Given India's significance as a market for multinational corporations, M&A transactions are likely to increase in the coming

years. In addition, at a time when businesses are looking to diversify and de-risk their supply chains, India is an appealing
place to set up manufacturing operations and grow inorganically.

Several legislative, regulatory, and bureaucratic changes have been implemented in the last few years in order to make doing
business in the country easier. As India positions itself to attract more foreign investment and boost domestic growth, this
process can accelerate.

Successfully closing an M&A deal in the United Kingdom, as in other jurisdictions, necessitates experience and
comprehension of regulatory criteria, as well as the ability to manage the processes efficiently. Depending on the form,
structure, and method of the transaction, as well as the size and market share of the companies involved, regulatory
requirements can differ.
Mergers and acquisitions in India are governed by a variety of important laws. Corporations are governed by laws.
The Indian Companies Act of 2013 (Companies Act) is the primary piece of Indian legislation that regulates the formation
and management of businesses in India. It also contains mergers and acquisitions rules (sections 230 to 240) and regulations.
Although the Companies Act does not define "merger" specifically, it does define it broadly as:
"the transfer of all or any part of an undertaking, properties and/or liabilities of one or more companies to another existing
or new company, or the division of all or any part of an undertaking, property or liabilities of one or more companies to
another existing or new company."

• If a company is private or public, and whether it is listed on a stock exchange, the Companies Act applies differently.
• It is backed by international capital and is subject to the oversight of each individual regulator.
• These variables would have an effect on the mechanism and manner in which an M&A transaction is
carried out.

Several authorities, including the Registrar of Companies (ROC), Regional Director (RD), Official Liquidator (OL), and
National Company Law Tribunal (NCLT), may play a role in an M&A transaction, depending on the type of organisation
and industry. Any merger would require final approval from the NCLT.

Companies who want to merge must file a petition with the NCLT (along with a detailed merger scheme) in order for the
proposed merger scheme to be accepted. Before the NCLT will consider a merger, the shareholders and creditors of the
companies that make up 75 percent of the equity of the creditors or representatives must vote in favour of it at meetings
held in the NCLT's prescribed manner.

• If the companies have affidavits of creditors with a combined value of at least 90% confirming their approval of the
proposed merger scheme, the NCLT which waive the requirement of holding creditors meetings. Although there is
no explicit provision for the NCLT to waive the requirement of a member meeting, if 90% or more members consent

1
 to the proposed merger by affidavit, the NCLT which waive the meeting requirement at its discretion. Only
shareholders with at least 10% of the company's stock or creditors with unpaid debt equalling at least 5% of total
outstanding debt as of the most recent audited financial statement will object to the merger.

• The ROC, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the OL, the
respective stock exchanges, the Competition Commission of India (CCI), and other government authorities or
sectoral regulators are also told of the meetings in order to receive any concerns or representations regarding the
proposed merger. If no announcement is made by the regulator, it is assumed that the regulator has nothing to say
about the proposals. SEBI regulations must be observed if one or more of the parties to a proposed merger are
publicly listed companies.

• Within 30 days of obtaining the certified copy of the NCLT's order, the scheme of merger must be submitted with
the ROC for registration. The merger process could take anywhere from a few months to a few years, depending on
the size of the deal, stakeholder objections, the industry in which the companies operate, and other factors.

• The Companies Act provides a fast-track merger process to allow mergers between small businesses or between a
holding company and its wholly owned subsidiary to take place without the NCLT's involvement. In such cases,
the merger scheme is deemed agreed if no objections are filed with the RD, ROC, or OL, and it is approved by a
majority of the companies' shareholders and creditors, accounting for 90% of their total number of shares and 90%
of the value of their creditors.

• The Companies Act also allows for cross-border mergers (i.e., a merger between a foreign company and an Indian
company or vice versa).

• The word "acquisition" is used in M&A transactions in addition to business mergers. According to market practise,
an acquisition is normally made by exchanging existing shares or subscribing to new shares of a business.

Mergers and acquisitions affecting publicly listed companies are governed by laws in India
Additional regulatory compliances are expected in the case of a merger or acquisition of shares in a listed company under
the Securities and Exchange Board of India Act 1992 (SEBI Act) and the rules and regulations framed thereunder. SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Takeover Regulations); SEBI (Issuance of Capital
and Disclosure Requirements) Regulations 2018 (ICDR Regulations); SEBI (Listing Obligations and Disclosure
Requirements) Regulations 2015 (Listing Obligations and Disclosure Requirements) Regulations 2015 (Listing Obligations
and Disclosure Requirements) Regulations 2015 (Listing Obligations and Disclosure Requirements) (LODR Regulations).

2
The Takeover Regulations apply to all direct and indirect acquisitions of shares, voting rights, or influence in a listed
company in India, with the exception of companies listed on a stock exchange's institutional trading platform without having
a public offering.

Both direct and indirect acquisitions of shares, voting rights, or power in an Indian publicly traded company are covered by
the Takeover Regulations. An open offer for purchasing securities must be for at least 26% of the total shares in the target
company.

Certain types of acquisitions, such as inter se transfers of shares among immediate relatives, promoters, and so on, are
exempt from the requirement of making an open offer to shareholders under the Takeover Regulations. The cumulative
shareholding after the open offer does not exceed the maximum permissible non-public shareholding (i.e., 75 per cent). Any
fee charged or agreed to be paid to the promoters for their services should be factored into the share price.

Regulations governing competition law

• The Competition Act prohibits combinations that cause or are likely to cause an appreciable adverse effect on
competition (AAEC) within the relevant market in India. Any such Combination would be meaningless and
unusable. The CCI must approve a Combination that is subject to a notification clause before it can be completed.
Until March 26, 2022, the de minimis exemption is in effect. The de minimis exemptions are excluded from the
pre-notification clause under the Competition Act.

• The Competition Act exempts the de minimis exemptions from the pre-notification provision. Small aim
exemptions are exempted under the Act for transactions that are unlikely to harm market competition. The asset or
turnover requirement for mandatory pre-Notification is set in terms of assets or turnover in India and abroad. A
small target exemption will not be available until 2022, and a de minimis exemption will not be available until
2023, according to the act.

• According to the Act, the maximum amount of assets that can be included in a Combination in India is 3.5 billion
Indian rupees in value or less than 10 billion Indian rupees in turnover. A 'gang' is described as two or more
companies that have the power to exercise 26 percent or more of the voting rights in the other company, either
directly or indirectly.

• Until March 3, 2021, the Indian government has exempted classes with less than 50% voting rights in other
companies from the laws regulating combinations. In most mergers and acquisitions, the acquirer is responsible for
notifying the CCI, although in some cases, both parties are jointly responsible for filing the notice.

• A notice to the CCI outlining the details of the proposed Combination must be given within 30 days of the execution
of any agreement or other document for acquisition or acquiring control. The Indian government has issued a waiver
from the country's stringent reporting requirements. Extraterritorial implementation of the Competition Act means
that the CCI's jurisdiction applies to transactions that take place outside of India.

• Combinations involving properties or turnover in India will be scrutinised even if the purchasers, sellers, or target
organisations are located outside of India. Deals involving foreign exchange in India, like cross-border M&As, are

3
 governed by the Foreign Exchange Management Act 1999 (FEMA), which is regulated by India's central bank (the
RBI).

• The Foreign Exchange Management (Non-debt Instruments) Regulations 2019 (NDI Regulations), Foreign
Exchange Management (Debt Instruments) Regulations 2019 (DI Regulations), and Foreign Exchange Management
(Cross-Border Merger) Regulations 2018 are the major regulations (Cross-Border Merger Regulations).

• Furthermore, the Indian government, through the Ministry of Commerce and Industry's Department for Promotion
of Industry and Internal Trade, issues policy guidelines on foreign direct investment in India from time to time (FDI
Guidelines). The FDI Guidelines and the regulations stated above regulate the manner in which foreign investment
can flow into and out of India, the instruments that can be used, the sectoral caps for foreign investments, and the
entry conditions associated with them Norms for minimum capitalization, lock-in periods, and local sourcing, for
example, are examples of such conditions.

• According to the FDI Guidelines, acquiring an Indian company can be achieved either via the "automatic path" or
the "approval route." The acquirer, non-resident investor, or Indian company does not need the government of
India's approval for the acquisition or investment under the automatic path. The approval road' necessitates prior
approval from the Indian government. The extent of the acquisition of shares and control of the Indian goal or
investee company, as well as the need to follow the approval path, are largely determined by the Indian company's
business activities. It also depends on the source country of the investment flowing into India in a few cases.

Regulations pertaining to cross-border mergers

The RBI has released the Cross-Border Merger Regulations, which provide the operational basis for the enabling provisions
under the Companies Act regarding cross-border mergers. A cross-border merger is a combination, amalgamation, or
agreement between an Indian and a foreign company. Inbound or outbound cross-border mergers are possible. An inbound
merger is a cross-border merger that results in a corporation that is based in India. A cross-border merger in which the
resulting entity is a foreign company is known as an outbound merger. An Indian or foreign company that takes over the
assets and liabilities of the companies concerned is referred to as a resultant company.

In the case of an inbound merger, the following are the steps to take:
• Following the NDI Rules' pricing guidelines, entry routes, and sectoral caps, the resulting Indian company is
allowed to issue or pass any protection to a non-resident outside India.
• After a merger, a foreign company's office outside India is considered to be a branch of the resulting Indian entity,
and the resulting Indian entity is free to transact in any way.
• Any borrowings by the foreign company from overseas sources that become borrowings of the resultant Indian
entity or are entered into the resultant Indian company's books as a result of the merger must comply with the RBI's
guidelines for external commercial borrowing within two years, provided that no remittance for repayment of such
liability is made from India.
A foreign company may merge with an Indian company if it is incorporated in one of the notified foreign jurisdictions. The
informed foreign jurisdiction includes countries whose stock market regulator is a signatory to the International
Organization of Securities Commissions' Multilateral Memorandum of Understanding or a signatory to the bilateral

4
memorandum of understanding with SEBI. whose central bank is a member of the Bank for International Settlements; and
that are not listed in the Financial Action Task Force's (FATF) public statement as a jurisdiction with strategic anti-money
laundering or counter-terrorist financing deficiencies to which countermeasures apply, or as a jurisdiction that has not made
sufficient progress in addressing the deficiencies, or as a jurisdiction that has not made sufficient progress in addressing the
deficiencies, or as a jurisdiction that has not made sufficient progress in addressing the deficiencies, or as Any transaction
involving a cross-border merger that is carried out in accordance with the above-mentioned regulations is deemed to have
been authorised by the RBI.

The involvement of a court or tribunal

In India, the merger process, including cross-border mergers, is governed by the courts, and must be approved by the NCLT.
An agreement between the parties could start the process, but that would not be enough to give the transaction legal validity.

When supervising mergers, the NCLT considers a number of factors, including:

• Deciding the class of creditors or members who must attend meetings to discuss the proposed merger; Determining
the values of the creditors or members who must attend meetings.
• Determining the quorum, process, and voting method to be used at shareholder and creditor meetings; and
• Sending notifications to the central government, the ROC, the IRS, the RBI, SEBI, the CCI, and stock exchanges,
as necessary.

• The NCLT also has the authority to guide provisions relating to dissenting parties and employee treatment to the
transaction.

• When the NCLT approves the merger arrangement, it becomes legally binding on all creditors, shareholders, and
companies participating in the merger.

Acquisition of distressed properties through the insolvency phase of a corporation

The IBC's main goal is to establish a unified legal structure for corporate reorganisation and insolvency resolution. Although
the IBC does not specifically address mergers and acquisitions, the insolvency process provides an incentive for potential
acquirers to acquire assets from troubled firms at a lower price than under normal circumstances.

Under the IBC, the procedure of acquiring a corporation (corporate debtor) starts with the prospective acquirer (resolution
applicant) submitting a resolution plan to the resolution professional proposing the purchase, accompanied by acceptance
of the resolution plan by the corporate debtor's committee of creditors, and finally authorization of the resolution plan by
the NCLT.

Other regulatory considerations

Regulations that apply to particular industries
• There are several industry-specific rules and regulators in place to oversee acquisitions in these industries. As a
result, additional approvals from certain regulators may be needed before an M&A transaction can be completed.

5
 Approval from the Insurance Regulatory and Development Authority of India, for example, is needed in the case
of an insurance business acquisition. Acquisitions of banking companies and non-banking financial companies need
RBI approval (NBFCs).

• Insurance firms are subject to sector-specific regulations that are triggered based on the acquirer's shareholding
percentage that include provisions such as lock-in periods, capital infusions at regular intervals, and so on.

• Similarly, the Reserve Bank of India's Master Direction Amalgamation of Private Sector Banks, Directions 2016
provides guidelines for merging two banking companies, merging an NBFC with a banking company, and merging
a banking company with an NBFC.
• Employment-related regulations

• When the ownership or management of an undertaking is transferred to a new employer, a qualified employee is
entitled to notice and retrenchment compensation from the employer of such undertaking, according to section 25FF
of the Industrial Disputes Act 1947.

• However, such reimbursement is not available if the employee's service is terminated: has not been disrupted by
such transition; the current terms and conditions of service available to the employee following such transfer are
not less favourable to the employee; and the new employer is legally obligated to compensate the employee in the
case of retrenchment under the terms of such transfer.

• Employees cannot be compelled to operate under a new management without their permission, according to the
Supreme Court, and if they do not consent to such a move, they are entitled to retrenchment compensation. Although
sanctioning a scheme of amalgamation, the NCLT is also empowered to issue appropriate directions on the care of
the workforce.

Cross-border Mergers - Analysis of FEMA provisions

Introduction
On 13th April 2017, the Ministry of Corporate Affairs (MCA) notified Section 234 of the Companies Act, 2013 and inserted
a new Rule 25A (merger or amalgamation of a Foreign Company with Indian company and vice-versa) in the Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016 (Compromises Rules), paving way for merger and
amalgamation of a Foreign Company with an Indian company and vice-versa. Since Rule 25A required prior approval of
the Reserve Bank of India (RBI) for cross-border merger, without corresponding procedural aspects in place, cross-border
merger could not take-off. Now, with the RBI notifying the Foreign Exchange Management (Cross Border Merger)
Regulations, 2018 (FEMA Regulations/Regulations) for mergers amalgamation and arrangement between Indian and
foreign companies on 20th
Crucial definitions
The FEMA Regulations cover both inbound and outbound investments. The term “Inbound Merger” means a Cross Border
Merger where the Resultant Company is an Indian company whereas “Outbound Merger” means a Cross Border Merger
where the Resultant Company is a Foreign Company. The “Resultant Company” means an Indian company or a Foreign
Company which takes over the assets and liabilities of the companies involved in the cross-border merger. FEMA
6
Regulations define “Cross Border Merger” as any merger, amalgamation or arrangement between an Indian company and
a Foreign Company in accordance with the Compromises Rules. The term “Foreign Company” has been defined as any
company or body corporate incorporated outside India in a jurisdiction specified in Annexure B to Compromises Rules
whether having a place of business in India or not.
Cross-border merger: Procedural aspects
Inbound Mergers
When the Resultant Company is an Indian Company, the following procedure becomes applicable:
i. Issue/Transfer of securities: The issue or transfer of any security and/or a foreign security, to a person resident outside
India should be made in accordance with the pricing guidelines, entry routes, sectoral caps, attendant conditions and
reporting requirements for foreign investment as laid down in Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident outside India) Regulations, 2017 (TISPRO). However, this is subject to the following conditions:
1. where the Foreign Company is a joint venture (JV) or a wholly owned subsidiary (WOS) of the Indian company, it
shall comply with the conditions prescribed for transfer of shares of such JV/ WOS by the Indian party as laid down in
Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2004 (TIFS);
2. where the Inbound Merger of the JV/WOS result into acquisition of the Step-down subsidiary of JV/ WOS of the
Indian party by the Resultant Company, then such acquisition should be in compliance with Regulation 6 and 7 of TIFS
which provide for permission for direct investment in certain cases and investment by Indian party engaged in financial
services sector respectively.
ii. Borrowings: Any borrowing of the Foreign Company from overseas sources that becomes the borrowing of the Resultant
Company shall conform within a period of two years, to Foreign Exchange Management (Borrowing or Lending in Foreign
Exchange) Regulations, 2000 or Foreign Exchange Management (Guarantee) Regulations, 2000, as applicable.
iii. Assets: The Resultant Company may acquire and hold any asset outside India which an Indian company is permitted to
acquire under the provisions of FEMA. Such assets can be transferred in any manner for undertaking a transaction
permissible under FEMA.
iv. Sale of assets: Where the asset or security is not permitted to be acquired/ held by the Resultant Company under the
FEMA provisions, the Resultant Company should sell such asset/ security within a period of two years from the date of
sanction of the Scheme of the cross-border merger and repatriate the sale proceeds to India immediately.
v. Offices: An office outside India of the Foreign Company, pursuant to the sanction of the Scheme of Cross Border Merger
shall be deemed to be the branch/office outside India of the Resultant Company in accordance with the Foreign Exchange
Management (Foreign Currency Account by a person resident in India) Regulations, 2015. Accordingly, the Resultant
Company may undertake any transaction as permitted to a branch/office under the aforesaid Regulations.
Outbound Mergers
When the Resultant Company is a Foreign Company, the following procedure becomes applicable:
i. Eligibility: A person resident in India may acquire or hold securities of the Resultant Company in accordance with TIFS.
ii. Fair Market Value: A resident individual may acquire securities outside India provided that the fair market value of
such securities is within the limits prescribed under the Liberalized Remittance Scheme laid down under FEMA.

7
iii. Repayment: The guarantees or outstanding borrowings of the Indian Company, which become the liabilities of the
Resultant Company shall be repaid as per the Scheme sanctioned by the NCLT in terms of the Compromises Rules.
However, this is subject to the following conditions: (a) The Resultant Company shall not acquire any liability payable
towards a lender in India in Rupees which is not in conformity with FEMA. (b) A no-objection certificate to this effect
should be obtained from the lenders in India of the Indian company.
iv. Assets: The Resultant Company may acquire and hold any asset in India which a Foreign Company is permitted to
acquire under the provisions of FEMA. Such assets can be transferred in any manner for undertaking a transaction
permissible thereunder. In cases where the asset or security in India cannot be acquired or held by the Resultant Company
under FEMA, the Resultant Company shall sell such asset or security within a period of two years from the date of sanction
of the Scheme by NCLT and the sale proceeds shall be repatriated outside India immediately through banking channels.
The Resultant Company may open a Special Non-Resident Rupee Account (SNRR Account) in accordance with the Foreign
Exchange Management (Deposit) Regulations, 2016 for putting through transactions under these Regulations and such
account shall run for a maximum period of two years from the date of sanction of the Scheme by NCLT.
v. Offices: An office in India of the Indian company, after sanction of Scheme of Cross Border Merger, may be deemed to
be a branch office in India of the Resultant Company in accordance with the Foreign Exchange Management (Establishment
in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016. The
Resultant Company may undertake any transaction as permitted to a branch office under the aforesaid Regulations.
Compliance related aspects
The FEMA Regulations provide that the valuation of the Indian Company and the Foreign Company shall be done in
accordance with Rule 25A of the Compromises Rules. Compensation by the Resultant Company to a holder of a security
of the Indian Company or the Foreign Company, may be paid, in accordance with the Scheme sanctioned by the NCLT.
The companies involved in the cross-border merger must ensure that any regulatory actions, prior to merger, regarding non-
compliance, contravention, violation under FEMA shall be completed. The Resultant Company and/or the companies
involved in the cross-border merger are required to furnish reports prescribed by the RBI periodically. Any transaction,
because a cross-border merger is undertaken in accordance with the FEMA Regulations, is deemed to have prior approval
of the RBI required under Rule 25A of the Compromises Rules. Additionally, a certificate ensuring compliance to the
FEMA Regulations from the Managing Director/Whole Time Director and Company Secretary of the company(ies)
concerned shall be furnished along with the application made to the NCLT under the Compromises Rules.
Conclusion
While the FEMA Regulations are a welcome step in providing clarity to the extant regulatory regime and enabling corporate
houses abroad to plan their businesses more effectively thereby giving an impetus to the M&A activity in the country, a
crucial aspect to take note of is the definition of a “Foreign Company” in these FEMA Regulations which act as a double-
edged sword resulting in dual applicability of permitted jurisdictions under Rule 25A as well as these Regulations.
Additionally, these Regulations will also have a bearing on pending as well as the future insolvency and bankruptcy
proceedings since foreign bidders will now turn towards buying Indian assets. Keeping in mind these factors, the interplay
of these Regulations with the existing regime is yet to be seen, going forward.

8
Regulatory Interventions in M&A - including CCI, RBI and SEBI

M&A transactions in India are likely to increase in the coming years, given the importance of India as a market for global
companies. Also, at a time when companies are seeking to diversify and de-risk their supply chains, India is an attractive
option for companies to establish their manufacturing operations and expand inorganically.
In the past few years, there have been several legislative, regulatory and procedural reforms with a view to easing doing
business in the country. This process may accelerate, as India positions itself to attract more foreign investment and stimulate
domestic growth.
As in other jurisdictions, successfully closing an M&A transaction requires the knowledge and understanding of the
regulatory requirements, and the ability to navigate the processes efficiently. The regulatory requirements may vary
depending upon the type, structure and process of the deal, and the size and market share of the companies involved.
This chapter summarises and provides insights on the important regulatory considerations (apart from tax and other cost
aspects) that may help companies plan their Indian M&A transactions.
Key regulations affecting M&A deals in India Regulations under company law
The Indian Companies Act 2013 (Companies Act) is the primary Indian legislation that provides the general framework for
the formation and governance of a company in India. It also contains provisions (sections 230 to 240) and rules that govern
M&A transactions. Interestingly, while the Companies Act does not specifically set out the definition of ‘merger’, it does,
in a generic sense, give a broad understanding of a merger to be the transfer of the whole or any part of an undertaking,
properties and/or liabilities of one or more companies to another existing or new company, or division of the whole or any
part of the undertaking, property or liabilities of one or more companies to two or more existing or new companies.[2]
Applicable provisions of the Companies Act differ depending on whether:
• a company is private or public;
• it is listed on a stock exchange;
• it has foreign investment; and
• it is also in the purview of any specific regulator.
These factors will affect the process and manner in which an M&A transaction will proceed.
In addition to any other sectoral regulator or government authorities that may be involved in an M&A transaction depending
on the type of entity and the business sector they are in, under the Companies Act, several authorities, such as the Registrar
of Companies (ROC), the Regional Director (RD), the Official Liquidator (OL) and the National Company Law Tribunal
(NCLT) may have a role to play. The final approval for any merger would be granted by the NCLT.
Companies that propose to merge are required to file a petition (along with a detailed scheme of merger) before the NCLT
for sanction of the proposed merger scheme. Before any merger is approved by the NCLT, approval of the shareholders and
creditors of the companies representing 75 per cent in value of the creditors or members would be required by conducting
their meetings in the manner prescribed by the NCLT.[3] The requirement of holding creditors meetings may be dispensed
with by the NCLT at its discretion upon the companies furnishing affidavits of creditors having at least 90 per cent in value
confirming their acceptance of the scheme of merger. Although there is no specific provision for dispensation of the meeting

9
of the members, if 90 per cent or more members give their consent for the proposed merger by way of an affidavit, the
NCLT may, at its discretion, dispense with the requirement of holding the meeting. Any objection pertaining to the merger
can only be made by members who hold not less than 10 per cent of the shareholding, or creditors having outstanding debt
amounting to not less than 5 per cent of the total outstanding debt as per the latest audited financial statement.[4]
Notices of the meetings are also sent to the RD and various government authorities or sectoral regulators such as the ROC,
the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the OL, the respective stock
exchanges, the Competition Commission of India (CCI), etc, as applicable, so as to receive objections or representations, if
any, in relation to the proposed merger within 30 days from the date of receipt of the notice. If no representation is made by
any regulator, it is presumed that the said regulator has no representation to make on the proposals.[5] If any of the parties
to a proposed merger is a listed company, applicable SEBI regulations must be complied with. Once the order approving
the scheme of merger is issued by NCLT, the same needs to be filed with the ROC for registration within 30 days from the
date of receipt of the certified copy of the NCLT’s order.[6] The completion of the process of merger may take a few months
to a few years, depending on the complexity of the merger, objections received from stakeholders, the sector in which the
companies operate, etc.
To simplify the process of mergers between small companies, or between a holding company and its wholly owned
subsidiary, without the intervention of the NCLT, the Companies Act sets out a fast-track merger procedure.[7] In such
cases, if no objections are received from the RD, ROC and OL for the scheme of merger, and the same is approved by a
majority of members and creditors of the companies representing 90 per cent of their total numbers of shares and 90 per
cent in value of their creditors, the scheme is considered to be approved.[8]
The Companies Act also provides for cross-border mergers (ie, a merger between a foreign company and an Indian company
or vice versa).
In addition to the merger of companies, another leg of M&A transactions is ‘acquisition’. As per market practice, an
acquisition is generally effected either by transfer of existing shares or by subscribing to new shares of a company.
Regulations pertaining to M&A involving listed companies in India
An additional layer of regulatory compliances is required to be fulfilled in the case of merger or acquisition of shares of a
listed company under the Securities and Exchange Board of India Act 1992 (SEBI Act) and the rules and regulations framed
thereunder. The key regulations are: SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Takeover
Regulations); SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 (ICDR Regulations); and SEBI
(Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR Regulations).
The Takeover Regulations apply to all direct and indirect acquisitions of shares or voting rights or control in a listed
company in India, except to companies listed on the institutional trading platform of a stock exchange without making any
public issue.[9]
As per the Takeover Regulations, the acquirer is under an obligation to make a public announcement of an open offer for
acquiring shares of the target listed company in certain scenarios, such as if an acquirer acquires shares or voting rights in
a target listed company that, along with the shares or voting rights, if any, already held by the acquirer and the persons
acting in concert (PAC) with the acquirer, entitles them to exercise 25 per cent or more of the voting rights in the target
company,[10] or the acquirer acquires, directly or indirectly, control over the target company,[11] or if the acquirer (along

10
with PAC) already holds more than 25 per cent or more voting rights in the target company and desires to acquire more
shares or voting rights in a financial year entitling them to exercise more than 5 per cent of voting rights, provided that the
aggregate shareholding pursuant to the acquisition does not exceed the maximum permissible non-public shareholding (ie,
75 per cent) except in case of acquisition made pursuant to a resolution plan approved under section 31 of the Insolvency
and Bankruptcy Code 2016 (IBC).[12]
An open offer for acquiring shares must be for at least 26 per cent of total shares of the target company.[13]
In certain types of acquisitions, such as inter se transfer of shares among immediate relatives, promoters, etc, the Takeover
Regulations provide an exemption from the requirement of making an open offer to the shareholders.
An acquirer who already holds (along with PAC) shares or voting rights in a target company entitling them to exercise 25
per cent or more of voting rights, can acquire additional shares in the target company by making a voluntary public
announcement of an open offer to the shareholders, provided that the aggregate shareholding post open offer does not exceed
the maximum permissible non-public shareholding (ie, 75 per cent).[14] The offer size in case of a voluntary open offer
should be for acquisition of at least such number of shares that would entitle the acquirer to exercise 10 per cent voting
rights of the target company, provided that the shareholding of the acquirer (along with PAC) post-acquisition does not
exceed the maximum permissible non-public shareholding.[15]
As per the Takeover Regulations, the price paid for the shares should include any price paid, or agreed to be paid, to the
promoters for their shares or voting rights or control premium, or as non-compete fees, or otherwise.
If an acquirer who makes a public announcement of an open offer to acquire shares of the target company intends to delist
the securities of the target company, the acquirer should declare its intention to delist the shares upfront at the time of making
the detailed public statement, which must be published not later than five working days from the date of public
announcement of the open offer.[16]
In the case of acquisition of shares by way of subscription of shares, the subscription must be carried out in accordance with
the ICDR Regulations. The specified securities allotted on a preferential basis and the equity shares allotted pursuant to
exercise of options attached to warrants issued on a preferential basis are subject to lock-in for periods ranging between one
to three years, as prescribed under the ICDR Regulations.[17]
The ICDR Regulations also provide some exceptions to the transfer restrictions.[18]
In the case of M&A transactions pursued by listed companies in India, the companies are required to comply with the LODR
Regulations. As and when a listed company plans to undertake a scheme of arrangement, the listed company is obliged to
file the draft scheme of arrangement with the stock exchange or exchanges for the purpose of obtaining an observation letter
or no-objection letter.[19] Only after receipt of the observation letter or no-objection letter can the company file a scheme
of arrangement before the NCLT seeking its approval.[20] Upon sanction of the scheme, the company is required to inform
stock exchanges and file the requisite documents as mentioned in the LODR Regulations.[21] The LODR Regulations
provide some exceptions to the above-mentioned obligation in the cases of merger of a wholly owned subsidiary with its
holding company and a reconstruction proposal approved as part of resolution plan under section 31 of the IBC, in which
case the only requirement is to file the draft scheme of arrangement within the statutory timelines with the stock exchange
or exchanges for the purpose of disclosure.[22]
Regulations under competition law

11
The Competition Act 2002 (Competition Act), read with the Competition Commission of India (Procedure in regard to the
transaction of business relating to combinations) Regulations 2011 (Combination Regulations), requires mandatory pre-
notification of all acquisitions (of shares, voting rights, assets or control) and mergers and amalgamations that cross
jurisdictional thresholds (Combination(s)) relating to a specified value of assets or turnover, to the CCI for its approval prior
to completion of the transaction, unless specific exemptions apply:
In general, the Competition Act prohibits Combinations that cause, or are likely to cause, an appreciable adverse effect on
competition (AAEC) within the relevant market in India. Any such Combination is void.
A Combination subject to a notification requirement cannot be consummated until a clearance from the CCI has been
obtained, or a review period of 210 calendar days from the date of notification to the CCI has passed, whichever is earlier.
The thresholds for mandatory pre-notification are set out in terms of assets or turnover in India and abroad. These thresholds
are as follows:
• at the enterprise level, the parties to the Combination jointly have:
• in India, assets valued at more than 20 billion Indian rupees or turnover of more than 60 billion Indian rupees; or
• in India or outside India, in aggregate, assets valued at more than US$1 billion with at least 10 billion Indian rupees
in India, or turnover of more than US$3 billion with at least 30 billion Indian rupees in India;
• at the group level, the group acquirer to the Combination jointly has:
• in India, assets valued at more than 80 billion Indian rupees or turnover of more than 240 billion Indian rupees; or
• in India or outside India, in aggregate, assets valued at more than US$4 billion with at least 10 billion Indian rupees
in India or turnover of more than US$12 billion with at least 30 billion Indian rupees in India.
De minimis exemption, or small target exemption, for a transaction is available and such transaction does not qualify as a
Combination under the Competition Act. Accordingly, any enterprises being party to a Combination where the value of
assets being acquired, taken control of, merged or amalgamated is not more than more than 3.5 billion Indian rupees in India
or where the turnover is not more than 10 billion Indian rupees in India, are exempted from the pre-notification requirement
under the Competition Act. The de minimis exemption is currently available until 26 March 2022.[23]
The value of assets and turnover provided above are determined by taking the book value of the assets, as shown in the
audited books of account of the enterprise, in the financial year immediately preceding the financial year in which the date
of the proposed transaction falls.
A ‘group’ has been defined as two or more enterprises that, directly or indirectly, are in a position to exercise 26 per cent or
more of the voting rights in the other enterprise, appoint more than 50 per cent of the members of the board of directors in
the other enterprise, or control the management or affairs of the other enterprise. However, the government of India has
exempted groups exercising less than 50 per cent per cent of the voting rights in other enterprises from the provisions
applicable on Combinations till 3 March 2021.[24]
Generally, it is the responsibility of the acquirer to notify the CCI, but in cases involving mergers or amalgamations, it is a
joint responsibility of all the concerned parties to file the notification.
The notice to the CCI disclosing the details of the proposed Combination is required to be given within 30 days of either
the execution of any agreement or other document for acquisition or acquiring of control, or the approval of the proposal
relating to merger or amalgamation by the board of directors of the parties concerned. However, to alleviate stringent

12
reporting requirements, the government of India has provided an exemption of giving notice within 30 days as mentioned
above, subject to the condition that no Combination shall come into effect until 210 days have passed from the day on which
the notice has been given to the CCI or the CCI has approved the Combination, whichever is earlier. Such exemption is
currently valid until 28 June 2022.[25]
On receipt of a notice, the CCI conducts its investigation in two phases. In the first phase, the CCI determines, prima facie,
whether the proposed Combination is likely to cause an AAEC, within 30 working days from the date of notification. If the
CCI is of the opinion that the proposed Combination does not cause an AAEC, it approves the Combination.
If the CCI forms a prima facie opinion that the Combination is likely to have an AAEC, the CCI conducts a second phase
of in-depth investigation during a statutory period of 210 calendar days. After investigation, the Combination may be
approved or disapproved or approved with modification by the CCI.
The Competition Act has extraterritorial application thereby extending the jurisdiction of the CCI to transactions outside
India. The implication is that Combinations where the assets or turnover of the entities involved are in India and where such
assets or turnover exceed the prescribed thresholds provided in the Competition Act shall be subject to scrutiny by the CCI,
even if the purchasers, sellers or target entities are outside India.
Pursuant to an amendment to the Combination Regulations in 2019, a green channel has been established with the CCI.
Under the green channel, for certain categories of Combinations listed below, the parties to such Combinations have the
option to opt for green channel approval. Upon filing under the green channel and an acknowledgment being received from
the CCI thereof, the proposed Combination is deemed to be approved by the CCI.
Green channel approval may be sought if the parties to the Combination, their respective group entities, and/or any entity
in which they, directly or indirectly, hold shares, control or both:
• do not produce or provide similar or identical or substitutable products or services;
• are not engaged in any activity relating to the production, supply, distribution, storage, sale and service or trade in
products or provision of services that are at different stages or levels of the production chain; and
• are not engaged in any activity relating to the production, supply, distribution, storage, sale and service or trade in
products or provision of services that are complementary to each other.
M&A deals in India involving foreign exchange, including cross-border M&As, are subject to a strict framework of
regulations and guidelines prescribed under the Foreign Exchange Management Act 1999 (FEMA) administered by India’s
central bank (the RBI).
The main regulations are the Foreign Exchange Management (Non-debt Instruments) Rules 2019[26] (NDI Rules), the
Foreign Exchange Management (Debt Instruments) Regulations 2019[27] (DI Regulations) and Foreign Exchange
Management (Cross-Border Merger) Regulations 2018[28] (Cross-Border Merger Regulations).
In addition, the government of India, through the Ministry of Commerce & Industry, Department for Promotion of Industry
and Internal Trade, issues policy guidelines from time to time relating to foreign direct investment in India (FDI Guidelines).
The FDI Guidelines and the above-mentioned regulations broadly govern the mode through which foreign investment can
flow into and out of India, the prescribed instruments that can be used, the sectoral caps for foreign investments and the
entry conditions attached thereto. Such conditions may include norms for minimum capitalisation, lock-in period, local
sourcing, etc.

13
Acquisition of an Indian company can be done either through the ‘automatic route’ or the ‘approval route’ as mandated by
the FDI Guidelines. Under the automatic route, neither the acquirer or non-resident investor nor the Indian company requires
any approval from the government of India for the acquisition or investment. Under the ‘approval route’, prior approval of
the government of India is required. The requirement of following the approval route and the extent of acquisition of shares
and control of the Indian target or investee company largely depend upon the business activities of the Indian company. In
a few cases, it also depends on the source country of the investment flowing into India.
The FDI policy prescribes the sectoral caps for acquisition or investment in the capital of an Indian company. An illustrative
list of such caps is as follows:
• manufacturing, including contract manufacturing: 100 per cent through the automatic route;
• single-brand retail trading: 100 per cent through the automatic route, subject to a condition that FDI beyond 51 per
cent requires local sourcing of at least 30 per cent of the value of goods procured;
• e-commerce: 100 per cent through the automatic route in marketplace model;
• defence industry: 49 per cent through the automatic route, beyond 49 per cent through government approval; and
• railway infrastructure: 100 per cent through the automatic route.
There are a few business sectors in which foreign investment is prohibited, such as the lottery business, chit funds, real
estate business, manufacturing of cigars, cigarettes, atomic energy, etc.
Recently, the government of India has broadened the country-specific approval requirement to curb opportunistic takeovers
of Indian companies that are in financial distress because of the covid-19 pandemic.[29] Accordingly, an entity of a country
that shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of
any such country can invest only through the approval route. As this requirement is the result of a specific situation, it may
be changed or withdrawn later.
Regulations pertaining to cross-border mergers
In order to operationalise the enabling provisions under the Companies Act regarding cross-border mergers, the RBI has
issued the Cross-Border Merger Regulations, which provide its operational framework. A cross-border merger is a merger,
amalgamation or arrangement between an Indian company and a foreign company. Cross-border mergers could either be
inbound or outbound. An inbound merger is a cross-border merger where the resultant company is an Indian company. An
outbound merger is a cross-border merger where the resultant company is a foreign company. Resultant company means an
Indian company or a foreign company that takes over the assets and liabilities of the companies involved in the cross-border
merger.
In the case of an inbound merger:
• The resultant Indian company is allowed to issue or transfer any security to a non-resident outside India in
accordance with the pricing guidelines, entry routes and sectoral caps as per the NDI Rules.
• An office of the foreign company situated outside India is deemed to be a branch of the resultant Indian entity post-
merger, and the resultant Indian entity is permitted to undertake any transaction through such foreign branch as permitted
under FEMA.
• Any borrowings of the foreign company from overseas sources that become borrowings of the resultant Indian
entity, or are entered into the books of the resultant Indian company pursuant to the merger, are required to comply with the

14
guidelines for external commercial borrowing of the RBI within a period of two years, provided that no remittance for
repayment of such liability is made from India within such period of two years.
• Any asset or security that is acquired abroad by the resultant Indian company owing to the cross-border merger,
which is not permitted to be held by it under FEMA, is required to be sold within a period of two years from the date of
sanction of the scheme of merger by the NCLT, and the sale proceeds are required to be remitted to India. Similarly, any
liability outside India that cannot be held by the resultant Indian company must be extinguished from the sale proceeds of
the aforementioned overseas assets within a period of two years from the date of the NCLT’s sanction of the scheme of
merger.
In the case of an outbound merger:
• A person resident in India is allowed to acquire securities of a foreign company as per the Foreign Exchange
Management (Transfer or Issue of any Foreign Security) Regulations 2004, or within the limit prescribed under the
Liberalised Remittance Scheme, namely up to US$250,000 per financial year.
• An office of the Indian company in India is deemed to be a branch office of the resultant foreign company and is
governed by the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project
office or any other place of business) Regulations 2016.
• Any outstanding borrowings or guarantees of the Indian company that become the liabilities of the resultant foreign
company pursuant to the cross-border merger are required to be repaid by the resultant foreign company as per the scheme
of merger sanctioned by the NCLT.
• Any asset or security that is acquired in India by the resultant foreign company pursuant to the merger that cannot
be held by it as per FEMA is required to be sold within a period of two years from the date of sanction of the scheme of
merger and proceeds must be repatriated outside India. Any Indian liabilities may be repaid from such sale proceeds within
the said period of two years.
• An Indian company is permitted to merge with a company incorporated in any of the notified foreign jurisdictions.
The notified foreign jurisdiction include countries:
• whose securities market regulator is a signatory to the Multilateral Memorandum of Understanding of the
International Organization of Securities Commissions or a signatory to the bilateral memorandum of understanding with
SEBI; or
• whose central bank is a member of Bank for International Settlements; and
• that are not identified in the public statement of the Financial Action Task Force (FATF) as a jurisdiction having
strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply, or a
jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan
developed with the FATF to address the deficiencies.
If any transaction on account of a cross border merger is undertaken in accordance with the above-mentioned regulations,
it is deemed to be approved by the RBI.
Court or tribunal involvement

15
The process of mergers in India, including cross-border mergers, is court-driven and required to be sanctioned by the NCLT.
The process may be initiated by an agreement between the parties, but that would not be sufficient to provide legal validity
to the transaction.
The NCLT inter alia takes the following aspects into consideration while supervising the process of mergers:
• determining the class of creditors or of members whose meetings have to be held for considering the proposed
merger;
• determining the values of the creditors or the class of members whose meetings have to be held;
• fixing the quorum, procedure and voting mechanism to be followed at the meetings of shareholders and creditors;
and
• issuing notices to the central government, the ROC, Income-tax authorities, the RBI, SEBI, the CCI and stock
exchanges, as may be applicable;
The NCLT also has the power to direct provisions relating to dissenting persons to the transaction and the treatment of
employees.
On sanction of the scheme of merger by the NCLT, it becomes binding on all the creditors, shareholders and companies
involved in the merger.
Acquisition of distressed assets through corporate insolvency resolution process
The prime objective of the IBC is to provide a consolidated legal framework for reorganisation and insolvency resolution
of companies. While the IBC does not directly deal with M&A, the insolvency process creates an opportunity for potential
acquirers to acquire assets of stressed companies, whereby the acquirer may be able to acquire assets at a lower valuation
than in ordinary circumstances.
The process of acquisition of a company (corporate debtor) under the IBC begins with the submission of a resolution plan
by the potential acquirer (resolution applicant) to the resolution professional proposing the acquisition, followed by an
approval of such resolution plan by the committee of creditors of the corporate debtor and, finally, sanction of the resolution
plan by the NCLT.
Any person can be a resolution applicant, except a person who is disqualified to be a resolution applicant as per the IBC,
such as a person who is an undischarged insolvent, is a wilful defaulter in accordance with the guidelines of the RBI, is
prohibited by SEBI from trading in securities or accessing the securities markets, has been a promoter or in the management
or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction
or fraudulent transaction has taken place, who at the time of submission of the resolution plan, has an account which is
classified as a non-performing asset in accordance with the guidelines of the RBI, etc.
An acquisition by way of implementation of a resolution plan has been granted various regulatory exemptions, including
under the Takeover Code, the ICDR Regulations, and the Companies Act (seeking of shareholders’ approval). However, if
the combined values of the assets or turnovers of the resolution applicant (potential acquirer) and the target (corporate
debtor) cross the thresholds prescribed under the Competition Act (as explained above), it will be mandatory for the
resolution applicant (potential acquirer) to obtain prior approval for the proposed acquisition from the CCI, and till then, the
committee of creditors cannot approve the resolution plan.
Other regulatory considerations

16
Sector-specific regulations
There are some sector-specific regulations, and regulators to regulate acquisitions in such sectors. Accordingly, additional
approvals from such regulators may be required for completing an M&A transaction. For example, in the context of
acquisition of an insurance company, approval from the Insurance Regulatory and Development Authority of India is
required. RBI approval is required for acquisition of banking companies and non-banking financial companies (NBFCs).
The sector-specific regulations for insurance companies are triggered on the basis of the percentage of shareholding being
acquired by the acquirer, and prescribe certain lock-in requirements, infusion of capital at periodic intervals, etc.
Similarly, the RBI’s Master Direction – Amalgamation of Private Sector Banks, Directions 2016[30] provide guidelines for
the amalgamation of two banking companies, the amalgamation of an NBFC with a banking company, and the
amalgamation of a banking company with an NBFC.
Employment-related regulations
In the context of M&A transactions, section 25FF of the Industrial Disputes Act 1947 provides that when the ownership or
management of an undertaking is transferred to a new employer, an eligible employee is entitled to notice and retrenchment
compensation from the employer of such undertaking. However, such compensation is not applicable if the service of the
employee:
• has not been interrupted by such transfer;
• the new terms and conditions of service applicable to the employee after such transfer are not less favourable to the
employee; and
• the new employer is, under the terms of such transfer, legally liable to pay compensation to the employee in the
event of his or her retrenchment.
However, the Supreme Court[31] has observed that without their consent, employees cannot be forced to work under a
different management, and if they do not give their consent to such transfer, those employees are entitled to retrenchment
compensation.
The NCLT is also empowered to issue necessary directions on treatment of the workforce while sanctioning a scheme of
amalgamation.

What is winding up?

Winding up essentially is a process of liquidating the assets of a corporation, firm, or other legal entity which is followed
by subsequent payment to its creditors and distribution and issuance of assets to its partners or shareholders upon dissolution.
Generally, winding up is done when it is ordered by the tribunal or when it is decided by the creditors or members. There
are many reasons for winding up by a company or business i.e., insolvency or bankruptcy, death of promoters, or mutual
agreement among stakeholders. According to Halsbury’s Laws of England, “Winding up is a proceeding by means of which
the dissolution of a company is brought about & in the course of which its assets are collected and realised; and applied in
payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums
17
which they have contributed to the company in accordance with Articles of the Company.” Winding up is a legal process.
Therefore, dissolution is taken forward when the workings and affairs of the company have been wound up. It is the
Company Liquidator who shall make the application for dissolution to the Tribunal. The Tribunal as per the application or
when it believes that it is just and reasonable, it passes the order for dissolution. This article focuses on what are the main
differences between the winding up and dissolution of a company under the Companies Act, 2013.

Winding up is a process in which the company is dissolved by clearing all the debts or liabilities, dissolution of its assets is
collected, and other important items are returned to the creditors and if any contributions are made by the members, they
are also returned. Therefore, winding up we can say is a process of putting an end to the life of a company. If the company
has any surplus left then, it is distributed among the members in accordance with their rights. It is also called liquidation.
“According to Section 2(94A) of the Companies Act, 2013 or Insolvency and Bankruptcy Code, 2016, “Winding up” means
winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable.” Chapter XX
Sections 270–378 of the Companies Act, 2013 deals with winding up and other aspects of it.

Differentiating between the process of winding up and dissolution

The terms winding up and dissolution differ in many ways. The whole strategy for achieving a legal finish to the existence
of an organisation is partitioned into two phases-
• Winding up, and
• Dissolution.
Winding up is the first stage in the process where the assets are realised, liabilities are paid off and the surplus is distributed
among the members. Dissolution is the final stage whereby the existence of the company is withdrawn by the law. The
liquidator appointed by the company or court carries out the winding-up proceedings but the order for dissolution is passed
by the court only. Winding up in all cases doesn’t finish in dissolution, even after paying all the creditors there may, in any
case, be a surplus, the company may acquire benefits or profits during the course of winding up, there may be a scheme of
compromise with the creditors and at last, the company can go back to the shareholders or old management of the company.
A dissolution is an act of putting the end to the life of a company lawfully.
Dissolution of an organisation in two ways:
• First in which the organisation is moved to another organisation under the plan of recreation or combination. In
such a case, the exchange of organisation will be broken down by a request for Tribunal without it being twisted up.
• In the second situation, the organisation will go through a wrapping-up measure where the resources of the
organisation will be acknowledged and they will continue utilising it to pay its liabilities. When the obligations have been
settled, the leftover sum, assuming any, will be circulated among the partners and the Tribunal will pass the request for the
disintegration of the organisation and strike its name off the register of Registrar of the Companies.
The dissolution of an organisation is decided by the Tribunal and the technique for ending up of an organisation in India
which is absolutely a legal capacity. There is an outlet that carts away and controls the wrapping-up measure. Subsequent
to ending up, the disintegration cycle happens. The disintegration of an organisation is recorded by the enlistment centre of
18
organisations. This is a simple regulatory capacity and doesn’t include any job for the vendor. Disintegration is a
fundamental advance after the ending up of an organisation. Since April 2016, the arrangements identifying with the
mandatory ending up under the Companies Act 2013 have been supplanted with Insolvency and Bankruptcy Code, 2016.
From that point forward there have been different alterations in the law with the late one being IIBBI (Insolvency
Professionals) (Amendment) Regulations, 2018.

Analysing the modes of winding up

A company comes into existence when it gets registered by the Registrar of companies (ROC) and obtains the certificate of
incorporation by the ROC. It will come into existence even if an appointment is made in the form of a receiver or manager
by the court or debenture holder, or the approval of a scheme of arrangement by the court. The existence of a company is
lost when the company completes two stages; the first being winding up and the second being Dissolution. There are only
2 major types or modes of winding up which are:
1. Compulsory winding up
2. Voluntary winding up
Compulsory winding up
Compulsory winding up takes place when a company becomes insolvent or bankrupt. When the company is ordered to be
wound up by the Court or Tribunal, it is referred to as compulsory winding up of a company. If the company goes into
liquidation, the court of law appoints a liquidator to complete the process of liquidation. Section 270 of the Companies Act,
2013 deals with winding up by the Tribunal.
• A wilful wrapping-up happens without the mediation of the court or council. This mode for the most part happens:
1. When the organisation terminates its prefixed length or, because of the event of specific occasions whereby the
organisation must be disintegrated, and if the organisation embraces and passes a normal goal for twisting up.
2. If the company passes a special resolution to wind up the company.
Voluntary winding up
Voluntary winding up is divided into two parts:
1. Members’ voluntary winding up
2. Creditors’ voluntary winding up
Members’ voluntary winding up
This type of winding up occurs when the company is solvent. The company needs to declare its solvency at the Board of
Directors meeting. This declaration must satisfy the directors’ opinion that the company has no loans or debts or it will pay
the whole debts within three years of winding up.
A general meeting is conducted wherein a liquidation is appointed and remuneration is fixed thereby. With his appointment,
all the powers of the board, Managing Director, or Manager ceases to exist, until and unless a General Meeting sanctions it
otherwise. The liquidator must annually call a general meeting to lay the procedure for winding up and to lay the accounts
of his dealings.
Creditors’ voluntary winding up

19
This type of winding up occurs when there is a declaration of solvency by the company i.e. when the company is insolvent.
Hence, it empowers the creditors of the company to dominate over the members so that they don’t protest against them. It
requires the company to hold a meeting with the creditors and the board and make a full statement of the company’s affairs
with a detailed list of creditors including their estimated claims.
Both the creditors and members at their respective meetings appoint a liquidator, if at all there is a disagreement, then the
creditors will appoint the liquidator at their discretion. The liquidator holds a meeting not only with the members but also
with the creditors to lay the procedure for winding up and to lay the accounts of his dealings. The liquidator at last calls for
a general meeting where he winds up the company.

“… When default takes place, control is supposed to transfer to the creditors; equity owners have no say.”
The BLRC thus recognized the positional weakness of creditors under the prevalent bankruptcy regime, and thus developed
a “creditor-in-control” model under the Code. According to this model, the management of the corporate debtor’s affairs
shall vest absolutely in the hands of the creditors in the event of financial distress. Likewise, the Hon’ble Supreme Court,
in Innoventive Industries v. Union of India[ii], upheld the intention of the BLRC and observed that;
“… the most significant change being, that when a company defaults on its debt, control of the company should shift to
creditors rather than the management who was retaining control after the default.”
Therefore, we observe that the rationale provided by the judiciary has been in congruence with the objectives of the Code,
thus further empowering the creditors of the corporate debtor; in order to promote effective resolution of debts and ensure
the revival of the company.
This article shall further delve into the formation, composition and functioning of the Committee of Creditors, while
highlighting the jurisprudence involved and the interpretation adopted by the judiciary to strengthen the Indian bankruptcy
regime.
Formation and composition of the committee of creditors
The Committee of Creditors (CoC) is the supreme decision-making body in a Corporate Insolvency Resolution Process
(CIRP). Decisions regarding the administration of the corporate debtor are taken at the meetings of the Committee, based
on a majority vote of the members.
Section 18 and Section 21 of the Code, obligate the Interim Resolution Professional to constitute the Committee of Creditors,
after the collation of the proof of claims. As per sub-section (2) of Section 21, the Committee shall comprise “all financial
creditors of the corporate debtor”.
Financial creditors versus operational creditors
The exclusion of operational creditors from the Committee of Creditors has been a key point of discussion. In Akshay
Jhunjhunwala and Anr. v. Union of India[iii], the petitioner challenged the constitutional validity of the provisions of the
Code, contending that the priority given to financial creditors was unreasonable and therefore, unconstitutional. Rejecting
this contention, the High Court of Calcutta concluded that;
“The Bankruptcy Committee gives a rationale to the financial creditors being treated in a particular way vis-à-vis an
operational creditor in an insolvency proceeding with regard to a company. The rationale is a plausible view taken for an
expeditious resolution of an insolvency issue of a company.”
20
Subsequently, in Swiss Ribbons v. Union of India[iv], the Supreme Court supported the findings of the BLRC and based its
rationale upon the nature of loan agreements, the functioning of financial creditors and the objectives of the Code. Here,
R.F. Nariman J. opined as follows;
“… financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can,
and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor’s business when
there is financial stress, which are things operational creditors do not and cannot do.”
Although the distinction between financial and operational creditors has stirred a controversy, we observe that the design
of the Code is aimed at the efficient revival of the corporate debtor, while ensuring maximum recovery to its creditors;
thereby justifying the composition of the Committee of Creditors.
Can operational creditors be part of the committee of creditors
As discussed earlier, the BLRC laid heavy emphasis on the exclusion of operational creditors from the CoC. They reasoned
that the creditors of the Committee must possess the ability to examine commercial viability, while also being open to
restructuring debts to promote the revival of the corporate debtor. Considering that operational creditor would neither want
to postpone recovery of the amounts due, nor would they possess the ability to assess viability of the corporate debtor, the
Code prioritizes the inclusion of financial creditors to the CoC.
Despite the rationale adopted, Regulation 16 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016 (CIRP Regulations), provides that operational creditors may form a Committee
of Creditors only where the corporate debtor has (i) no financial debt; or (ii) where all financial creditors are related parties.
According to Regulation 16(2), this Committee shall consist of (a) eighteen largest operational creditors by value; (b) one
representative of workmen; and (c) one representative of employees of the corporate debtor. Further, Regulation 16(4) vests
in this Committee, the same rights, powers, duties and obligations as a committee comprising financial creditors may
possess.
Yet, the ability of the operational creditors to effectively manage the affairs of the corporate debtor and to work towards its
revival remains a concern. While a Committee of operational creditors would ideally want to recover short-term debts via
immediate liquidation, such a scheme may not favour the preservation of the company as a going concern; which is the
ultimate objective of the Code.

Click Above
What decisions does the CoC take
The Insolvency and Bankruptcy Code, 2016 is an economic legislation with the primary motive of rehabilitation of
financially distressed corporates, thereby promoting entrepreneurship and availability of credit. In pursuit of these goals,
the BLRC, after much deliberation, chose to put the financial creditors of the corporate debtor in the driver’s seat. With this
radical shift from the previous regime, the BLRC empowered the CoC to exercise their “commercial wisdom” in order to
resurrect the debt-ridden corporate debtor.
Under the Code, the CoC is authorized to decide upon the regular functioning of the corporate debtor during the insolvency
resolution process. As per subsection (8) of Section 21, all such decisions taken shall be subject to a minimum majority of
51% of the voting share of the financial creditors.
21
The CoC conducts regular meetings, wherein it discusses the fate of the corporate debtor. It rules over the working of the
Resolution Professional (RP) and possesses the power to approach the Adjudicatory Authority in the event of foul play.
Further, it ratifies any administrative decisions taken by the RP.
The CoC facilitates the smooth functioning of the insolvency resolution process. Where it deems fit, the CoCmay decide
upon obtaining an extension of time-period in accordance with Section 12 of the Code. Moreover, it determines the viability
of the corporate debtor’s business, examines the feasibility of future operations, payments towards CIRP costs and may also
resolve to immediately liquidate the corporate debtor, where it finds that the resolution of insolvency is bound to fail.
Committee of creditor vis-ā-vis the adjudicatory authority
The most crucial function performed by the CoCis perhaps the approval/rejection or modification of a resolution plan as per
Section 30(4) of the Code. As discussed above, the financial creditors; having previously assessed the business of the
corporate debtor and being cognizant about the prevalent market conditions, are required to exercise “commercial wisdom”
to select the most favourable approach for the revival of the corporate debtor.
Further, Section 31 states that the resolution plan approved by the CoC must be submitted before the Adjudicatory Authority
(“AA”) for its approval. At this stage, the AA may approve the resolution plan if it is satisfied that the plan complies with
the requirements provided under Section 30(2) and is not inconsistent with the law.
In light of the above provisions, questions regarding the autonomy of the CoCto approve/reject a resolution plan vis-ā-vis
the jurisdiction of the Adjudicatory Authority were raised.
In the case of Vivek Vijay Gupta v. Steel Konnect (India) Private Limited & Others[v], the Ahmedabad Bench of the NLCT
propounded as follows;
” The Code, through Section 31 gives the authority to the Adjudicating Authority to approve the plan when approved by
CoC and can reject if it does not conform to the requirements referred under Section 30 (2) but not to sit over Judgment on
the Resolution Plan approved by the CoC in rejecting the Resolution Plan.”
Similarly, in M/s Bhaskara Agro Agencies v. M/s. Super Agri Seeds Private Limited[vi], the NCLAT recognized the
technical expertise of the financial creditors and concluded that;
“So far as the viability or feasibility of ‘Resolution Plan’ is concerned, the AA or the Appellate Tribunal cannot sit in appeal
over the decision of the CoC.”
In the landmark case of K. Shashidhar v. Indian Overseas Bank and Others[vii], the Supreme Court clarified that the Code
does not empower the Adjudicatory Authority to assess the fairness of the resolution plan approved or rejected by CoC and
that the “commercial wisdom” of the CoC shall not be challenged. With regard to judicial intervention, the Supreme Court
stated that;
“… the legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual
financial creditors or their collective decision before the adjudicating authority”.
Thus, we observe that the decision of the CoCenjoys the highest authority and the judiciary may only intervene where it
finds that the resolution plan does not adhere to the provisions of the Code.
Voting power of the committee of creditors
As discussed previously, the Interim Resolution Professional (IRP), under Section 18 of the Code, is tasked with the
collation and verification of the submitted proof of claims. The purpose behind this provision is to:
22
1. Assess the existence of debt and default.
2. Constitute the Committee of Creditors.
3. Determine the voting share of the members of the Committee.
Section 21(2) provides that the voting share of the creditors shall be proportionate to the amount of debt owed to them, in
accordance with the submitted claims. The BLRC Report thus stated as follows;
“The voting right of each creditor will be the weight of their liability in the total liability of the entity from financial
creditors. The calculation for these weights will need to take into account all the contractual agreements between the
creditor and debtor, so that the weight is the net of all these positions.”
As per Section 21(8), the CoC shall take decisions based on a simple majority, with a minimum vote of 51% of the voting
share of the financial creditors, unless mentioned otherwise. The exception applies to Section 30(4), which states that the
CoCmay approve a resolution plan by a minimum vote of 66% of voting share of the financial creditors; and to Section
27(2), wherein the CoCmay choose to replace the Resolution Professional by a 66% majority. Further, the CoC requires a
minimum majority of 90% to rule upon the withdrawal of the insolvency resolution process under Section 12A of the Code.
Calculation of votes: the principle of “present and voting”
In light of these provisions, questions pertaining to the calculation of votes during the meetings of the CoC may arise;
particularly when a member of the CoCremains absent from the meeting and fails to cast a vote.
We shall resort to Regulation 25(5) of the CIRP Regulations, which states that – where all the members are not present at a
given meeting, the RP shall (i) circulate the Minutes of the Meeting by electronic means within 48 hours of the meeting;
and shall (ii) seek a vote on the matters listed for voting, by electronic means, where the system shall remain operational for
24 hours from the circulation of the Minutes.
In the case of K. Shashidhar[viii], the Supreme Court read Regulation 25(5) of the CIRP Regulations and with Section 30(4)
of the Code and concluded as follows;
“For that [approval of the resolution plan], the “percent of voting share of the financial creditors” approving vis à vis
dissenting is required to be reckoned. It is not on the basis of members present and voting as such. At any rate, the
approving votes must fulfil the threshold percent of voting share of the financial creditors.”
Therefore, the Hon’ble Supreme Court has rejected the principle of “present and voting” for the calculation of votes and
has interpreted Regulation 25(5) to also cover members who may be absent for a given meeting. Moreover, on a plain
reading of Regulation 25(5) of the CIRP Regulations, we observe that where a member remains absent for meeting, he shall
nonetheless have the opportunity to review the Minutes of the Meeting and cast his/her vote via electronic means.

23