working days from the date of
detailed public statement, director(s) may be appointed if the acquirer deposits in
cash in the escrow account one hundred per cent of the consideration payable
under the open offer.

Case-Law
It may be noted that the bar on appointment of the director would commence from
midnight of day when MOU is signed and same would continue till the end of the
day at midnight on which offer formalities are completed- Punrasar Holding (P.)
Ltd. V. SEBI [2010] 102 SCL 147(SAT-MUM)
(2) In case of open offer being subject to minimum level of acceptances, the
acquirer and persons acting in concert shall not be entitled to appoint any director
representing the acquirer or any person acting in concert with him on the board of
directors of the target company during the offer period.
(3) In case the acquirer or any person acting in concert is already represented by
a director on the board of the target company, such director shall not participate
in any deliberations of the board of directors of the target company or vote on
any matter in relation to the open offer.
DISCLOSURES OF SHAREHOLDING AND CONTROL (Regulations 28-
31)
Regulation 28 (1) and (2) provide that the aggregated shareholding, including any
convertible security, and voting rights of the acquirer or promoter of the target
company or every person acting in concert with him must be disclosed.

Disclosure of Acquisition and Disposal (Regulation 29)

(1) Any acquirer who acquires shares or voting rights in a target company which
taken together with shares or voting rights, if any, held by him and by persons
acting in concert with him in such target company, aggregating to five per cent or
more of the shares of such target company (including shares held by way of
encumberance), must disclose their aggregate shareholding and voting rights in
such target company in the prescribed form.
(2) Thereafter, any additional acquisition amounting to two per cent or more
must also be disclosed.
(3) The aforesaid disclosures must be made within two working days of the
receipt of intimation of allotment of shares, or the acquisition of shares or voting
rights in the target company to,—
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.

M&A- PROCEDURE TO BE FOLLOWED BY THE TRANSFEREE

(ACQUIRER) COMPANY

See under Provisions of the Companies Act

COMPETITION ACT, 2002

 Regulation of combinations
What shall constitute Combination?
Section 5 of the Competition Act, 2002 provides that the acquisition of
one or more enterprises by one or more persons or merger or
amalgamation of enterprises shall be a combination of such enterprises
and persons or enterprises, if—
(a) any acquisition where—
(i) the parties to the acquisition, being the acquirer and the
enterprise, whose control, shares, voting rights or assets have
been acquired or are being acquired jointly have,—
(A) either, in India, the assets of the value of more than rupees
one thousand crores or turnover more than rupees three
thousand crores; or
(B) in India or outside India, in aggregate, the assets of the
value of more than five hundred million US dollars,
including at least rupees five hundred crores in India, or
turnover more than fifteen hundred million US dollars,
including at least rupees fifteen hundred crores in India; or
(ii) the group, to which the enterprise whose control, shares, assets or
voting rights have been acquired or are being acquired, would
belong after the acquisition, jointly have or would jointly have,—
(A) either in India, the assets of the value of more than rupees
four thousand crores or turnover more than rupees twelve
thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value
of more than two billion US dollars, including at least rupees
five hundred crores in India, or turnover more than six billion
US dollars, including at least rupees fifteen hundred crores in
India; or
(b) acquiring of control by a person over an enterprise when such person
has already direct or indirect control over another enterprise engaged
in production, distribution or trading of a similar or identical or
substitutable goods or provision of a similar or identical or
substitutable service, if—
(i) the enterprise over which control has been acquired along with
the enterprise over which the acquirer already has direct or
indirect control jointly have,—
(A) either in India, the assets of the value of more than rupees
one thousand crores or turnover more than rupees three
thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value
of more than five hundred million US dollars, including at
least rupees five hundred crores in India, or turnover more
than fifteen hundred million US dollars, including at least
rupees fifteen hundred crores in India; or
(ii) the group, to which enterprise whose control has been acquired,
or is being acquired, would belong after the acquisition, jointly
have or would jointly have,—
(A) either in India, the assets of the value of more than rupees
four thousand crores or turnover more than rupees twelve
thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value
of more than two billion US dollars, including at least rupees
five hundred crores in India, or turnover more than six billion
US dollars, including at least rupees fifteen hundred crores in
India; or
(c) any merger or amalgamation in which—
 (i) the enterprise remaining after merger or the enterprise created as
a result of the amalgamation, as the case may be, have,—
(A) either in India, the assets of the value of more than rupees
one thousand crores or turnover more than rupees three
thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value
of more than five hundred million US dollars, including at
least rupees five hundred crores in India, or turnover more
than fifteen hundred million US dollars, including at least
rupees fifteen hundred crores in India; or
(ii) the group, to which the enterprise remaining after the merger or
the enterprise created as a result of the amalgamation, would
belong after the merger or the amalgamation, as the case may be,
have or would have,—
(A) either in India, the assets of the value of more than rupees
four thousand crores or turnover more than rupees twelve
thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value
of more than two billion US dollars, including at least rupees
five hundred crores in India, or turnover more than six billion
US dollars, including at least rupees fifteen hundred crores in
India.
Explanation.—For the purposes of this section,—
(a) “control” includes controlling the affairs or management by—
(i) one or more enterprises, either jointly or singly, over another
enterprise or group;
(ii) one or more groups, either jointly or singly, over another group
or enterprise;
(b) “group” means two or more enterprises which, directly or indirectly,
are in a position to—
(i) exercise twenty-six per cent or more of the voting rights in the
other enterprise; or
(ii) appoint more than fifty per cent of the members of the board of
directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise;
(c) the value of assets shall be determined by taking the book value of
the assets as shown, in the audited books of account of the
enterprise, in the financial year immediately preceding the financial
year in which the date of proposed merger falls, as reduced by any
depreciation, and the value of assets shall include the brand value,
value of goodwill, or value of copyright, patent, permitted use,
collective mark, registered proprietor, registered trade mark,
registered user, homonymous geographical indication, geographical
indications, design or layout-design or similar other commercial
rights, if any, referred to in sub-section (5) of section 3.

 Regulation of Combinations
 Section 6 of the Competition Act,2002 contains provisions with respect
to regulation of combinations. The Section provides as follows:
(1) No person or enterprise shall enter into a combination which causes
or is likely to cause an appreciable adverse effect on competition within
the relevant market in India and such a combination shall be void.
(2) Subject to the provisions contained in sub-section (1), any person or
enterprise, who or which proposes to enter into a combination, 2 [shall]
give notice to the Commission, in the form as may be specified, and the
fee which may be determined, by regulations, disclosing the details of
the proposed combination, within thirty days of—
(a) approval of the proposal relating to merger or amalgamation,
referred to in clause (c) of section 5 by the board of directors of the
enterprises concerned with such merger or amalgamation, as the case
may be;
(b) execution of any agreement or other document for acquisition
referred to in clause (a) of section 5 or acquiring of control referred
to in clause (b) of that section.
(2A) No combination shall come into effect until two hundred and ten
days have passed from the day on which the notice has been given to the
Commission under sub-section (2) or the Commission has passed orders
under section 31, whichever is earlier.
(3) The Commission shall, after receipt of notice under sub-section (2),
deal with such notice in accordance with the provisions contained in
sections 29, 30 and 31.
(4) The provisions of this section shall not apply to share subscription or
financing facility or any acquisition, by a public financial institution,
foreign institutional investor, bank or venture capital fund, pursuant to
any covenant of a loan agreement or investment agreement.
(5) The public financial institution, foreign institutional investor, bank or
venture capital fund, referred to in sub-section (4), shall, within seven
days from the date of the acquisition, file, in the form as may be
specified by regulations, with the Commission the details of the
acquisition including the details of control, the circumstances for
exercise of such control and the consequences of default arising out of
such loan agreement or investment agreement, as the case may be.
Explanation.—For the purposes of this section, the expression—
(a) “foreign institutional investor” has the same meaning as assigned to
it in clause (a) of the Explanation to section 115AD of the Income-
tax Act, 1961 (43 of 1961);
(b) “venture capital fund” has the same meaning as assigned to it in
clause (b) of the Explanation to clause (23FB) of section 10 of the
Income-tax Act, 1961.
Inquiry into combination by Commission (Section 20)
(1) The Commission may, upon its own knowledge or information
relating to acquisition referred to in clause (a) of section 5 or
acquiring of control referred to in clause (b) of section 5 or merger
or amalgamation referred to in clause (c) of that section, inquire
into whether such a combination has caused or is likely to cause
an appreciable adverse effect on competition in India.
However, the Commission shall not initiate any inquiry under this
sub-section after the expiry of one year from the date on which
such combination has taken effect.
(2) The Commission shall, on receipt of a notice under sub-section (2)
of section 6, inquire whether a combination referred to in that
notice or reference has caused or is likely to cause an appreciable
adverse effect on competition in India.
(3) Notwithstanding anything contained in section 5, the Central
Government shall, on the expiry of a period of two years from the
date of commencement of this Act and thereafter every two
years, in consultation with the Commission, by notification,
enhance or reduce, on the basis of the wholesale price index or
fluctuations in exchange rate of rupee or foreign currencies, the
value of assets or the value of turnover, for the purposes of that
section.
(4) For the purposes of determining whether a combination would have
the effect of or is likely to have an appreciable adverse effect on
competition in the relevant market, the Commission shall have
due regard to all or any of the following factors, namely:—
 (a) actual and potential level of competition through imports in
the market;
(b) extent of barriers to entry into the market;
(c) level of combination in the market;
(d) degree of countervailing power in the market;
(e) likelihood that the combination would result in the parties to
the combination being able to significantly and sustainably
increase prices or profit margins;
(f) extent of effective competition likely to sustain in a market;
(g) extent to which substitutes are available or arc likely to be
available in the market;
(h) market share, in the relevant market, of the persons or
enterprise in a combination, individually and as a
combination;
(i) likelihood that the combination would result in the removal of
a vigorous and effective competitor or competitors in the
market;
(j) nature and extent of vertical integration in the market;
(k) possibility of a failing business;
(/) nature and extent of innovation;
(m) relative advantage, by way of the contribution to the
economic development, by any combination having or likely
to have appreciable adverse effect on competition;
(n) whether the benefits of the combination outweigh the
adverse impact of the combination, if any.
Orders of Commission on certain combinations (Section 31)
(1) Where the Commission is of the opinion that any combination does
not, or is not likely to, have an appreciable adverse effect on
competition, it shall, by order, approve that combination including
the combination in respect of which a notice has been given
under sub-section (2) of section 6.
(2) Where the Commission is of the opinion that the combination has,
or is likely to have, an appreciable adverse effect on competition,
it shall direct that the combination shall not take effect.
(3) Where the Commission is of the opinion that the combination has,
or is likely to have, an appreciable adverse effect on competition
but such adverse effect can be eliminated by suitable modification
to such combination; it may propose appropriate modification to
the combination, to the parties to such combination.
(4) The parties, who accept the modification proposed by the
Commission under subsection (3), shall carry out such
modification within the period specified by the Commission.
(5) If the parties to the combination, who have accepted the
modification under subsection (4), fail to carry out the
modification within the period specified by the Commission, such
combination shall be deemed to have an appreciable adverse
effect on competition and the Commission shall deal with such
combination in accordance with the provisions of this Act.
(6) If the parties to the combination do not accept the modification
proposed by the Commission under sub-section (3), such parties
may, within thirty working days of the modification proposed by
the Commission, submit amendment to the modification
proposed by the Commission under that sub-section.
(7) If the Commission agrees with the amendment submitted by the
parties under subsection (6), it shall, by order, approve the
combination.
(8) If the Commission does not accept the amendment submitted under
sub-section (6), then, the parties shall be allowed a further period
of thirty working days within which such parties shall accept the
modification proposed by the Commission under sub-section (3).
(9) If the parties fail to accept the modification proposed by the
Commission within thirty working days referred to in sub-section
(6) or within a further period of thirty working days referred to in
sub-section (8), the combination shall be deemed to have an
appreciable adverse effect on competition and be dealt with in
accordance with the provisions of this Act.
(10) Where the Commission has directed under sub-section (2) that the
combination shall not take effect or the combination is deemed to
have an appreciable adverse effect on competition under sub-
section (9), then, without prejudice to any penalty which may be
imposed or any prosecution which may be initiated under this Act,
the Commission may order that—
(a) the acquisition referred to in clause (a) of section 5; or
(b) the acquiring of control referred to in clause (b) of section 5;
or
(c) the merger or amalgamation referred to in clause (c) of
section 5,
shall not be given effect to.
However, the Commission may, if it considers appropriate, frame
a scheme to implement its order under this sub-section.
(11) If the Commission does not, on the expiry of a period of two
hundred and ten days from the date of notice given to the
Commission under sub-section (2) of section 6, pass an order or
issue direction in accordance with the provisions of sub-section
 (1) or sub-section (2) or sub-section (7), the combination shall be
deemed to have been approved by the Commission.
Explanation.—For the purposes of determining the period of two
hundred and ten days specified in this sub-section, the period of
thirty working days specified in sub-section (6) and a further
period of thirty working days specified in sub-section (8) shall be
excluded.
(12) Where any extension of time is sought by the parties to the
combination, the period of ninety working days shall be reckoned
after deducting the extended time granted at the request of the
parties.
(13) Where the Commission has ordered a combination to be void, the
acquisition or acquiring of control or merger or amalgamation
referred to in section 5, shall be dealt with by the authorities
under any other law for the time being in force as if such
acquisition or acquiring of control or merger or amalgamation had
not taken place and the parties to the combination shall be dealt
with accordingly.

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

Eligibility for Investing in India
A person resident outside India (other than a citizen of Pakistan or
Bangladesh) or an entity incorporated outside India, (other than an
entity incorporated in Pakistan or Bangladesh) can invest in India,
subject to the FDI policy of the Government of India.
Acquisition of shares under Scheme of Merger / Amalgamation
Mergers and amalgamations of companies in India are usually governed
by an order issued by a competent Court (Now Tribunal under
Companies Act, 2013) on the basis of the Scheme submitted by the
companies undergoing merger/amalgamation. Once the scheme of
merger or amalgamation of two or more Indian companies has been
approved by a Court (Now Tribunal) in India, the transferee company
or new company is allowed to issue shares to the shareholders of the
transferor company resident outside India, subject to the conditions
that:
i.    the percentage of shareholding of persons resident outside India in
the transferee or new company does not exceed the sectoral cap, and
ii.    the transferor company or the transferee or the new company is
not engaged in activities which are prohibited under the FDI policy.
FDI in India- Legislative Framework
Meaning of FDI

‘FDI’ means investment by non-resident entity/person resident outside India in

the capital of an Indian company under Schedule 1 of Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside India)
Regulations 2000.

Objectives of FDI

Primarily, foreign investment in India is allowed in two ways, viz.:

• Through Portfolio Investment Scheme (i.e., through secondary market

operations)

• Through Direct Investment (i.e., directly through purchase of equity or debt

instruments of a company/Partnership/LLP/sole Proprietorship firm)

The intent and objective of the Government of India to attract and promote
foreign direct investment is to supplement domestic capital, technology and skills,
for accelerated economic growth. Foreign Direct Investment, as distinguished
from portfolio investment, has a lasting interest in an enterprise. Presently, ‘FDI’
is being used to refer to both the aforesaid forms.

In 1991, as India faced a severe economic crisis, newly elected Prime Minister
P. V. Narasimha Rao surprisingly inducted the apolitical Dr. Manmohan Singh into
his cabinet as Finance Minister. On 24 July, 1991, Dr. Manmohan Singh, as the
Finance Minister, an n o u n c e d a ‘ N e w E c o n o m i c P o l i c y ’ wh i c h , i n t e r
a l i a , s o u g h t t o b r in g i n f o r e i g n f u n d s in c l u d i n g t h r o u gh D i r e c t
Foreign Investment.
I t w a s i m p e r a ti v e i n v i e w o f t h e e co n o m i c c r i s e s t h a t I n d i a n
e c o n o m y w a s f a ce d w i t h a t t h a t p o i n t o f ti m e . T h e m o s t v i s i b l e
s i g n o f t h e c o u n t r y ’ s e c o n o m i c c r i s i s i n early 1991 was:

• Ext r e m e l y l o w f o r e i g n e xc h a n g e r e s e r v e s o f R s .
2 4 0 0 c r o r e ( j u s t enough to buy from abroad only three
weeks requirements)
• Infl ati on was as high as 13.5%
Until the liberalisation of 1991, India was largely and intentionally isolated from
the world markets, to protect its economy and to achieve self-reliance. Foreign
trade was subject to import tariffs, export taxes and quantitative restrictions,
while Foreign Direct Investment (FDI) was restricted by upper-limit equity
participation, restrictions on technology transfer, export obligations and
government approvals; these approvals were needed for nearly 60% of new FDI in
the industrial sector. The restrictions ensured that FDI averaged only around
$200 million annually between 1985 and 1991. A large percentage of the capital
flows consisted of foreign aid, commercial borrowing and deposits of non-
resident Indians
The “New Industrial Policy” paved the way for a new economic era in India by
starting the process of liberalization. The policy, at one stroke, opened up the
manufacturing sector by dismantling the system of licences and controls for most
industries and allowed 51% foreign equity in Indian companies. Subsequent
economic reforms carried out by Rao’s successors I.K. Gujral, A.B. Vajpayee and
incumbent Prime Minister Manmohan Singh, who was Rao’s finance minister,
unshackled India’s potential as a magnet for foreign investment. In 2010, India
became the ninth most attractive destination for foreign direct investment (FDI).
However, we have not been able to retain that position in view of lack of some
policy initiatives.
In March 2005, the government amended the rules to allow 100% FDI in the
construction sector, including built-up infrastructure and construction
development projects comprising housing, commercial premises, hospitals,
educational institutions, recreational facilities, and city- and regional-level
infrastructure.
Table-1 gives a bird eye view of FDI inflows into India between 2000 and 2012
(Figures are based on the data published by RBI in Monthly Bulletin dated:
09.04.2012)
Table-1
Cumulative FDI Flows into India (2000-2012): [Equity Inflows +Re- US$
invested Earnings & Other Capital] 246,600
Million

Equity Inflows: US$ 1,62,185

Million, i.e., Rs.
7,33,707 crores

FDI Inflows during F.Y. 2011-12: US$ 41,891

Equity Inflows during F.Y. 2011-12: US$ 28,403, i.e,

Rs. 1,33,181
crores

Sector-wise [2000-2012]: Service sector accounted for 20% followed by

Telecommunication 8%; Computers, Construction, Housing and Real Estate
7% each.
Lowest recipients have been Petroleum and Natural Gas 2%.
Country-wise: Mauritius contributing 39.25% followed by Singapore 10.46%,
Japan 7.53%, U.S.A 6.43% and U.K. 5.79 % respectively. Other contributing
countries include: Netherland, Cyprus, Germany, France, Switzerland, Spain,
Italy.

Who Can Invest in India?

 • A non-resident entity (other than a citizen of Pakistan or an entity
incorporated in Pakistan) can invest in India, subject to the FDI Policy.

‘A non- resident entity’ means:

• a person resident outside India including PIO,

• a body corporate registered or incorporated outside India,

• an office, branch or agency outside India owned or controlled by a

person resident outside India.

A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only

under the Government route.

• NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan
are permitted to invest in the capital of Indian companies on repatriation
basis, subject to the condition that the amount of consideration for such
investment shall be paid only by way of inward remittance in free foreign
exchange through normal banking channels.

• OCBs have been derecognized as a class of investors in India with effect

from September 16, 2003.

• FIIs may invest in the capital of an Indian Company under the Portfolio
Investment Scheme subject to the following ceilings:

• Single FII: Up to 10% of the capital of the company

• All FIIs taken together: Up to 24% of the capital of the company.

The aforesaid aggregate limit of 24% can be increased to the sectoral

cap/statutory ceiling, as applicable, by the Indian Company concerned through a
resolution by its Board of Directors followed by a special resolution to that effect
by its General Body and subject to prior intimation to RBI.

• A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up

to 100% of the capital of an Indian Venture Capital Undertaking (IVCU) and
 may also set up a domestic asset management company to manage the
fund.

• Qualified Foreign Investor (QFls) are permitted to invest through SEBI

registered Depository Participants (DPs) only in equity shares of listed
Indian companies through recognized brokers on recognized stock
exchanges in India as well as in equity shares of Indian companies which are
offered to public in India in terms of the relevant and applicable SEBI
guidelines/regulations. QFls are also permitted to acquire equity shares by
way of right shares, bonus shares or equity shares on account of stock
split / consolidation or equity shares on account of amalgamation,
demerger or such corporate actions subject to the prescribed investment
limits.

A ‘Qualified Foreign Investor (QFI)’ means a non-resident investor (other than SEBI
registered FII and SEBI registered FVCI) who meets the KYC requirements of SEBI
for the purpose of making investments in accordance with the
regulations/orders/circulars of RBI/SEBI.

Entities into which FDI can be Made

• FDI in an Indian Company:

Indian companies can issue capital against permissible FDI. They can issue equity
shares, fully, compulsorily and mandatorily convertible debentures and fully,
compulsorily and mandatorily convertible preference shares subject to pricing
guidelines/valuation norms prescribed under FEMA Regulations.

Price of shares issued to persons resident outside India under the FDI Policy, shall
not be less than -

(a) the price worked out in accordance with the SEBI guidelines, as applicable,
where the shares of the company is listed on any recognised stock exchange in
India;

(b) the fair valuation of shares done by a SEBI registered Category - I Merchant
Banker or a Chartered Accountant as per the discounted free cash flow method,
where the shares of the company is not listed on any recognised stock exchange
in India ; and

( c) the price as applicable to transfer of shares from resident to non-resident as

per the pricing guidelines laid down by the Reserve Bank from time to time,
where the issue of shares is on preferential allotment.

• FDI in Partnership Firm / Proprietary Concern:

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside

India can invest in the capital of a firm or a proprietary concern in India on
non-repatriation basis provided:

• Amount is invested by inward remittance or out of

NRE/FCNR(B)/NRO account maintained with Authorized Dealers /
Authorized banks.

• The firm or proprietary concern is not engaged in any

agricultural/plantation or real estate business or print media sector.

• Amount invested shall not be eligible for repatriation outside India.

Thus, if aforesaid conditions are satisfied, no permission of Reserve

bank/Government shall be required.

Investments in Partnership Firms/Sole proprietary concerns on Repatriation

basis will require the prior permission of Reserve Bank. The RBI will decide the
application in consultation with the Government of India.

• FDI in Limited Liability Partnerships (LLPs):

FDI in LLPs is permitted, subject to the following conditions:

• FDI will be allowed, through the Government approval route, only in

LLPs operating in sectors/activities where 100% FDI is allowed,
through the automatic route and there are no FDI-linked
performance conditions (such as 'Non Banking Finance Companies' or
 'Development of Townships, Housing, Built-up infrastructure and
Construction-development projects' etc.).

• LLPs with FDI will not be allowed to operate in

agricultural/plantation activity, print media or real estate business.

• An Indian company, having FDI, will be permitted to make

downstream investment in an LLP only if both-the company, as well
as the LLP- are operating in sectors where 100% FDI is allowed,
through the automatic route and there are no FDI-linked
performance conditions.

• LLPs with FDI will not be eligible to make any downstream

investments.

• Foreign Capital participation in LLPs will be allowed only by way of

cash consideration, received by inward remittance, through normal
banking channels or by debit to NRE/FCNR account of the person
concerned, maintained with an authorized dealer/authorized bank.

• Investment in LLPs by Foreign Institutional Investors (FIls) and

Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs
will also not be permitted to avail External Commercial Borrowings
(ECBs).

• The designated partners will be responsible for compliance with all

the above conditions and also liable for all penalties imposed on the
LLP for their contravention, if any.

• Conversion of a company with FDI, into an LLP, will be allowed only if

the above stipulations are met and with the prior approval of
FIPB/Government.

Forms in which business can be conducted by a foreign company in India

• Incorporate a company under the Companies Act, 1956, as a Joint Venture
or a Wholly Owned Subsidiary.
 OR
• Set up a Liaison Office / Representative Office or a Project Office or a
Branch Office which can undertake activities permitted under the Foreign
Exchange Management (Establishment in India of Branch Office or Other
Place of Business) Regulations, 2000.
Procedure for receiving Foreign Direct Investment in an Indian Company
• Under Automatic Route
• No prior approval either of the Government or the Reserve Bank of
India is required.
• Up to 100 per cent in all activities/sectors except where the
provisions of the Consolidated FDI Policy, 2012 (Paragraph on 'Entry
Routes for Investment' issued by the Government of India from time
to time) are attracted.
• Government Route
• Requires prior approval of the Government which is considered by
the Foreign Investment Promotion Board (FIPB), Department of
Economic Affairs, Ministry of Finance.
• No fee is payable.
• No further clearance from the Reserve Bank of India for receiving
inward remittance and for the issue of shares to the non-resident
investors.
• The Indian company having received FDI either under the Automatic
Route or the Government Route
• Required to report in the Advance Reporting Form, the requisite
details of the receipt of the amount of consideration for issue of
equity instrument through an Authorised Dealer Category –I Bank to
the Regional Office concerned of the Reserve Bank of India within 30
days from the date of receipt of inward remittances. The details
include:
• Name and address of the foreign investor/s;  
• Date of receipt of funds and the Rupee equivalent;
• Name and address of the authorised dealer through whom the
funds have been received;
 • Details of the Government approval, if any; and
• KYC report on the non-resident investor from the overseas
bank remitting the amount of consideration.
• Required to issue the equity instrument within 180 days, from the
date of receipt of inward remittance or debit to NRE/FCNR (B)
account in case of NRI/ PIO.
• Within 30 days from the date of issue of shares, a report in Form FC-
GPR- PART A together with the following documents should be filed
with the Regional Office concerned of the Reserve Bank of India. 
• Certificate from the Company Secretary of the company accepting
investment from persons resident outside India certifying that:  
• The company has complied with the procedure for issue of
shares as laid down under the FDI Scheme.
• The investment is within the Sectoral cap / statutory ceiling
permissible under the Automatic Route of the Reserve Bank
and it fulfills all the conditions laid down for investments under
the Automatic Route.
•
• Sectors/Activities Where Government/FIPB Approval would be Required
in All Cases:
• Defence Production
• Air Transport Services
• Ground Handling Services
• Asset Reconstruction Companies
• Private Sector Banking
• Broadcasting
• Commodity Exchanges*
• Credit Information Companies
• Insurance
• Print media
• Telecommunications and
• Satellites
• Sectors Where FDI is Not Allowed
• Atomic Energy
• Lottery Business
• Gambling and Betting
• Business of Chit Fund
• Nidhi Company
• Agricultural (excluding Floriculture, Horticulture, Development of
seeds, Animal Husbandry, Pisciculture and cultivation of vegetables,
mushrooms, etc. under controlled conditions and services related to
agro and allied sectors) and Plantations activities (other than Tea
Plantations)
• Housing and Real Estate business (except development of townships,
construction of residential/commercial premises, roads or bridges)
• Trading in Transferable Development Rights (TDRs).
• Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco
or of tobacco substitutes.
• Activities / sectors not open to private sector investment e.g. Atomic
Energy and Railway Transport (other than Mass Rapid Transport
Systems).

• Sectoral Caps
Table 1 below shows the caps with respect to FDI in various sectors/activities.
The list is, however, not exhaustive. Besides, FDI is permissible in these sectors
subject to applicable laws/ regulations; security and other conditions. In most
of the sectors/activities not listed below, FDI is permitted up to 100% through
the automatic route.
Table-1
S. No. Sector/Activity % of FDI Entry Route
Cap/Equity

1. Agriculture & 100% Automatic

Animal
 Husbandry
a) Floriculture,
Horticulture,
Apiculture and
Cultivation of
Vegetables &
Mushrooms under
controlled
conditions;
b) Development and
production of Seeds
and planting
material;
c) Animal Husbandry
(including breeding
of dogs), Pisciculture,
Aquaculture, under
controlled
conditions; and
d) services related to
agro and allied
sectors
Note: Besides the
above, FDI is not
allowed in any
other agricultural
sector/activity

2. Tea Plantation 100% Government

Note: Besides the
above, FDI is not
allowed in any other
plantation
sector/activity

3. MINING
Mining and
Exploration of metal
and non-metal ores
including diamond, Automatic
gold, silver and 100%
precious ores but
 excluding titanium
bearing minerals and
its ores; subject to the
Mines and Minerals
(Development &
Regulation) Act, 1957.
COAL & LIGNITE
4. 100% Automatic
Coal & Lignite
mining for captive
consumption by
power projects, iron
& steel and cement
units and other
eligible activities
permitted under
and subject to the
provisions of Coal
Mines
(Nationalization)
Act, 1973
PETROLEUM &
5.
NATURAL GAS
1 Exploration
. activities,
infrastructure
related to
marketing,
marketing of 100% Automatic
natural gas and
petroleum
products,
petroleum
product
pipelines,
natural
gas/pipelines,
LNG
Regasification
infrastructure,
market study Government
and formulation
and Petroleum
refining in the
private sector.
 2. Petroleum 49%
refining by the
Public Sector
Undertakings
(PSU), without
any
disinvestment
or dilution of
domestic equity
in the existing
PSUs.

MANUFACTURING No approvals up Government

6. Not a Micro or Small to 24% Route beyond
scale Enterprise but
manufactures items
24% +
reserved for the MSE Requirements of I
sector (DR) A, 1951 to be
satisfied

SERVICES SECTOR
7.
1. Broadcasting
-Terrestrial
Broadcasting FM (FM
26%
Radio)
______________ Government
________________ ____________
- Cable Network, DTH
74%[w.e.f.14.9.2012]
Up to 49 % -
Automatic; Balance
______________ - Government Route

______________ 26% ____________

2. Print Media Government

_____________

_____________ !00% in ______________

3. Civil Aviation Greenfield
- Airports projects Government
_____________
Existing projects
(100%) ______________
 Automatic up to 74%
and Government
Route beyond 74%
_____________
______________
-Foreign Airlines
allowed [w.e.f.
Government
- Air Transport 14.9.2012] 49%
Services _____________
_________________
-Cargo Airlines 74% Automatic but
with Government
_____________ Approval up to 100%
______________

49%
-Scheduled Air _____________ Automatic
Transport Service/ ______________
Domestic Scheduled
Passenger Airline
74% Automatic up to 49%
Government route
-Non-Scheduled Air
beyond 49% and up
Transport Service ____________ to 74%
______________
Other Services under
Civil Aviation
- Maintenance and
Repair organizations;
flying training
institutes; and 100%
technical training Automatic
institutions
_____________ _______________

Automatic up to 49%
-Ground Handling Government route
Services 74% beyond 49% and up
to 74%
8. Construction 100% Automatic
Development:
Townships,
Housing, Built-up
Infrastructure

9. Industrial Parks – 100% Automatic

New and Existing

10. Satellites – 100% Automatic

Establishment
and Operation

Telecom services Automatic up to 49%

11. 74%
Government route
beyond 49% and up
to 74%

12. TRADING 100% Automatic

Cash & Carry
Wholesale Trading/
Wholesale Trading
(including sourcing
from MSEs)
____________ _____________ _____________
Retail 100% Government
-Single-Brand
_____________ _____________ ______________

-Multi-Brand 51%[w.e.f. 14.9.2012] Government

____________

13. INSURANCE 26% Automatic

BANKING Automatic up to 49%

14. 74%
-Private Sector Government route
beyond 49% and up
to 74%
 _____________
20% Government
- Public Sector

15. Asset 49% of paid-up Government

Reconstruction capital of ARC
Companies

Proposed Constitution of National Investment Board

Sample this:
“Over 65 clearances are required for a thermal power project at three different
levels — federal, state and local. There are 17 ministries at the central level that
directly or indirectly look after infrastructure projects”

Then, there are 29 states. Each of them mirror many of these ministries as state-
level departments. Some clearances are at the state capital level and some at
deeper local levels.

This is the maze that NIB will have to negotiate to get the economy moving.