Module 4:

Laws governing Mergers and Acquisitions

Laws governing mergers and acquisitions provide the backdrop upon

which these trade practices foster. The term merger is not present in the
Indian Laws governing it, however we may use it frequently. As per S.
2(1B) of the Income Tax Act, 1961, contains the term ―amalgamation‖
which defines the term ―with respect to companies‖ as:

The merger of one or more companies with another company or the merger
of two or more companies to form one company (the company or
companies which so merge being referred to as the amalgamating company
or companies and the company with which they merge, or which is formed
as a result of the merger, as the amalgamated company) in such a manner
that—

(i) all the property of the amalgamating company or companies

immediately before the amalgamation becomes the property of
the amalgamated company by virtue of the amalgamation;
(ii) all the liabilities of the amalgamating company or companies
immediately before the amalgamation become the liabilities of
the amalgamated company by virtue of the amalgamation;
(iii) shareholders holding not less than three-fourths in value of the
shares in the amalgamating company or companies (other than
shares already held therein immediately before the amalgamation
by, or by a nominee for, the amalgamated company or its
subsidiary) become shareholders of the amalgamated company
by virtue of the amalgamation, otherwise than as a result of the
acquisition of the property of one company by another company
pursuant to the purchase of such property by the other company
 or as a result of the distribution of such property to the other
company after the winding up of the first-mentioned company.

As stated earlier, many legal provisions in India govern the mergers and
acquisition process. Not only they act against an unfair acquisition or
merger, they also keep in due consideration public interest. Mergers and
Acquisitions in India are governed by the Indian Companies Act, 2013,
under Sections 230 to 240 of the Act which are new provisions and prior
to this it was Indian Companies Act 1956 under the sections 391 to 394
which governed provisions related to Mergers and Acquisitions. Under
new Act there are some of the differences on M&A when we compared it
to old Act of 1956. Apart from Indian Companies Act there are some
important provisions related to M&A which are provided in the
Competition Act 2002, Foreign Exchange Management Act 1999, SEBI
(SAST) Regulations, Income Tax Act 1961, Indian Stamp Act, Intellectual
Property and due diligence in mergers and acquisition, legal procedure for
bringing about mergers of companies and waiting period in mergers and
acquisitions also discussed in the chapter.

Laws governing Mergers and Acquisitions in India

Legal frameworks provide set of rules that could govern mergers and
acquisitions. Mainly, mergers and acquisitions are governed by the
Companies Act, 1956 with sections 391 to 394 and a newer version of the
Companies Act, 2013 with sections 230 to 240. However, many other
provisions have commandments related to mergers and acquisitions. These
are:

1. The Competition Act, 2002

 2. The SEBI (The Securities and Exchange Board of India) SAST
(Substantial Acquisition of Shares and Takeover) Regulations,
1997, 2011
3. The Income Tax Act, 1961
4. The Foreign Exchange and Management Act, 1999.
5. The Intellectual Property rights
6. Indian Stamp Act, 1899

The Companies Act, 1956 and 2013.

The Companies Act is an Act to strengthen and make amendments to the

laws which cater to industries and their associations. The Companies Act,
1956 existed for over 50 years. In 2008, a new Companies bill was enacted
in the Lok Sabha. It was in 2013, that 29 chapters, 470 clauses and 7
schedules comprising the Companies‘ Act, 2013 was passed . Though,
Companies Act, 2013 has brought about changes much needed in the
Companies Act, 1956; the Companies Act, 1956 is not discarded
completely owing to certain changes that still need to be done in
Companies Act, 2013. Some non-notified sections of the Companies Act,
1956 are still in effect.

Chapter V (―Arbitrations, Compromises, Arrangements and

Reconstructions‖) of Companies Act 1956 talk about merger and
acquisitions in sections 390-396. The Act runs through the following
sections:

390: Deals with Interpretation of sections 391 and 393

391. Power of compromising or making arrangements with creditors and
members 392. Power of High Court to enforce compromises and
arrangements
393. Information as to compromises or arrangements with creditors and
members 394. Provisions for facilitating reconstruction and amalgamation
of companies

394A. Notice has to be given to the authority delegated by Central

Government for applications under sections 391 and 394

395. Power and duty to acquire shares of shareholders dissenting from

scheme or contract approved by majority

396. Power of Central Government to provide for amalgamation of

companies in public interest

396A. Preservation of books and papers of amalgamated company

Chapter XV (―Compromises, Arrangements and Amalgamations‖) of

Companies Act, 2013 comprises of sections 230 to 240 that deal with
mergers and acquisitions. The Act runs through these sections:

Disclosures about Merger & Amalgamation

Gandhi and Arora provide a comparative analysis of the Companies Act,

1956 and 2013. They bring about the new provisions and changes that the
Companies Act, 2013 has brought about:

 Under Companies Act, 1956: The judges had the power to sanction
a compromise or arrangements on the premise that the people
involved have disclosed all facts pertaining to the company in a
truthful manner, in the form or affidavit. Such as financial position
of the company in the present scenario, accounts of the company and
a latest report by the auditor. Later, statements regarding the
 compromise deal and its effect, material interest of directors or other
members of the company should be sent along with the notice for
the meeting. The tribunal had to co-ordinate with the central
government to take into account any other representations that might
have been received by the government. Also, the information of the
deal had to be published in the newspaper to be seen by all and if
objections occurred, they should be heard during the second motion
petition.
 Under Companies Act, 2013: It provides additional disclosures if
there is any reduction of the share capital or the case is of corporate
debt restructuring where 75% creditors must have consented. Also,
if the auditor doesn‘t provide a certificate as a proof of the finances
of the company, the tribunal is not liable to sanction the
arrangement, according to Section 133 of the Companies Act.

Unlike, the previous act, not only the central government has to be
informed about the deal but many others like Income Tax Authorities,
Reserve Bank, Official Liquidator, Securities Exchange Board of India,
Registrar of Companies, Stock Exchange, Competition Commission of
India etc. If there is any objection by these authorities, it should be filed
within 30 days of the notice, either the process would go on hassle free.

Cross border merger and amalgamation

  Under Companies Act, 1956: According to section 394 there

can be a merger between a foreign company and an Indian company.
However, only ̳inbound mergers‘ were allowed. Inbound merger
takes place when an Indian entity is acquiring a foreign company.
 Here, Indian company is the t̳ ransferee ̳and foreign company is the
target company or transferor company. Outbound merger is when an
Indian company becomes a target for the foreign company, when
India enters foreign markets. Hence, mergers were restricted to India
becoming an acquirer and not acquired company.
  Under Companies Act, 2013: Here the previous restriction on
mergers were removed. Now, not only an Indian company can
acquire a foreign company, but it can also be acquired by a foreign
company by RBI‘s approval. It has brought a mighty influence on
mergers and acquisitions in India and widen the horizon of Indian
markets.

Approval of Merger

 Under Companies Act, 1956: If the arrangement is approved by

three-forth members or creditors in a proxy meeting or voting in
person, then under section 391(2) it is approved. There is no
provision for e-voting.

 Under Companies Act, 2013: With-holding the circumstances

wherein not every shareholder is able to be present at the voting, e-
voting is permitted under section 230(6)(1) of Companies Act, 2013.
Here a member can cast his vote through postal ballot. This enables
all the shareholders to provide their vote and hence influence the
decision. The arrangement would have to be approved by three
fourth members and sanctioned by National Company Law.

New Provision: Fast Track Merger

It is a quick form of merger provided under the Companies Act, 2013.
According to this provision, two or more small companies or between the
major or minor company can come together in merger, without the prior
consent of the tribunal or the court.

Approval required of:

Registrar of Companies;

Official Liquidator;

Members or class of members holding at least 90% of total no. of shares;

Majority of creditors or class of creditors representing 9/10th in value;

Each and every company involved in the merger shall file a declaration of
solvency with the ROC.

Section 233 of the Companies Act, 2013 (CA 2013) dealing with "Merger
or Amalgamation of Certain Companies" has also come into force with
effect from 15th December, 2016. In contrast to the Companies Act, 1956,
this is a new provision under CA 2013 which deals with out of
court/tribunal, fast tracked merger or amalgamation of certain companies
subject to conditions prescribed.

The detailed framework and the procedure of the Fast Track mergers and
amalgamation has been provided under Section 233 of CA 2013 read with
Rule 25 of the CAA Rules.

Salient features of Fast Track Mergers/Amalgamations

Applicability
In terms of Section 233(1) of CA 2013, a scheme of merger or
amalgamation can take place between:

1. i two or more small companies

2. ii a holding company & its wholly owned subsidiary company.
3. iii other class of prescribed companies

The approval of the above scheme will not require mandatory approval of
NCLT unless the companies concerned opts for.

Eligibility for compromise or arrangement

The above mentioned class of companies would also be eligible for out of
Court/Tribunal process of compromise or arrangement in terms of Section
233(12) of CA 2013. Such compromise or arrangement could be:

1. i Among a company and its creditors or any class of them; or

2. ii Among a company and its members or any class of them.

Conditions

The eligible class of company or companies as mentioned herein above are

required to fulfil the following conditions for Fast Track Mergers &
Amalgamations under Section 233:

1. i Objections and suggestions are invited by the ROC and Official

Liquidator on the proposed scheme;
2. ii To consider the objections and suggestions, if any;
3. iii To file declaration of solvency before the ROC; and
4. iv To get the scheme approved by the shareholders and creditors
Necessary Approvals for Fast Track Mergers & Amalgamations
Approvals of the following concerns are required for fast Track
Mergers & Amalgamations:

1. i Shareholders;
2. ii Creditors;
3. iii The Central Government (powers delegated to Regional Director
vide MCA notification7 dated 19/12/2016);
4. iv ROC; and
5. v The Official Liquidator

It is pertinent to note that if the ROC and the Official Liquidator concerned
have no cause to neither object to the scheme nor have they any suggestions
to add, then the Central government (Regional director) shall record the
arrangement and provide sanctions against them who are involved.

Procedure

The procedure under the Fast Track Mergers & Amalgamation may be
summarized as below:

i. There must be power to amalgamate with other companies in the

Memorandum of Association (MoA) of the companies seeking to
merge. If not such power provided in the MoA then as a first step
get the MoA to be amended to insert the provision empowering the
company to get itself merged with one or more other companies.
ii. Convene the Board of Directors meeting to get the scheme approved
in both the Transferor Company and the Transferee Company.

Send Notices (in Form CAA.9) by both the Transferor Company and
the Transferee Company inviting objections or suggestions on the
 scheme of amalgamation to the ROC, Official Liquidator and such
other persons who are all affected by the scheme of
merger/amalgamation. The Notice given to the shareholders or
creditors or any class of them, shall be contain the followings:

Arrangement of Amalgamation;

i. Statement disclosing arrangement of amalgamation and effect of

arrangement on its stake holders such as the shareholders, key
managerial personnel, directors, employees, promoters, creditors,
debenture holders etc.;
ii. Copy of the valuation report;
iii. Such any other data which Management thinks is crucial for taking
any decision regarding arrangement.
iv. File Declaration of Solvency by both the Transferor and the
Transferee Company in Form CAA.10 with the ROC.
v. Summoning Shareholders for their Approval with 90% of the
shareholders approving the resolution.
vi. Summoning Creditors for the approval of the scheme by the majority
representing 9/10th in value of creditors or class of creditors of the
respective companies.
vii. The transferee company to file a copy of the scheme so approved in
the Form CAA-11 with the ROC in Form GNL-1 and with the Office
of Official Liquidator through hand delivery or by registered post or
speed post.
viii. If there is no objection or suggestion received from the ROC and
Official Liquidator and the Central Government believes the scheme
is in the public interest or in the interest of creditors, a confirmation
 order of such scheme of merger or amalgamation in Form No.
CAA.12 shall be issued by the Central Government.
ix. Where objections or suggestions are received from the ROC or
Official Liquidator and the Central Government is of the opinion
that the scheme is not in the public interest or in the interest of
creditors, it may file an application before the Tribunal in Form No.
CAA.13 within sixty days of the receipt of the scheme requesting
that Tribunal may consider the scheme under section 232 of the CA
2013.
x. On receipt of an application from Central Government as aforesaid
or from any other person, if NCLT for reasons recorded in writing
is of the opinion that the scheme should be considered as per the
procedure laid down in section 232, the NCLT may direct
accordingly or it may confirm the scheme by passing such order as
it deems fit. x The confirmation order to be filed by the transferor
and transferee companies in Form INC 28 with the ROC concerned
within 30 days of the order of confirmation from the Central
Government or NCLT as the case may be.

Implications post Registration Scheme

The registration of scheme shall have the following effect:

1. Transfer of property or liabilities of the transferor company to the

transferee company so that the property becomes the property of the
transferee company and the liabilities become the liabilities of the
transferee company;
 2. The charges, if any, on the property of the transferor company shall
be applicable and enforceable as if the charges were on the property
of the transferee company;
3. Legal recourse against all the parties shall be continued once it is
initiated.
4. Where the scheme provides for purchase of shares held by the
dissenting shareholders or settlement of debt due to dissenting
creditors, such amount, to the extent it is unpaid, shall become the
liability of the transferee company.

Summary of the provision of Section 233 for Fast Track Mergers

In nutshell the provisions of Section 233 provide a simplified procedure

for the merger & amalgamation including any scheme of compromise &
arrangement for certain specified companies. The modus operandi of this
section is no mandatory approval from NCLT and dissolution of transferor
companies without process of completing the registration of the scheme
for the specified companies. It is a new provision which was introduced in
the Companies Act, 2013 as no such provision was there in the previous
Companies Act, 1956. This route of Fast Track Merger & Amalgamation
provides extensive relief to such companies from following the meticulous
and complex procedure of merger & amalgamation involving approval of
NCLT. As there are significant interest of third parties and general public
in mergers between holding and its wholly owned subsidiary company, the
fast track mergers & Amalgamation scheme is relevant and a boon for the
corporate sector. The small companies are also get benefitted by saving
time and cost as well. The NCLT will also become less burdened. This is
a much-needed step taken by the Government in order to promote ease of
doing business in India and for the overall benefit of the industries.

Objection to scheme of Amalgamation

As per section 230 (4) of Companies Act, 2013, shareholders having

minimum 10% holdings or creditors debt and less than 5% total
outstanding debt as per the last financial statement can pose an objection
to a merger. Unlike, in the Companies Act, 1956 where even a shareholder
with 1% share could object to the merger.

Body responsible for approving merger

As per the Companies Act, 1956, a merger had to be approved and presided
by the high court. However, as per the Companies Act, 2013, a merger has
to be approved by National Company Law Tribunal. It would be the one
common body responsible for merger and acquisition deals.

Apart from these six differences, Gandhi and Arora, also talked about the
difference in mergers of listed and unlisted company and valuation report,
under the two acts. The new Act has been responsible to bring in many
positive changes in the Indian markets and made merger and acquisition a
more accessible process. Fast track mergers would also be a relief to small
companies intending to merge, having gone through a long process, before.
The biggest advantage is providing a green signal to cross mergers that has
brought India at the centre of global markets. Indian Companies are free to
write their fate and shake hands with the foreign companies as and when
required.

The Competition Act, 2002

In the unending degree of competition, with various brands, companies
fighting to grab the attention of consumers, it is mandatory to guard such
competition lest exploitation might occur. The Competition Act aims to
protect unguarded competition. It ensures the economy to have a healthy
competition amongst the industries of the market. It helps protect the
interest of the consumers and ensures other participants to have a fair
amount of chance for providing competition to other companies.

Before competition act came into being, Monopolies and Restrictive Trade
Practices Act, 1969 (―MRTP‖) ensured that no company could hold its
monopoly in the market. Every competitor should be given a fair chance
to make profits in the market. Trade practises could become more
transparent and fair, in nature. The Act also contained provisions for
merger and acquisitions. A commission was set up to look into
monopolistic and unfair trade practises in the market. A consumer,
consumer association, trader or central government had the right to address
their complaints to the commission. It held enough power to provide a stop
to the practise.

On the amendment of the act in the year 1991, the provisions related to
amalgamations were removed. In later years, government decided that the
MRPT Act doesn‘t hold true to the rising competition in the market. It
focused more upon controlling monopolies. The need of the hour was a
focus on enhancing competition through fair practises. Therefore, the
Competition Act, 2002 was enacted by replacing the MRPT Act. However,
the MRPT act was repealed in 2009 in section 66 of the Competition Act.

The Competition Act, 2002 includes a more detailed list of provisions and
regulations to promote competition in the market. Competition
Commission of India has been established to look into anti-competition
agreements, abuse of dominance, mergers, amalgamations and takeovers
and competition advocacy. 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.

SEBI introduced SAST

SEBI introduced SAST (Substantial Acquisitions of Shares and

Takeovers) in 1994, 1997 and the latest in 2011, to regulate acquisition of
shares and voting rights in public listed companies in India. These
regulations apply on direct or indirect acquisition of voting rights or shares
in target company. Some of the important provisions of the SEBI (SAST)
Regulations, 2011 are

 According to the 1997 regulation, an acquirer had to be a party and

there should be substantial acquisition of shares. However, the
regulations of 2011 provides the acquirer the liberty to act through
other people and the scope of PAC to include people directly or
indirectly to give in to acquisitions of shares, voting rights, or
exercising control over the target company. Therefore, a company,
with its holding company and subsidiary companies under same
management/directors and any persons entrusted with the company
are deemed to be PAC unless stated otherwise. Also, the persons
acting in concert has been broadened to include those entrusted with
the management and not just management of funds.
 The initial trigger point for open offer which was 15% has
increased to 25%. That is when the acquirer alone or with PAC
acquires more than 25% shares and voting rights of the company
along with the existing holdings, should make public announcement
 for open offer. So, the investors now can increase stake holding upto
24.99% without open offer.
 Acquisition by way of control whether directly or indirectly would
require the acquirer to make public announcement for open offer.
Change in control through passing of special resolution through
postal ballot has been withdrawn. The open offer size has been
increased from 20% to 26%.
 There have been provided different methods for determining the
offer price of direct or indirect acquisition. The price is determined
at volume weighted average market price at 60 days rather than
simple average.
 Voluntary open offer means open offer given by the acquirer
voluntarily without triggering the mandatory open offer obligations.
An acquirer can make an open offer of 10% of total shares of target
company provided he directly or with PAC already holds 25% of the
shares and has not acquired any shares in the preceding 52 weeks
except through open offer. Also, he is restricted to make any
acquisition for a period of 6 months after the completion of open
offer except through another voluntary open offer or competing
offer.
 The new regulations have also made it obligatory for the acquirer to
make disclosures whereas according to the 1997 regulations, only
the target company was obligated to do that. There are two types of
disclosures:
 Event Based Disclosures
 When the acquirer acquires the shares or voting rights of the target
company, which taken along with his existing holding and that of
his PAC is 5% or more of shares or voting rights of the target
company, then disclosure is to be submitted to the stock exchange
 in the subscribed format. Also, to the target company within 2 days
of the receipt of intimation of allotment or acquisition.
 When the acquirer together with the PAC holds more than 5% of the
shares or voting rights of the Company, then every acquisition and
disposal of shares representing 2% of the shares of the target
company has to be informed by the acquirer to the stock exchanges
and the target company within 2 days of the acquisition or disposal.
 Continual Disclosures
 Every person who along with the PAC holds shares or voting rights
more than 25% of the shares or voting rights of the target company
has to inform the aggregate shareholding or voting rights as of 31st
March of every year to the stock exchange and the target company
within 7 days from the end of financial year.

Income-Tax Act 1961

Income Tax Act, 1961 doesn‘t use the term merger while dealing with
arrangements or combinations of any type. It uses the term
―amalgamation‖ under Section 2(1B) of the act. It defines amalgamation
as a merger of two or more companies with one company or a merger of
two or more companies into one company in such a manner that:

 All the properties related to the amalgamating company becomes a

part of the amalgamated company.
  All the liabilities of the amalgamating company become the
liabilities of the amalgamated company
  Shareholders holding two third or more shares of the
amalgamating company become shareholders of the amalgamated
company.
 Mergers and acquisitions are subject to the following taxes:

1. Capital Gains Tax

According to the Income Tax Act, whatever gains are acquired in

the transfer of assets including shares is liable to capital gains tax.
However, if the amalgamated company that is the resultant company
from amalgamation is an Indian company then it is exempted from
paying capital gains tax even in the transfer of assets.

2. Tax on transfer of share

When shares are transferred from amalgamating company to amalgamated

company, it is liable to pay security‘s transaction tax and stamp duty.
However, if the shares are in a dematerialized form then no stamp duty is
to be paid.

3. Tax on transfer of fixed asset

When property is transferred the respected state is liable to impose

taxes on it. There are two kinds of properties having separate form
of taxes. These are:

Movable Property: When the property being transferred is

immovable in nature, then Stamp duty and registration fee must be
paid on the instrument of transfer. Immovable Property: When the
property being transferred is immovable in nature, then Stamp duty
and VAT (imposed by the state) must be paid on the instrument of
transfer.
Foreign Exchange and Management Act, 1999

Foreign Exchange Management Act (FEMA) protects and deals with cross
border mergers. The Foreign Exchange Management Regulation (Transfer
or Issue of

Security by a person residing outside India), 2000 manages shares being

transferred to foreign companies. These regulations have guidelines for
inbound (Foreign companies merging with India) and outbound (Indian
companies merging with foreign) cross border mergers in India. According
to the foreign exchange management regulation, if the merger is sanctioned
by the Indian court, then the transferee company is free to transfer shares
to the shareholders of the transferor company which is outside India.
However, it is subject to certain rules such as:

i. The shareholders of the new company residing outside India are

not allowed to exceed their percentage of shareholding beyond
sectoral cap
ii. The transferrer or the transferor company shouldn‘t be engaged
in actions prohibited by the Foreign Direct Investment (FDI)
policy.

Stamp Duty

The Indian Stamp Act, 1899, is a state-wise legislation. Some of the states
have their own stamp acts, while others follow the Indian Stamp Act, 1899
(ISA) with their state amendments. The Indian Stamp Act lays down the
law related to tax applicable in the form of stamps on instruments recording
transactions.
A standing committee of State secretaries of Stamp and registration headed
by Additional Secretary (revenue) has been constituted vide Department of
Revenue‘s Resolution dated 9th August 2000, for discussion and
examination of issues related to stamps and registrations. Maharashtra,
Gujarat, Karnataka, Rajasthan etc have their own Stamp Duty Acts. They
have made their own legislations regarding the payment of Stamp Duty on
the order of the high court under section 394 in their Acts/ Schedules.
While other states like Madhya Pradesh, Andhra Pradesh etc. have adopted
the Indian Stamp Act, 1899. They rather have made their own amendments
to apply Stamp duty on the high court order. As for the remaining states,
which neither have an independent Stamp Duty Act nor have they made
amendments to the existing one levy Stamp Duty as per the decision of
High court or Supreme court. So, in case the transferor company has its
assets in different states, calculating Stamp duty becomes complicated
because every state has its own method of arriving at a figure. Payment of
stamp duty is an important consideration before going for mergers
especially when the asset of the transferor company has a significant
amount of value.

However, according to a circular issued in the year 1937 vide had

exempted Stamp Duty to be paid when there is an amalgamation between
Holding and Subsidiary Company. All these laws make matters related to
mergers and acquisitions highly critical and effort making. Indian
legislature involves procedure to follow during an amalgamation.

Approval by National Company Law Tribunal

For the merger to get approved the steps laid down in the Section 230 and
232 of the Companies Act, 2013 is to be followed. The company has to file
an application with the NCLT which entails a host of documents:
   The application for merger or acquisition
  a notice of admission
  an affidavit
 copy of the scheme along with the required disclosures (company's
financial position, auditor's report etc).

After receiving the application, NCLT may hold meetings with the
shareholders and creditors of the transferor and transferee Company. The
members and creditors are also required to send notice to regulatory bodies
such as Central Government, Registrar of Companies, Income Tax
authorities, RBI, SEBI, Competition Commission of India, Stock
Exchange as directed by the tribunal. The process also involves filling of
Affidavit of the Chairperson which states all the directions regarding issue
of notices and advertisements for convening meetings are complied with.

At the meeting, voting takes place whether in person or through e-ballot.

However, only members holding more than 10% of shareholding and
creditors holding 5% are eligible for the vote.

The next step entails filling of representation by the regulators or statutory

authorities to the tribunal within the prescribed time limit. The chairperson
of the meetings is to submit the report of the result of the meeting to the
tribunal.

Then the companies are required to file a petition with the tribunal to
confirm the merger agreement. The tribunal shall decide on a fixed date for
hearing of petition and send notices informing all the members and
creditors to be aware of the final hearing at the tribunal. If all the
procedures had been complied with and the NCLT finds no reason to reject
the proposal, the merger application is passed and the companies are
provided a certified copy under the section 232 read with section 230 (7)
of the Companies ACT, 2013.

Approval by Competition Commission

The Competition Commission, according to regulation 19 of The

Competition Commission of India Regulations, 2011 lays down the prima
facie opinion that is responsible for the approval of mergers.

Summary of the chapter

Mergers and Acquisitions are business and financial processes, undertaken

by several companies intending to reach heights of success. Indian
legislature provides certain laws that would look into the entire process
from the very start to the end of a company‘s existence. It ensures that not
only mergers and acquisitions are done in a fair manner but for the welfare
of the market and people too. No whims and fancies are allowed to promote
the process of mergers. If the government finds a merger against the
welfare of the people or competition in the market or market itself, it might
as well prohibit such an action.

Laws related to mergers and acquisitions are framed in order to promote

an equal and just opportunity for companies to undergo amalgamations of
any kind. These laws lay procedures to be carried out by the companies
intending to merger, for the process to be without a hitch. The Companies
Act, 1956 and 2013, The Competition Act 2002, SEBI‘s (SAST)
Regulations, Income-Tax Act 1961, Foreign Exchange and Management
Act, 1999, Intellectual Property rights due diligence and Stamp duty are
certain provisions to be followed during mergers and acquisitions. They
are responsible in their own way to keep the financial combinations under
due check of the government.

While merger and acquisition laws provide surveillance to the procedures

involved in merges and acquisitions, some labour legislations provide
protection for the employees working in such companies. These are socio-
comical and welfare legislations: Industrial Dispute Act, Contract Labour
Act, Maternity Benefits Act, Minimum Wages Act, trade union act and so
on. These laws help the employees to work in a healthy environment with
a just amount of salary. Those employees who had been working for a
significant amount of time with a company are liable to receive many
benefits from the employees. The legislations make sure that the efforts
that the employees put in their work don‘t go unnoticed.

These rights often fall vulnerable during mergers and acquisitions. When
employees are transferred from one company to another, they are at ample
risk and vulnerability. It is often a well cited phenomenon that employees
seek retirement benefits rather than transferring to the newly formed
company. It is their apprehensions and doubts that are never solved by the
company‘s involved in mergers. Many lose jobs, out of which many are
those that have passed the minimum age of getting a job elsewhere. It leads
to an ample amount of unemployment.

Indian Constitution also guarantees certain rights to the labourers for them
to fare well in their work. These are article 14, 15, 16, 19 (c), 23, 24 and so
on. These provide employees equality before law and in terms of
employment. Provides them freedom of speech and to demand their rights
by organising themselves as unions. These are intended to provide the
working citizens of India some fundamental rights. These fundamental
rights prohibit any instance of discrimination against any employee.
Though, laws are doing their bit to safeguard the rights of the employees
involved in mergers, there is still a scope to improve by knowing the
phenomenon better through a deep study. A study that could focus on the
employees during mergers and not any financial or economic aspects
during mergers. To study the plight of people who are vulnerable the most
and are ignored the most. How these laws fare in those instances where
employees are exploited or undergo injustice during market oriented
mergers and acquisitions.
Module 5: Finance and Post Merger Management

Many deals stumble during the post-merger integration (PMI) phase

because of a lack of planning, a tardy focus on PMI, or an underestimation
of the time and budget needed to complete the integration, among other
things.

So that raises the question: What should finance heads be doing to

ensure their company's deal is a success? And what should be their top
priorities during a time that is not only exciting but also chaotic and
messy?

Here’s what finance departments are sure to encounter during an

M&A event:

 Resources will be spread thin during the integration, resulting in cut

corners, attrition of good staff due to burnout, and increased breaks
in controls.
 Training the target’s accounting staff on the acquiring company’s
systems and processes may go slower than expected and may not
succeed in bringing them up to speed quickly enough.
 Change control will be focused, at best, on critical path milestones,
not on Level 3 and Level 4 processes where controls are essential
for operational efficiency.
 The acquirer’s best people will take their eyes off their current
activities to address bigger issues, more than periodically, and rely
on junior, less experienced staff for daily tasks.
  There will be stronger-than-usual seasonal strains on all resources
during periodic events like the quarter-end, the holidays, spring
break, summer vacations or other ebbs and swells that occur during
the post-merger integration period.
 There will be resource-bleeding in-flight initiatives that go on even
if common sense dictates they should be postponed or cancelled.
The situations described above are not the cause of post-acquisition pain
but merely its symptoms. The root causes are insufficient integration
readiness planning, urgency to meet articulated milestone dates, and
underestimation of the scope and complexity of the deal accompanied by
insufficient budgets and unrealistic time frames (e.g., many post-merger
activities can go on for years). Add to these pressures the natural tendency
of executives to push to realize the widely promoted wins as quickly as
they can, and a picture of finance post-acquisition chaos emerges complete.

To avert the scenario above, finance and accounting leaders should first
expect it, and second, be prepared for it.

Keep the lights on

Deals are distracting, so first and foremost, focus on continuing to run the
finance side of the business. "Set up an interim finance operating and
governance model to enable finance to continue to support operations.
Ensure that suppliers are paid and customers are billed and that external
reporting requirements are met.

"Keep the ship steady despite the press that is hitting the news and
despite head-hunters calling your leadership team," advised Mercereau.
"Taking your eye off the ball — that's a risk."
Integrate the finance and operations teams

Plan your finance function structure prior to close if possible. Then,

recognize and retain top employees, and determine who will do what post-
deal. "Develop a target operating model of governance, organization,
processes, and systems that will achieve the finance synergy target with
key talent identified early. In addition, know whom you want to tap as your
finance PMI head.

Be a leader

Once you restructure the finance department, bring your employees

together around a common goal. "Leadership is one of the things that is
often absent in post-merger integration. "Understand that it is people who
make the numbers happen. Rally them around a common vision of the
future."

Drive and track synergies

In addition, take a leadership role around corporate synergies. Pinpoint key

cost and revenue synergies across your organization, set metric targets, and
"cascade them down to the departments and business units. Then, entrench
these targets into your company's future plans and budgets, and establish a
"synergy tracking mechanism" that can help determine if you are on
course. "Be ready to have something structurally in place to manage
synergy achievements," she advised. "And don't allow the enterprise to lose
focus on synergy achievement post-deal."

Also, be aware of hidden costs that may surface after the deal closes. Make
sure company managers present accurate budgets and that they have
included as much data as possible so there are no surprises later.
Make friends with the CIO — early

A collaboration between finance and IT is vital, yet it is often an

afterthought to other large tasks that need to be done. Finance relies on data
to help make decisions, gain insights, and improve business performance,
and technical glitches or interruptions can occur when one company melds
with another. So visit the chief information officer early in the process to
join forces. "IT needs to be a business partner with finance from the very
beginning, when finance is planning its post-merger integration.

Set milestones

Determine what you want to achieve in one month, two months, or further
out, often in conjunction with other departments. "Your milestones will
formulate how you will communicate your strategy. Set target dates for
things like integrating the workforce, consolidating facilities, and
establishing synergies, and ensure that the synergies are measurable.
"Achievement of those milestones will determine the ability to achieve
those synergy targets.

Know what you are buying — and speak up

Finance leads are integral to the PMI team, not only to help steer the ship,
but to recognize when things are off track. "They are not driving the team,
but they should be strong enough to put on the brakes or redirect the course
based on financial insights. "It is important that finance truly understand
the nature of the business and the operating model before the deal is done,
to avoid surprises. This is especially important when evaluating companies
that offer and operate different products and services than your own
company. The impact of different operating models can be significant on
your financial systems and overall business case."