INTRODUCTION

Mergers and Acquisitions have significantly shaped the commercial and business landscape of India over many years. Mergers and Acquisitions (here forth referred to as M&A) have been instrumental tools in fostering growth, innovation, and economic development in India. Historically acquisitions and mergers were limited to local consolidation of business’ but with the advent of economic liberalization of 1992 the landscape has shifted significantly. Indian companies have started aiming at the international market and M&A activity is at its zenith, such as the recent acquisition of Jaguar Land Rover by Tata Motors, the merger of Inox with PVR as well as the historic deal wherein HDFC merged with HDFC bank in a $57 Billion deal.  Consequently, foreseeing the need for regulation in the landscape, various laws have been altered and enacted by the government to regulate and streamline the commercial landscape of India.

WHAT ARE MERGERS AND ACQUISITIONS?

Mergers can be understood as a coalescence of two or more companies with their complete assets and liabilities into one entity. Under Sec. 1(B) of the Income Tax act, 1961 ‘Amalgamation’ has been defined 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)”. Mergers are also referred to as Amalgamations in the Indian system. There are several types of mergers such as horizontal mergers, vertical mergers, reverse mergers, conglomerate mergers etc.

Acquisitions or ‘Takeovers’ refer to a situation where one company buys out all or a majority of shares of another company, either in a friendly or hostile manner, with the aim to gain control over its functioning and assets. Whereas in mergers the aim is to create a new entity by combining two companies, on the other hand in acquisitions the aim is to take over another company to combine it with itself without forming a new business entity.

WHAT ARE THE LAWS THAT GOVERN MERGERS AND ACQUISITIONS?

1. The most important law dealing with mergers and acquisition is The Companies Act,  2013. The leading legislation deals with companies, their operation, governance, framework, structure etc. The act of 2013 has completely overhauled the act 1956 which only had 4 sections relating to M&A. With the growing needs of the Indian ecosystem, the companies act has evolved and with it the provisions relating to M&A have also significantly evolved. It provides a framework and procedure for mergers, demergers, arrangements and amalgamations among companies. Chapter XV and especially Sections 230 to 240 of the act deal extensively with compromises, arrangements and mergers. It has also introduced new ideas such as fast track mergers and procedural ease into the system. Under the act, before a merger or acquisition the approval of shareholders and regulatory authorities is required. The Companies act also provides for the establishment of NCLT (National Company Law Tribunals) and NCLAT (National Company Law Appellate Tribunal) to deal with grievances and adjudicate on issues related to companies and advertently matters relating to Mergers and Acquisitions.
2. Competition Act, 2002 is an important act that regulates competition in the market by preventing anti-competitive practices that could lead to market monopolies. The act prohibits anti-competitive agreements and abuse of a dominant position in the market. It also regulates M&A by evaluating that a proposed merger or acquisition could adversely affect the competitiveness of the market and keeps a check against monopolization through the use of M&A. The relevant sections are Sec. 3,4,5 and 6 which came in force in 2011.
3. Foreign Exchange Management Act, 1999 deals with the allotment of shares and transfer of securities to foreign assets and entities. FEMA regulations deal with the merger, amalgamations and arrangements done between local and foreign entities. It regulates “Cross Border Mergers” wherein an Indian company merges with a foreign company. Through the notification of FEMA Regulations 2018, the RBI has streamlined the process for such cross border mergers. It deals with both inbound and outbound mergers, transactions and sharing of assets and liabilities in a cross border arrangement.
4. Securities and Exchange Board of India Act, 1992 read with the guidelines, rules, notifications etc. of SEBI regulates the securities market of India. 85 public takeovers were effected in 2023 under Securities and Exchange board of India (Substantial Acquisitions of shares and Takeovers) Regulations, 2011. It protects and provides for the securities market of the country and deals with M&A in the securities market. It provides for the procedure for obtaining approval for proposed M&As in the market. SEBI Take Over Code of 1994 provides for a multitude of safeguards in the form of exit opportunities, timely takeovers, public offers etc. among many other things to investors. Overall, SEBI regulations provide for a fair and transparent M&A system in India.

WHAT ARE THE OTHER LEGAL FRAMEWORKS THAT AFFECTS MERGERS AND ACQUISITIONS?

1. The Indian Contract Act, 1872 indirectly affects M&A as it governs contracts, contractual obligations as well as formulation of contracts. Contracts are important for business and commerce as it legally binds parties to their promises through contractual obligations.
2. Income Tax Act, 1961 defines amalgamation (or merger) in Sec. 1(B) and has a variety of provisions related to tax benefits, exemptions, amortizations etc. in case any sort of amalgamation happen.
3. Insolvency and Bankruptcy Code, 2016 was enacted post repealing of SICA enables detection of sick companies and their revival through mergers and acquisitions among other things.

CONCLUSION

The law relating to mergers and acquisitions has significantly evolved following the liberalisation of the Indian market and the globalization of the economy. The Government has enacted several legislations (like the companies act) and rules and regulations (Such as the SEBI regulations) to regulate the market, protect the interest of Indian stakeholders as well the market as a whole and to provide for a fair and transparent system. Additionally, the various notifications issued by the Ministry of Corporate Affairs, and the Government of India play a key role in regulating mergers and acquisitions. M&A is a strong way to achieve inorganic growth and provides significant opportunities but can also bear a heavy cost if not moderated. Thus the legislations aim to ensure a smooth system of mergers and acquisitions in India.