M&A REGULATORY ASPECTS

IN INDIA

The regulations relating to domestic and inbound mergers in

India

Subject: Merger and Acquisitions

Professor: Dr. Sheeba Kapil

Ashok Thomas George

11, Section-A
LAWS REGULATING MERGERS:

Legal Pre-requisite
1. Company makes application to court for the moving of merger.
2. Court orders meeting with shareholders. If majority (75%) of the creditors and shareholders
present and voting agree to it, court sanctions it.

1.) Companies Act

The currently applicable Merger Provisions provide for and regulate all kinds of corporate
restructuring that a company can possibly undertake, such as mergers, amalgamations, demergers,
spin-off/hive off, and every other compromise, settlement, agreement or arrangement between a
company and its members and/or its creditors.
2.) Competition Act
Following provisions of the Competition Act, 2002 deals with mergers of the company:
(1) Section 5 of the Competition Act, 2002 deals with Combinations which defines
combination by reference to assets and turnover
(a) exclusively in India and
(b) in India and outside India.

(2) Section 6 of the Competition Act, 2002 states that, 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.

All types of intra-group combinations, mergers, demergers, reorganizations and other

similar transactions should be specifically exempted from the notification procedure and
appropriate clauses should be incorporated in sub-regulation 5(2) of the Regulations.
These transactions do not have any competitive impact on the market for assessment
under the Competition Act, Section 6.

3.) SEBI take-over code, 1994

Consolidation of shares/voting rights are permitted beyond 15% and below 55%. However
the acquirer should not acquire more than 5% of shares or voting rights of the target company.
Similarly the acquirer who has already acquired control of a company (say a listed company), after
adhering to all requirements of SEBI Takeover Regulations and also the Act, should be exempted
from the Act for further acquisition of shares or voting rights in the same company.

4.) The Indian Income Tax Act (ITA), 1961

The gains arising out of the exchange of shares between the 2 parties involved in an amalgamation
are not taxable
5.) Mandatory permission by the courts
a. High court of the state where the companies have registered has to approve any scheme for
merger
b. The high courts may also supervise any arrangements or modifications in the arrangements after
having sanctioned the scheme of mergers

6.) Stamp Duty

a. Stamp duty varies from state to State. According to Bombay Stamp Act, any order by which
property is transferred to or vested in any other entity has to be conveyed. As per this Act, rate
of stamp duty is 10 per cent.
7.) Security Laws
a) Acquisition of shares or voting rights of a listed company, entitling the acquirer to
exercise 25% or more of the voting rights in the target company or acquisition of
control, forces the acquirer to make an offer to the remaining shareholders of the target
company
b) The offer must be to further acquire at least 26% of the voting capital of the company

Listing Guideline Quick Glance

Legal Flowchart for M&A

Mooting of the proposal; approval

of Board, shareholders

SEBI intimation

Board of directors approval

Application to The High Courts

Dispatch of notice to shareholders

and creditors; Hold meetings

Petition to High Court for

confirmation and passing orders

Filing the order with the registrar

Transfer of assets and liabilities

Issue of shares and debentures as

per Company Act