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Regulatory Framework Assignment

The document provides an overview of the regulatory framework for mergers and acquisitions (M&A) in India. It discusses the key applicable laws and regulations including: 1) The Companies Act 2013 which regulates domestic M&A and facilitates cross-border deals. 2) The Competition Act 2002 which prohibits anti-competitive M&As. 3) The Income Tax Act 1961 which provides tax benefits for qualifying M&As. It also briefly outlines regulations for industry-specific deals, listed companies M&As under SEBI, and foreign investment under FEMA.

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Mahima Sharma
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484 views3 pages

Regulatory Framework Assignment

The document provides an overview of the regulatory framework for mergers and acquisitions (M&A) in India. It discusses the key applicable laws and regulations including: 1) The Companies Act 2013 which regulates domestic M&A and facilitates cross-border deals. 2) The Competition Act 2002 which prohibits anti-competitive M&As. 3) The Income Tax Act 1961 which provides tax benefits for qualifying M&As. It also briefly outlines regulations for industry-specific deals, listed companies M&As under SEBI, and foreign investment under FEMA.

Uploaded by

Mahima Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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M&A ASSIGNMENT

on
REGULATORY FRAMEWORK OF M&A IN INDIA
by Mahima Sharma

DOMESTIC MERGER & ACQUISITION

Applicable to all Companies – Listed & Unlisted

The Companies Competition Income Tax Stamp Industry Specific SEBI Takeover
Act 2013 Act 2002 Act 1961 Regulations Code 1994
Duty

FDI & FEMA for


Inbound M&A

1. The Companies Act 2013 –


 Replaced by Companies Act 1956
 The concept of merger & amalgamation is fully explained
 It helps in overall process of merger, acquisition and restructuring, facilitate domestic & cross-
border M&A
 The power given to the high court to sanction M&A is now invested with National Company Law
Tribunal (NCLT), making the time taken in obtaining sanctions for M&A short.
 Companies to send a notice of meeting to approve a M&A to Central Government, Income Tax
Department, SEBI, RBI, Registrar of Companies, Stock Exchange, official liquidator, CCI etc.,
seeking representation from respective authorities within 30 days from date of receipt of notice.
 Fast track mergers provision between two un-related small companies and group of companies
& subsidiaries without approaching NCLT.
 Permits cross border merger between Indian and foreign companies.

2. The Competition Act 2002 –


 Regulated by Competition Commission of India
 Replaced the extant law, MRTP Act 1969
 Prohibits abuse of dominance, acquisitions, mergers and amalgamation that have or are likely to
have an adverse effect on competition in a market in India (Horizontal/Vertical agreements)
 Proposal to enter a combination should be notified to CCI within 7 days of approval of proposal
relating to M&A
 The Competition Appellate tribunal (COMPAT) is a quasi-judicial body constituted under the
Competition Act 2002.
 Penalties of up to 10% on infringements.

3. The Income Tax Act 1961 –


 The benefits under the Act are availed if all assets & liabilities of the target firm should be
transferred to the acquiring firm and shareholders of not less than 90% of the share of target
firm should become shareholders of acquiring firm
 Transfer of assets representing capital expenditures from target to acquirer are deductible in the
hands of acquirer under section 35 of Income Tax Act 1961
 Depreciation can be claimed on fixed assets transferred from target to acquirer. The
depreciation value may be based on consideration paid and re-valuation
 Transfer of assets from target to acquirer are exempted from capital gains tax
 Amalgamation expenses are deductible in hands of acquiring firm

4. Stamp Laws –
 Some of the States in India have enacted their own Stamp Acts whereas others have adopted
the Indian Stamp Act, 1899 with their respective state amendments.
 Conveyance is defined as every instrument by which property, whether moveable or immovable,
is transferred inter vivos and which is not otherwise specifically provided
 Several states such as Rajasthan, Maharashtra, Gujarat and Haryana etc. have specifically
included a court order approving a scheme of merger and amalgamation under the definition of
“conveyance”, imposition of Stamp Duty on orders of NCLT approving the scheme of merger of
companies

5. Industry Specific Regulations –


 Legislations such as Banking Regulation Act 1949, Insurance Act 1938, Mines & Minerals Act
1957 and Drugs & Cosmetics Act 1940 would apply to transactions involving Indian companies
operating in relevant sector
 In case of highly regulated sectors such as Insurance Regulatory and Development Authority of
India and RBI, respectively lay guidelines operating in relevant sectors

6. SEBI Takeover Code 2011 –


 The Securities & Exchange Board of India (SEBI) regulates M&A transactions involving entities
listed on recognised stock exchanges in India
 SEBI Takeover Code 2011 regulated both direct & indirect acquisitions of shares, voting rights
and control in listed companies that are traded over the stock market
 An acquirer holding 24.99% shares will have a better chance to block any decision of the
company which requires a special resolution to be passed.
 An acquirer, holding 25% or more but less than the maximum permissible limit, can purchase
additional shares or voting rights of up to 5% every financial year, without requiring making a
public announcement for open offer.
 Acquirer with a 25% shareholding and increasing it by another 26% through the open offer can
accrue 51% shareholding and thereby attain simple majority in the target company.

FOREIGN DIRECT INVESTMENT

Acquisitions of Indian Companies be foreign entities are governed by terms of Foreign Exchange
Management (transfer or issue of security by the person resident outside India) Regulations, 2000 &
provisions of industrial policy and procedures are issued by Secretariat of Industrial Assistance (SIA) in
Ministry of Commerce & Industry, Government of India.

Foreign Exchange Management Act, 1999 –


 Followed by Foreign Exchange Regulation Act (FERA), 1973
 The Reserve Bank of India is responsible for the formulation and enforcement of foreign
exchange regulations.
 Under FDI Policy, an overseas investor can make an investment in India either under the
‘automatic route’ (i.e. requiring any prior approval for FDI from concerned Administrative
Departments) or under ‘Approval Route’ (i.e. requiring prior approval for FDI from concerned
Administrative Departments)
 FDI in certain sectors fall under the ‘automatic route’ whereby investments upto 100% or a
certain prescribed cap do not require prior approval of government.
 The issuance of securities shall be in accordance with the pricing guidelines, sectoral caps and
other applicable guidelines as prescribed under the Cross-Border Regulation.

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