B.A.LL.B.

(HONS)

Name of the Student-

University Exam Roll No.- 60440600

Status : Regular

Assignment Subject – Information Technology Law

Assignment Topic – Legal Consideration for M&A in IT

Sector

Submitted to : Submitted by:

1
 ACKNOWLEDGEMENT

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I thank my God for providing me with everything that I required
in completing this assignment.
I am highly indebted to the Teacher in Charge Asst. Prof. Mr.
Prakhar Puranik, for guidance and constant supervision as well
as for providing necessary information regarding the assignment
and also for her support in completing the assignment.
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kind co-operation and encouragement which helped me in the
completion of this assignment.
My hearty thanks and appreciations go to my classmates in
developing the assignment and to the people who have willingly
helped me out with their abilities.

Student Name:

2
 CERTIFICATE OF AUTHENTICITY

This is to certify that student of has successfully

completed the below mentioned assignment under the
guidance of Asst. Prof. Mr. Prakhar Puranik, (subject teacher)
during the year.

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 DECLARATION

I, , studying at hereby declare that this Research Paper is

my original work. The same has not been submitted earlier
or is not a reproduction of any work submitted earlier.

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 ABSTRACT

Mergers and acquisitions are strategic decisions taken for maximisation of a company's
growth by enhancing its production and marketing operations. They are being used in a wide
array of fields such as information technology, telecommunications, and business process
outsourcing as well as in traditional businesses in order to gain strength, expand the customer
base, cut competition or enter into a new market or product segment. Main agenda behind
Merger and acquisitions are:

1. Selling existing products to a wider body of consumers.

2. Product line extensions, geographic extensions, redeploy brands.
3. Redeploying technology/patents of one firm to improve the products of the other.

Technology companies, in search of new ideas, new products, trained knowledge workers,
strategic relationships and additional market share, have been the most acquisitive. The sector
is highly innovative and subject to constant technological development. It is also the source
of dramatic changes in business practices in all other industrial sectors. Over the past few
years, India’s top software companies have acquired foreign firms to increase their local
presence in the US and Europe, their main markets, or to acquire employees with a specific
skill set or strengthen their capability in a particular sector.

In calendar year 2012, the IT and IT-enabled services sector saw cross-border merger and
acquisition transactions worth $1.4 billion (around Rs. 7,630 crores today) with a bulk of the
deals happening in Europe ($640.4 million) and North America ($591 million Indian IT
companies have thoroughly realized the value of making strategic cross-border acquisitions
as demonstrated by Infosys Ltd1. Acquisition of Lodestone, Mphasis Ltd. acquisition of
Digital Risk Ltd. and Wipro Ltd. acquisitions of Promax 2. Taking two illustration- Dell Inc
has struck a deal to acquire technology services provider Perot Systems Inc in a cash
transaction valued at $3.9 billion3. The deal has been in the works from 2007. The move will
help Dell diversify from its core hardware business, which has become a commodity business
with lower margins. The acquisition will give Dell more headroom to compete with the likes
of IBM, Accenture, HP and Indian IT and Its services providers, such as TCS, Infosys and

1
https://www.livemint.com/Industry/POGRV2grJStAumVRqr18pN/Overseas-acquisitions-by-Indian-IT-firms-
to-rise-in-2013.html
2
Ibid
3
https://economictimes.indiatimes.com/tech/ites/dell-to-acquire-perot-in-3-9-bn-all-cash-deal/articleshow/
5040420.cms?from=mdr

5
Wipro. Twitters’ acquisition of Madbits 4, an artificial intelligence company that has
developed technology which recognises digital images using deep learning, highlights the
level of interest in artificial intelligence (AI) in the aftermath of Google's purchase of Deep
Mind in January. The technology acquired by Twitter will assist it build an image search
system.

Twitter will also be aiming to analyse the images users post to enhance user experience and
provide targeted adverting for businesses. In this paper the author will broadly elaborate the
role of merger and acquisition in the information technology industry, its contribution to the
country’s GDP and the challenges faced during the process5.

INTRODUCTION

The term “merge” is not defined under the Companies Act, 1956 6 (the “Companies Act”), the
Income Tax Act, 1961 (the “ITA”) or any other Indian law. Simply put a merger is a
combination of two or more businesses into one business. Laws in India use the term
“amalgamation” for merger. The Income tax act, 1961 [section 2(1A)] defines amalgamation
as the merger of one or more companies with another or the merger of two or more
companies to form a new company, in such a way that all assets and liabilities of the
amalgamating companies become assets and liabilities of the amalgamated company and
shareholders not less than nine-tenths in value of the shares in the amalgamating company or
companies become shareholders of the amalgamated company. Mergers and acquisitions are
strategic decisions taken for maximisation of a company's growth by enhancing its
production and marketing operations. They are being used in a wide array of fields such as
information technology, telecommunications, and business process outsourcing as well as in
traditional businesses in order to gain strength, expand the customer base, cut competition or
enter into a new market or product segment. Thus, mergers or amalgamations may take two
forms:

1. Merger through Absorption: An absorption is a combination of two or more

companies into an 'existing company'. All companies except one lose their identity in
such a merger. For example, absorption of Tata Fertilisers Ltd (TFL) by Tata
Chemicals Ltd. (TCL). TCL, an acquiring company (a buyer), survived after merger

4
https://economictimes.indiatimes.com/tech/ites/us-immigration-bill-tcs-infosys-hcl-and-wipros-loss-is-
accenture-ibm-and-hps-gain/articleshow/20849959.cms
5
https://www.ibef.org/industry/information-technology-india.aspx
6
https://www.mca.gov.in/content/mca/global/en/home.html

6
 while TFL, an acquired company (a seller), ceased to exist. TFL transferred its assets,
liabilities and shares to TCL7.
2. Merger through Consolidation: A consolidation is a combination of two or more
companies into a 'new company'. In this form of merger, all companies are legally
dissolved and a new entity is created. Here, the acquired company transfers its assets,
liabilities and shares to the acquiring company for cash or exchange of shares. For
example, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian
Software Company Ltd and Indian Reprographics Ltd into an entirely new company
called HCL Ltd.8 A fundamental characteristic of merger (either through absorption or
consolidation) is that the acquiring company (existing or new) takes over the
ownership of other companies and combines their operations with its own operations.
Besides, there are three major types of mergers:
 Horizontal merger: It is a combination of two or more firms in the same area
of business. For example, combining of two book publishers or two luggage
manufacturing companies to gain dominant market share.
 Vertical merger: It is a combination of two or more firms involved in
different stages of production or distribution of the same product. For
example, joining of a TV manufacturing (assembling) company and a TV
marketing company or joining of a spinning company and a weaving
company. Vertical merger may take the form of forward or backward merger.
When a company combines with the supplier of material, it is called backward
merger and when it combines with the customer, it is known as forward
merger.
 Conglomerate merger: It is a combination of firms engaged in unrelated
lines of business activity. For example, merging of different businesses like
manufacturing of cement products, fertilizer products, electronic products,
insurance investment and advertising agencies. L&T and Voltas Ltd are
examples of such mergers9. Scope of Merger & Acquisition Mergers &
Acquisition have gained popularity throughout the world in the recent times.

7
https://www.business-standard.com/article/press-releases/tata-chemicals-acquires-general-chemical-
108013101094_1.html
8
https://www.quora.com/Which-are-the-most-interesting-mergers-of-two-Indian-companies-strategically#!n=12
9
https://taxguru.in/corporate-law/understanding-term-merger-acquisition.html#:~:text=Conglomerate
%20Merger%3A,-Conglomerate%20mergers%20are&text=An%20example%20of%20conglomerate%20merger
%20is%20L%26T%20and%20Voltas%20Ltd.

7
 These have become popular due to globalization, liberalization, and
technological developments & intensely competitive business environment.

Mergers and acquisitions are a big part of the corporate finance world. This process is
extensively used for restructuring the business organization. In India, the concept of mergers
and acquisition was initiated by the government bodies. The Indian economic reform since
1991 has opened up a lot of challenges both in the domestic and international spheres. The
increased competition in the global market has prompted the Indian companies to go for
mergers and acquisitions as an important strategic choice 10. The trends of mergers and
acquisitions in India have changed over the years.

The immediate effects of the mergers and acquisitions have also been diverse across the
various sectors of the Indian economy. Mergers and Acquisitions have been around for a long
time and has experienced waves of popularity during these times and they are very much an
important part of today’s business world. They have also become increasingly international
which can be due to the rising global competition. The popularity of cross border M&A
makes it important to look at them from an international perspective.

REASONS FOR MERGER & ACQUISITION

The dominant rationale used to explain M&A activity is that acquiring firms seek improved
financial performance through synergy.

Some of the motives are: Economy of scale: The combined company can reduce its fixed
costs by removing duplicate departments or operations, thus increasing profit margins. For
example, HP merged with Compaq to cut costs11.

ECONOMY OF SCOPE

This refers to the efficiencies primarily associated with demand-side changes, such as
increasing or decreasing the scope of marketing and distribution, of different types of
products. Reduction of competition: This assumes that the buyer will be absorbing a major
competitor and thus increase its market power to set prices. For example: the merger of
GlaxoSmithKline. Add a new product line: The classic example is Bank of America
acquiring Merrill Lynch as a way to offer a much broader spectrum of financial services, and
Tata’s acquisition of Jaguar Land Rover and Tetley Tea. Taxation benefits: A profitable
10
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1618272
11
https://www.zdnet.com/article/analysis-hp-one-year-after-the-merger/

8
company can buy a loss maker to use the target's loss as their advantage by reducing their tax
liability. For example: Ashok Leyland Information Technologies merger with Hinduja
Finance. Geographical penetration: It may be cheaper to acquire companies that are already
doing business in a target market than to create market diversification from scratch.

Following the global recession of 2008, some M&A deals were driven more by survival than
by growth. An example was the merger of Towers Perrin and Watson Wyatt in 2009.
Industrial trends: In many cases, mergers and acquisitions are being driven by a key trend
within a given industry, such as:

 Rapidly changing technology, which is driving deals in high technology industry.

 Fierce competition, which is driving deals in the telecom and banking.
 Changing consumer preferences, which is driving deals in the food and beverage
industry.
 The pressure to control costs, which is driving deals in the health-care industry Take
advantage of a bargain. The target company may be available at a distressed price,
which tends to pique the interest of growing companies even if they are not
necessarily looking for acquisition candidates. This situation often comes about
because of a death or divorce affecting the company’s founders. In 2008, Bank of
America acquired Countrywide at a bargain price because of the distress caused by
increasing delinquencies on mortgage.

M&A INFORMATION TECHNOLOGY SECTOR

Different companies have different strategic goals and different approaches to M&A.
Alignment with the strategy of the company is clearly important but transactions can be
justified as well. For example, transactions make sense in expanding geographic coverage,
broadening a product line, entering an adjacent market, or acquiring management or
technology expertise. Some acquisitions occur because they represent a window on a new or
emerging market and technology and the objective is not developing synergies, but learning
—so the purchaser can avoid surprises and move quickly to invest as the market emerges. In
India, Mergers and acquisitions have been more in number and value in the last decade or so.
The total number of mergers and acquisitions in 1999-2000 was 1068 and the value of
acquisitions was Rs.32,012 crores12. In 2000-01 the total number was 1215 and value of
acquisitions being Rs.29,218 crores. In 2006-07 the number increased to 1418 and the value
12
http://www.igidr.ac.in/conf/oldmoney/MERGERS%20AND%20ACQUISITIONS%20IN%20INDIA.pdf

9
of acquisitions to Rs.2,38,191 crores. In 2009-10 the number of deals were 823 and the value
of acquisitions was Rs.1,39,921 crores and in 2010-11 till February the number of deals were
733 and the value of acquisitions amounted to Rs. 1,78,154 crores13.

Thus, Mergers and Acquisitions, the way in which they are understood in the Western
countries, have started taking place in India in the last decade. Indian IT companies have
thoroughly realized the value of making strategic cross-border acquisitions as demonstrated
by Infosys Ltd. acquisition of Lodestone, Mphasis Ltd. acquisition of Digital Risk Ltd. and
Wipro Ltd. acquisitions of Promax. Global Mega Deals Recently, Dell Inc has struck a deal
to acquire technology services provider Perot Systems Inc in a cash transaction valued at $3.9
billion. The move will help Dell diversify from its core hardware business, which has become
a commodity business with lower margins. The acquisition will give Dell more headroom to
compete with the likes of IBM, Accenture, HP and Indian IT and Its services providers, such
as TCS, Infosys and Wipro. Post-acquisition Dell’s revenues will be around $7.7 billion,
about 25% higher than the top Indian services firm TCS.

COMPANY LAW – M&A

The M&A provisions under the Companies Law are governed under the Chapter XV from
section 230 to 24014 in the light of Compromises, Arrangement and Amalgamation. It is a
primary legislation which governs all companies in India, therefore transactions pertaining to
M&A must be in compliance with the Companies Act, 2013 and rules enacted thereunder.
The provisions of the Companies Act, 2013 are applicable pertaining to the nature of the
M&A transaction, nature of a company, whether company is listed or unlisted, whether the
transaction/deal involves FDI or not, which are discussed hereinafter.

MERGERS

Merger is a way through which a company restructure itself through a way of an arrangement
between the companies which intends to acquire the ownership and control over the other,
must make an application under section 230 to the Hon’ble National Company Law Tribunal
(Hon’ble NCLT) having jurisdiction over such companies seeking merger of two or more to
order a meeting of class(es) of creditor or class(es) of member in a manner that sub-section 3
to 6 of section 230 read with rules made thereunder it 15 shall apply mutatis mutandis over

13
https://rbidocs.rbi.org.in/rdocs/Publications/Pdfs/18577.pdf
14
Companies Act, 2013
15
Companies (Compromises, Arrangement, Amalgamations) Rules, 2016, Rule 6 & 7

10
calling and convening of such meeting(s). Upon the vote of three-forth in value of such
members or creditors present and voting in the meeting, agreeing to the details of an
arrangement to merge, then that acceptance is deemed to be sanctioned by the Hon’ble
NCLT, which will be binding over all members or creditor of the transferor company 16.
However, if the reduction in share capital forms the part of the merger scheme, then the
Hon’ble NCLT has the power to approve and approving such reduction in share capital and
filing a separate application for reduction of share capital under section 66 17, would not be
necessary18.

Fast Track Merger

It is a new concept which had introduced under Companies Act, 2013 in India, which does
not require to file an application with Hon’ble NCLT, which are governed under the section
233 of the Companies Act, 2013 read with Companies (Compromises, Arrangement,
Amalgamations) Rules, 2016. The company seeking fast track merger requires acceptance of
the merger scheme from its members/shareholders, Registrar of Companies (RoC), the
Regional Director (RD) and the Official Liquidator (OL). The scheme of fast-track merger
can be entered between the small companies whose paid-up share capital does not exceed 50
lakh rupees or higher amount not more than 10 crore rupees and turnover does not exceed 2
crore rupees or such higher amount not more than 100 crore rupees, as per immediately
preceding final year19 or between a holding company20 and its wholly-owned subsidiary21
company or any other company as the case may be. The scheme of merger must be accepted
by shareholders at least holding 90% of the total number of shares and creditors representing
nine-tenth in value of the creditors. Also, such scheme shall be accepted by RD and OL. If
objections received from RoC or OL and RD is of opinion that the scheme is not in public
interest, it may file an application with jurisdictional Hon’ble NCLT to consider the scheme 22.

Cross Border Mergers

16
Report of Expert Committee, Merger and Acquisition, Ministry of Corporate Affairs, (Feb. 26, 2021, 11:12
AM), http://mca.gov.in/Ministry/reportonexpertcommitte/chapter10.html
17
Companies Act, 2013 read with National Company Law Tribunal (Procedure for reduction of Share Capital of
company) Rules, 2016, Companies (Management and Administration) Rules, 2014 and Companies (Share
Capital and Debentures) Rules, 2014.
18
Fundamental Conceptualization and Different Applications, Mergers and acquisitions, (Feb. 27, 01:12 PM.),
https://www.rcemorissa.org/images/MCR-Kar_Sir.pdf
19
Companies Act, 2013, Section 2(85)
20
Id, Section 2(46)
21
Id, Section 2(87)
22
Id, Section 232, (Section 233(5) read with Rule 25(6) of Companies (Compromises, Arrangement,
Amalgamations) Rules, 2016)

11
There has been a rapid increase in the value and quantum of Cross Border Merger transaction
in recent years in which there is an arrangement between an Indian company and foreign
company which results into global commercially viable expansion of the company.

Cross Border Merger has been defined under section 234 of the Companies Act, 2013 and
Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 along with FEMA
Cross Border Merger Regulations, 2018. Therefore, cross border mergers are permitted with
taking the prior approval of the Reserve Bank of India23.

Cross Border Merger can be classified as:

1. Inbound Merger: In a restructuring transaction, where a foreign company merge

with an Indian company and the outcome is the formation of an Indian company, is
Inbound Merger.
2. Outbound Merger: In a restructuring transaction, where a foreign company merge
with an Indian company and the outcome is the formation of a foreign company, is
Outbound Merger.

In order to initiate cross merger transaction following requirements must be complied with:

1. A permitted foreign company should seek prior approval of the Reserve Bank of India
and must make compliance with the provisions stated for merger under section 230 to
232 of the Companies Act, 2013.
2. The transferee must ensure that the valuation for such merger is conducted by the
valuers of recognised professional body in its jurisdiction and must be in accordance
with those principles which are internationally accepted for such valuation and
accounting.
3. An application must be filled before Hon’ble NCLT as per Companies Act, 2013 and
rules enacted therein.

ACQUISITIONS

Acquisitions or Takeover is where a targeted company is purchase by another entity with an

interest of controlling interest in the share capital partly or wholly of the assets and/or
liabilities through acquisition of shares or by subscribing to new shares of the targeted

23
Foreign Exchange management (Cross Border Merger) Regulation, 2018, Reg. 9, read with Companies
(Compromise Arrangements and Amalgamations) Rules, 2016, Rule 25A

12
company. Section 235 and 236 of the Companies Act, 2013 mainly deals with the regulations
of acquisitions.

There are various means to acquire the targeted company as follows:

1. New Share Issue: Any acquisition in the unlisted company is through such
arrangement by issuing new shares on a preferential basis has to be in compliance
with section 42 and 62 of the Companies Act 2013 read with rule 13 of Companies
(Share Capital and Debentures) Rules, 2014 and rule 14 of Companies (Prospectus
and Allotment of Securities) Rules, 2014.
2. Shares with Differential Voting Rights: Any acquisition in the unlisted company is
through such arrangement by issue of share with differential voting rights must be in
compliance with section 43 of Companies Act, 2013 read with rule 4 of Companies
(Share Capital and debentures) Rules, 2014, wherein the voting power of such kind
of share must not exceed 74% of total voting power at any point of time.
3. Squeeze out provisions:
a) Section 236 of the Companies Act, 2013 provides for the squeeze out provision,
which facilitates the acquisition of minority shareholder by the majority
shareholders in a company. Further, where an acquirer acquires 90% or more of
the share capital of the company or group of people becoming 90% in majority
through such transaction/scheme shall make an offer for buying the equity shares
at the following price held by such minority shareholders:
 The highest price paid by the acquirer;
 The fair price of such share determined by the registered valuer after
taking various issues under considerations24.
b) Recently Ministry of Corporate Affairs, has notified certain provisions of Section
230 of Companies Act,2013, which provides for an additional mechanism for
squeezing out minority shareholder of the unlisted company, wherein majority
shareholders holding 3/4th in the company (unlisted) permitted to acquire any part
of remaining shares through such arrangements as per section 230, to make an
application to the Hon’ble NCLT for approval of such arrangement25.
4. Acquiring assets/stock and business: Any acquisition in the unlisted company (not
a private company) is through such arrangement to acquire the business or assets of

24
Companies (Compromise, Arrangements and Amalgamations) Rules, 2016, Rule 3
25
Id, Rule 27

13
 the target company depending upon the commercial objectives must be authorized by
special resolution passed by the shareholders of the company26.

SECURITY LAW – M&A

The M&A provisions under the Security Law are governed under various regulations issued
by the Securities Exchange Board of India such as Securities Exchange Board of India
(Substantial Acquisition of Shares and Takeover) Regulations, 2011(SEBI (SAST)
Regulation, 2011), Securities Exchange Board of India (Listing Obligation and Disclosure
Requirements) Regulations, 2015 (SEBI (LODR) Regulation, 2015), Securities Exchange
Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (SEBI
(ICDR) Regulation, 2009), Securities Exchange Board of India (Prohibition of Insider
Trading) Regulation, 2015 (SEBI (PIT) Regulation, 2015).

MERGER

There are also few provisions under Security Law which governs the merger. Since a merger
essentially involves an arrangement among the companies and these companies are listed on
the stock exchanges in India are governed under various regulations made by the Security
Exchange Board of India. Therefore, security law governs those companies which are public
company whose shares are traded/listed on the stock exchange. Following are the various
Sebi regulations which governs such merger transaction:

1. SEBI (SAST) Regulation, 2011: SEBI (SAST) Regulation, 2011 lays the procedure
which is to be followed by an acquirer for acquiring majority shares or controlling
interest in the targeted company. It regulates and restricts the acquisition of voting
rights (control) and shares in the listed company. As per the provisions of the SEBI
(SAST) Regulation,2011, the acquirer can exercise twenty-five percentage or more of
the voting rights in the target company or acquisition of control, obligates the acquirer
to make an offer to the remaining shareholders of the target company. The offer must
be to further acquire at least 26% of the voting capital of the company27.
Further, if the acquirer already holds 25% or more but less than 75% of the target
company and acquires at least 5% shares or voting rights in the target company within
a financial year, it shall be obligated to make an open offer 28. However, this obligation
26
Companies Act, 2013, Section 180
27
SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, Reg.3 & Reg. 7
28
FAQs, SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011 Page 3 of 24, (Feb. 27,
10:17 AM), https://www.sebi.gov.in/sebi_data/faqfiles/sep-2019/1567577569364.pdf

14
 is subject to the exemptions provided under the SEBI (SAST) Regulation, 2011.
Exemptions from open offer requirement under the SEBI (SAST) Regulation, 2011
include inter alia acquisition pursuant to a scheme of arrangement approved by the
Hon’ble NCLT. Further, SEBI has the power to grant exemption or relaxation from
the requirements of the open offer under the SEBI (SAST) Regulation, 2011 in the
interest of investors and the securities market. Such relaxations or exemptions can be
sought by the acquirer by making an application to SEBI29.
2. SEBI (LODR) Regulation, 2015: SEBI (LODR) Regulation, 2015 provides for a
comprehensive framework governing various types of listed securities. Under the
such Regulations, SEBI has laid down conditions to be followed by a listed company
while making an application before the Hon’ble NCLT, for approval of a schemes of
merger/amalgamation/reconstruction. Certain key provisions under the SEBI (LODR)
Regulation, 2015 are applicable in case of a scheme involving a listed company are as
follows:
 Filing of scheme with stock exchanges: Any listed company undertaking or
involved in a scheme of arrangement, must file the draft scheme with the
relevant stock exchanges, prior to filing them with the Hon’ble NCLT (as per
the process laid down under Companies Act 2013), to seek an observation
letter or no-objection letter from the relevant stock exchanges30.
 Compliance with securities law: The listed companies shall ensure that the
scheme does not violate, limit or override any of the provisions of the
applicable securities law or requirements of the stock exchanges.31
 Change in shareholding pattern: The listed companies are required to file
the pre and post arrangement shareholding pattern and the capital structure
with the stock exchanges as per requirements of the listing authority or stock
exchanges of the home country in which the securities are listed32.
 PA: The listed company needs to disclose to the stock exchanges all
information having a bearing on the performance/operation of the listed entity
and/or price sensitive information33

29
SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, Reg. 7
30
Securities Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 Reg
37
31
Id. Reg 11
32
Id. Reg 69 (2)
33
Id. Reg 51

15
 ACQUISITION

SEBI Regulations tends to govern the several aspects of acquisition/takeover in a listed

company. Where such acquisition/takeover involves transfer of shares whether equity or
preference through issue of new shares or convertible securities into shares through
‘preferential allotment’ or ‘direct or indirect acquisition of shares or control or voting right’
by the acquiror in the targeted company. Also, any material change/event in the company
through such transaction must be disclosed in relation to make compliance of the SEBI
Regulations.

Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011

The main objectives of the SEBI (SAST) Regulation, 2011 is to provide adequate information
of the material change to the shareholders/members of the targeted listed company pertaining
to change in control34 or acquisition35 and to provide them an exit option from their
shareholding in the target company36 through making a public issue (open offer) through
recognized stock exchange. Regulation 3,4,5 & 6 of the SEBI (SAST) Regulation, 2011
provides for open offer as these regulations provides for certain trigger events to make an
open offer to the members/shareholders of the targeted company for an exit opportunity.

Information Technology Due Diligence

Technological differences between the two companies can create risks to the efficient
integration and future operations of the emerging company. Focusing on Technology due
diligence helps companies obtain information about future synergies, identify security
vulnerabilities and review IT personnel and structures. Quite similar to M&A due diligence, a
comprehensive and well-managed Technology due diligence process should:

 Evaluate overall IT strategy effectiveness, including processes, project portfolio,

support structure, and alignment to business goals.
 Identify operational improvements, synergies or cost savings opportunities such as
rightsizing the IT support model and vendor contracts.

34
SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011, Reg. 2(1)(e)
35
Id. Reg. 2(1)(b)
36
Id. Reg. 2(1)(z)

16
  Assess capability to integrate core business processes and systems (e.g., ERP,
supply chain management, CRM).
 Assess the security and controls framework to minimize exposure to costly
litigation for data exposure or theft.
 Evaluate the health of IT infrastructure to determine ability to scale, integrate, or
maintain current operational demands.
 Identify single points of failure that require mitigation planning.
 Identify hidden or buried IT costs resulting in a higher-than-expected operating
model.
 Identify deferred or unplanned software license costs, which may create post-
transaction investment.
 Identify transition issues to consider post-transaction, which would help to assess
the cost and timing of integration.
 Evaluate intellectual property, which may impact the valuation of the target
company.

FRAMEWORK FOR TECHNOLOGY DUE DILIGENCE

Technology due diligence comprises the following components:

 Enterprise applications and data: The buyer hopefully understands these facets
of the target and blends into his own business. Yet they may like to go further
during due diligence through more detailed presentations, a study of the strategy
details, and strategic conversations with product leaders.
 IT organization and structure: Although the buyer knows the senior officers of
the company, more personnel of the target company would be engaged through
due diligence. This is the time to assess the potential talent of the organization, to
prepare post-acquisition positions, and to recognize key and vulnerable players in
the mix.
 IT operational processes: If the project team is retained unchanged and existing
procedures remain, evaluation of the related enabling systems and resources is
crucial. For private equity acquisitions, that may almost always be the case, while

17
 a strategic acquirer will intend to incorporate the team into their structure. It needs
resources and time to modernize inefficient processes. Bad processes or lack of
processes can pose issues about management skills. Finally, greater inspection
efforts will be focused on vulnerable process areas.
 IT infrastructure, security, intellectual property, and privacy: Due diligence
on the software involves evaluating its architecture and code. As with a home
inspection, a firm foundation is critical to maintainability. Finding out how well
the software is being applied in code exposes the technical debt in the form of
glitches, security vulnerabilities, compliance concerns, and other code-modifying
problems.

CONCLUSION

It is evident that pandemic has had an unexampled disaster on the global economy, to
overcome such situation the Government of India has carried out various reforms to check
and balance the economy which boosted the moral of investors to invest in the Indian market
which resulted into inflow of highest-ever FDI in the month of April to September, 2020 and
marked the highest numbers of deals/transaction in the month November, 2020 in last 5
years. India has also the M&A transactions are governed under the Companies Act, 2013 and
the various SEBI Regulations which are discussed comprehensively. Therefore, to close the
M&A deal successfully, all the regulatory compliance under corporate law and security law
must be complied with. Although, M&A have been the prime reasons by which companies
has seen growth over a period of time. The Companies Act, 2013 and SEBI Regulations has
provided statutory binding to various corporate restructuring through a streamline process
which also helped India to move up 14 spots in Ease of Doing Business rankings 2020, by
World Bank Group37.

BIBLIOGRAPHY

LEGISLATION:

 Companies Act, 2013

 Securities Exchange Board of India (Substantial Acquisition of Shares and Takeover)
Regulations, 2011
37
Doing Business 2020: Reforms Boost India’s Business Climate Rankings; Among Top Ten Improvements for
Third Straight Year, The World Bank, (Feb. 28, 10:14 AM), https://www.worldbank.org/en/news/press-
release/2019/10/24/doing-business-india-top-10-improver-business-climate-ranking

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  Securities Exchange Board of India (Listing Obligation and Disclosure
Requirements) Regulations, 2015
 Securities Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009
 Securities Exchange Board of India (Prohibition of Insider Trading) Regulation,
2015
 Foreign Exchange management (Cross Border Merger) Regulation, 2018
 Companies (Compromise, Arrangements and Amalgamations) Rules, 2016
 SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations,
2020
 National Company Law Tribunal (Procedure for reduction of Share Capital of
company) Rules, 2016
 Companies (Management and Administration) Rules, 2014
 Companies (Share Capital and Debentures) Rules, 2014
 Income Tax Act, 1961, Section 2(42c)

FAQs/NOTIFICATIONS:

 FAQs, SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011

Page 3, 4 & 5 of 24, (Feb. 27, 10:17 AM),
https://www.sebi.gov.in/sebi_data/faqfiles/sep-2019/1567577569364.pdf

REPORTS

 Data and Reports, Mergers and Acquisitions, Ministry of Corporate Affairs, GOI,
(Feb. 27, 11:56 PM), Ministry of Corporate Affairs - Mergers and Acquisitions
(mca.gov.in)

 Report of Expert Committee, Merger and Acquisition, Ministry of Corporate Affairs,

(Feb. 26, 2021, 11:12 AM),
http://mca.gov.in/Ministry/reportonexpertcommitte/chapter10.html

NEWS ARTICLES

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 Financial Express, PE, M&A deals in India during November 2020, (Feb. 24, 2021, 10:12
AM), https://www.financialexpress.com/industry/pe-ma-deals-in-india-during-november-
2020-highest-in-last-5-years/2154602/
 Doing Business 2020: Reforms Boost India’s Business Climate Rankings; Among Top
Ten Improvements for Third Straight Year, The World Bank, (Feb. 28, 10:14 AM),
https://www.worldbank.org/en/news/press-release/2019/10/24/doing-business-india-top-10-
improver-business-climate-ranking

RESEARCH PAPERS - ONLINE SOURCES

 John C. Coates IV, Mergers, Acquisitions and Restructuring: Types, Regulation, and
Patterns of Practice (Harvard John M. Olin Discussion Paper Series Discussion Paper
No. 781, July 2014, Oxford Handbook on Corporate Law and Governance,
forthcoming, (Feb. 24, 11:00 PM), http://nrs.harvard.edu/urn-
3:HUL.InstRepos:20213003
 Fundamental Conceptualization and Different Applications, Mergers and acquisitions,
(Feb. 27, 01:12 PM.), https://www.rcemorissa.org/images/MCR-Kar_Sir.pdf

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