India has witnessed an increasing interest in crossborder transactions over the last few years, due to
growing confidence in the economy and the various
government initiatives designed to build a conducive
ecosystem for doing business in India
The key rationale behind cross-border transactions
includes technological collaborations/research and
development, contract manufacturing for domestic
operations as well as exports, distribution, market
acquisition and penetration, etc.
Some of the major regulations to be considered while
undertaking an M&A transaction in India are as follows:
Companies Act, 2013
- The Companies Act, 1956, has been replaced by
the Companies Act, 2013.
The Act governs mergers and schemes of
arrangement, including procedures for approval
from the Tribunal and various stakeholders,
such as shareholders, creditors, etc.
While the Companies Act, 1956, did not permit an
Indian company to merge with a foreign company,
the Companies Act, 2013, allows such mergers
subject to certain rules.
- Acquisitions must comply with the procedure
stated in the company's Articles of Association for
transfer of shares and the provisions relating to
- Sale of an undertaking or part thereof can be
undertaken by a company with the approval of at
least 75% of its shareholders.
Securities Law (governed by SEBI)
- Takeover Code: Regulates the acquisition of shares
and control in listed companies
- Listing regulations: Prescribes certain mandatory
conditions and procedures that listing companies
must comply with
- Issue of capital and disclosure requirements:
Regulates the provisions of preferential allotment
for the new issue of shares
- Insider trading regulations: Controls the dispersion
of unpublished price-sensitive information
Taxes and duties applicable on the basis of the mode of the transaction (i.e., acquisition, slump sale and asset sale)
- Direct tax provisions: To consider taxes on
account of transfer of capital assets and business
undertakings, utilization of carried forward losses,
and unabsorbed depreciation of the amalgamating
- Stamp duty: Payable on certain instruments/
documents, such as court orders for mergers and
demergers, share transfer forms, shareholders'
agreement/joint venture agreement, share
purchase agreements, and conveyance deeds for
the transfer of assets
The Foreign Exchange
Management (Cross-Border Merger) Regulations,
2018 (FEMA Regulations), address various
issues that may arise concerning cross-border
mergers from an exchange control perspective.
- Goods and Services Tax provisions: For
transactions under the asset sale mode, supply
or acquisition of assets will be liable for taxation
under GST, while the transfer of business on a
going concern basis will not be taxable. In certain
cases, however, the business undertaking may be
considered an asset, and therefore, GST may be
applicable to such transactions.
The Act regulates combinations (acquisitions, acquiring of control, and mergers and acquisitions), which cause or are likely to cause an appreciable adverse effect on competition within India. The law has prescribed certain financial thresholds based on turnover/assets to ascertain the applicability of competition law provisions to the merger/acquisition.
With the increase in M&A activities, a robust regulatory
framework is required to boost transactions. The
recent passage of the Insolvency and Bankruptcy
Code, GST legislation, and FEMA regulations
mentioned above further strengthen India's regulatory
framework. While the bankruptcy law promotes foreign
investment and domestic lending by expediting debt
recovery, GST promises to boost GDP growth through
increasing transparency and efficiency across different
sectors of the economy. The IBC Code, via an amendment in 2019, has now allowed the inclusion of mergers, amalgamations, and demergers in the resolution plan for restructuring of corporate debtors39. The FEMA regulations guide
foreign companies for ease of mergers with domestic
companies. Bolstered by these policy developments,
along with liberalized FDI thresholds and relaxed
sectoral reforms, both M&A activity and private equity
investments are likely to rise in the coming years.