Mergers and Acquisitions of Companies in India – Laws Applicable to M & A Transactions

mergers and acquisitions


Mergers and acquisitions, commonly known as amalgamation, are common strategies in order to expand the business, eliminate competition, enter a new business space, or for any other reason. From valuation to due diligence, mergers and acquisitions are complex transactions and require consideration of multiple factors. Further, whenever amalgamations happen, various laws interplay together that shall be considered before proceeding with the transaction. Let’s take a peek into the laws that shall be complied with while undertaking mergers and acquisitions in India.

Laws Applicable to Mergers and Acquisitions Transactions in India

Following are the laws applicable for mergers and acquisitions transactions in India:

1.)  The Companies Act, 2013

The Companies Act, 2013 is the principal law governing companies in India. Section 230 to 240 of the companies act lays down detailed provisions governing the merger and acquisition transactions in India. Further, the companies shall also comply with the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 while engaging in the amalgamation transactions.

2.) The Competition Act, 2002

Competition Act, 2002 governs the competition scenario in India. It aims to prevent monopolistic practices in India in order to safeguard consumer interest. Any merger or amalgamation that is expected to affect the competition in India shall comply with the requirements of the Competition Act, 2002 including obtaining various approvals and permissions. 

3.) The Income Tax Act, 1961

The Income Tax Act, of 1961 is the predominant direct taxation law. It has laid down explicit provisions governing the tax implications on the merger and acquisition transactions in India and when the income tax shall be exempt. 

4.) The Indian Stamp Act, 1899 

Whenever a merger or acquisition in India takes place, various documents are executed for such transactions. Whether it's a business transfer agreement, share purchase agreement, indemnity, etc., stamp duty becomes applicable on such agreements and therefore, the Indian Stamp Act, 1899 shall be applicable on the same. Further, in case of transfer of immovable properties, stamp duty shall be paid for such transfer as well.

5.) Foreign Exchange Management Act, 1999

Provisions of the Foreign Exchange Management Act, 1999 (also known as FEMA) shall be adhered to in case the amalgamation or merger involves any foreign company. Commonly known as cross-border amalgamations or mergers, Section 234 of the Companies Act deals with the situations whereby an Indian company merges or amalgamates with a foreign company. It can be either an inbound merger or an outbound merger. 

6.) SEBI Laws 

SEBI is the regulatory body for securities and commodity markets in India. If the merger or amalgamation includes a listed company, then the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, and other rules and regulations shall be adhered to.

7.) Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016, popularly called IBC, deals with companies and other persons who are under insolvency. If a company, that is undergoing the corporate insolvency resolution process, is going to be acquired or merged with another company, then the provisions of the IBC shall be adhered to. 

In a Nutshell

Following were some of the laws that shall be adhered to while the corporates undergo a merger or acquisition. The above laws instigate multiple compliances upon the merging entities and therefore, it is important to have professionals in place that ensure adherence to the above laws. In case you require any assistance with mergers and acquisitions in India, feel free to contact the ASC Group.

Location: India

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