ASSIGNMENT TITLE

“COMPANY LAWS IN REGULATING MERGERS AND

ACQUISITIONS”

FOR THE SUBJECT

LAW RELATING TO ORGANISATION OF COMPANIES AND

CORPORATE GOVERNANCE

SUBMITTED BY

VINAYKUMAR M SHETTY

LL.M (CORPORATE LAW), I SEMESTER

UUCMS No.: P02KU23L001029

SUBMITTED TO

POST GRADUATE DEPARTMENT OF STUDIES IN LAW

KARNATAK UNIVERSITY, DHARWAD

ACADEMIC YEAR 2023-24

 KARNATAK UNIVERSITY, DHARWAD

POST GRADUATE DEPARTMENT OF STUDIES IN LAW

CERTIFICATE

This is to certify that MR. VINAYKUMAR M SHETTY of I Semester LL.M in Corporate Law
bearing UUCMS No.:P02KU23L001029 has satisfactorily completed the assignment on
COMPANY LAWS IN REGULATING MERGERS AND ACQUISITIONS for the subject
LAW RELATING TO ORGANISATION OF COMPANIES AND CORPORATE
GOVERNANCE assigned by the Course Teacher for the partial fulfillment of the I Semester of
the 1 Years LL.M Course for the Academic Year 2023-24.

Date: P.G Dept. of Studies in Law

Place: Dharwad Karnatak University, Dharwad
Mergers, acquisitions, are increasingly utilized by businesses in India as a means of
achieving economies of scale and growth. However, the implementation of these
strategies is subject to a complex legal framework that includes both competition and
corporate law. The aim to provide an overview of the legal aspects of mergers,
acquisitions, in the Indian context, including the regulatory framework, the key legal
requirements, procedure to be followed and the consequences of non-compliance.
With the liberalization of the Indian economy, globalization, and the need for
consolidation and diversification, mergers and acquisitions (M&A) activity has seen a
surge in recent years. However, the execution of mergers, acquisitions, and
combinations entails intricate legalities that must be comprehended to ensure a
successful transaction.
The legal framework governing mergers, acquisitions, in India is primarily
governed by the Companies Act, 2013, along with the rules made thereunder
(hereinafter the “Companies Act”). There are two types of combinations: mergers and
amalgamations, and demergers. The former involves a combination of two or more
companies into one, while the latter involves the transfer of one or more undertakings
of a company to another or multiple companies.
The process for mergers, acquisitions, and combinations is primarily set out in the
Companies Act. It requires obtaining approval from various parties, including the
board of directors, shareholders, and regulatory authorities like the National
Company Law Tribunal (NCLT), the Securities and Exchange Board of India (SEBI),
and the Competition Commission of India (CCI). In addition, the Companies Act
outlines the rights of shareholders, creditors, and employees of the companies
involved in the combination. Overall, the legal framework in India for mergers,
acquisitions, and combinations is well- established and regulates these transactions
thoroughly.
The Companies Act is the primary legislation in India that governs the
incorporation, management, and operation of companies. It provides a legal
framework for mergers, acquisitions, and combinations in India, which are often
used as a strategy for corporate growth or restructuring.
Under the Companies Act, a merger is defined as the amalgamation of two or
more companies into one new or existing company, while an acquisition is
defined as the purchase of one company by another company. A combination is a
term that includes both mergers and acquisitions.
The Companies Act sets out the procedures for mergers and acquisitions,
including the approval of shareholders and regulatory authorities, the valuation of
shares, and the treatment of minority shareholders.
Approval of Shareholders: Before a merger or acquisition can take place, the
proposal must be approved by the shareholders of each company involved. The
Companies Act requires that at least 75% of the shareholders present and voting
must approve the proposal.
Approval of Regulatory Authorities: The Act also requires approval from various
regulatory authorities, including the National Company Law Tribunal (NCLT), the
Competition Commission of India (CCI), and the Securities and Exchange Board of
India (SEBI). The NCLT and CCI evaluate the impact of the proposed merger or
acquisition on competition and ensure that the rights of minority shareholders are
protected.
Valuation of Shares: The Companies Act also sets out rules for the valuation
of shares, which is necessary for determining the share exchange ratio
between the Understanding Legalities - Mergers, Acquisitions and
Combinations.
Treatment of Minority Shareholders: The Companies Act also provides
protection for minority shareholders. The Companies Act requires that the shares of
minority shareholders be treated on par with the shares of the majority shareholders.
Minority shareholders have the right to object to the merger or acquisition and
can ask for the fair value of their shares to be determined by an independent valuer.
n summary, the Companies Act provides a comprehensive legal framework for
mergers, acquisitions, in India, which includes procedures for shareholder and
regulatory approval, valuation of shares, and protection of minority shareholders’
rights.
2 .MEANING OF MERGERS AND ACQUISITIONS
Mergers and Acquisitions are the process of combining two or more companies into
one. Both terms are often confused with but are entirely different. The goal of
combining two or more businesses is to try and achieve synergy.
2.1 Merger – the term is not defined under the Companies Act 2013 and it is
generally used in a single terminology. Merger is fusion of two or more companies
wherein the identity of one or more companies is lost. Amalgamation signifies the
blending of two or more companies to form a separate legal entity
In other words, Mergers occur when two companies agree to combine their operations
to create a single entity. This union can be of equals or involve a larger company
absorbing a smaller one.
Example of Merger: - Disney-Fox is a very strong example of merger in which
Disney acquired Fox to expand its operations.
Whereas Acquisition happens when one company purchases another, typically by
acquiring a majority 50% or greater stake in the company.
2.2 Acquisition - occurs when one entity takes ownership of another entity's stock,
equity interests or assets. It is the purchase by one company of controlling interest in
the share capital of another existing company. Even after the takeover, although there
is a change in the management of both the firms, companies retain their separate legal
identity. The companies remain independent and separate; there is only a change in
control of the companies. When an acquisition is ‘forced’ or ‘unwilling’, it is called a
takeover.
Example of Acquisition: Facebook’s acquisition over Instagram is the top-tier
example which strengthened Facebook's superiority in the social media landscape by
fusing a rapidly growing platform into its ecosystem

Recent examples:
Snapdeal and Freecharge ($400 million)
Flipkart and Myntra ($300 to 330 million)
Ola and TaxiForSure ($200 million)
3. TYPES OF MURGERS
3.1 Horizontal Merger – This takes place when companies selling or manufacturing
similar products in the same market gets merged. They share same competition and
products. The main objective is to gain the economic share, reduce competion and
achieve monopoly status (that is when Competition Act 2012 – comes in the
picture).

Examples:
Facebook and Instagram
Diageo and United Spirits
HUL and Horlicks
3.2 Vertical Merger - merger between companies in the same industry, but at
different stages of production process. In another words, it occurs between companies
where one buys or sells something from or to the other.

Examples
Lupin Limited and Gavis
HUL and Aquagel Chemicals
HLL and Kothari Foods (Nescafe)

3.3 Congeneric Merger - Congeneric merger is a merger between two or more

businesses which are related to each other in terms of customer groups, functions or
technology e.g., combination of a computer system manufacturer with a UPS
manufacturer.
3.4 Market-extension merger: Two companies that sell the same products
in different markets.
3.5 Product-extension merger: Two companies selling different but related
products in the same market.
VODAFONE INDIA AND IDEA CELLULAR CASE STUDY
Bouth the comanys decided to merge and form country’s largest telecom operator
`Vodafone India Ltd.’ worth of more than $23 billion with a 35 per cent market share
and it is the top M&A deal of 2017-18. Vodafone and the Aditya Birla Group
will have a joint control of this combined company. Combining the Vodafone and
idea customers, the merged entity is the biggest telecom company in India. The
merged entity have over 408 million customers, nearly 42% customer market share
(CMS) and nearly 33% revenue market share (RMS), leaving it stronger placed to
take on competitive pressures triggered by Jio, with 160 million subscribers and over
16% CMS and 15.3% RMS. Airtel has a CMS of 29.5% and an RMS of 31.5%. The
Idea-Vodafone merger has been cleared by the stock exchanges, Securities and
Exchange Board of India, Competition Commission of India, foreign direct
investment clearance from the department of industrial policy and promotion,
approval given by DOT as licensor and the merger after approval of NCLT is
complete in August 2018.
4. TYPES OF ACQUISITION
4.1 Consolidation- creates a new company. Stockholders of both companies
approve the consolidation, and subsequent to the approval, receive common equity
shares in the new firm In 1998 Citicorp and Traveler's Insurance Group
announced a consolidation, which resulted inCitigroup In 1998 Citicorp and
Traveler's Insurance Group announced a consolidation, which resulted in
Citigrou

4.2 Tender offer - One company offers to purchase the outstanding stock of the
other firm at a specific price. The acquiring company communicates the offer directly
to the other company's shareholders.
Johnson & Johnson made a tender offer in 2008 to acquire Omrix
Biopharmaceuticals for $438 million.

4.3 Acquisition of assets - In a purchase of assets, one company acquires the assets of
another company. The companies, whose assets are being acquired, obtain approval
from its shareholders. The purchase of assets is typical during bankruptcy
proceedings, where other companies bid for various assets of the bankrupt company,
which is liquidated upon the final transfer of assets to the acquiring firm(s).

4.4 Management Buy Out (MBO) - is a transaction where a company’s management

team purchases the assets and operations of the business they manage. MBO is
appealing to professional managers because of the greater potential rewards from
being owners of the business rather than employees. According to global consultancy
giant Grant Thornton, the overall deal activity -- including both mergers and
acquisitions and PE (private equity) -- was about $59 billion in the January-November
period of 2017, a 9 % rise from the previous year 2016.

Recent examples for Acquisation :

Acquisition of Corus by Tata Steel ,
Acquisition of Novelis by Hindalc
Acquisition of Deccan Airways by
Kingfisher Airlines

FLIPKART AND EBAY CASE STUDY

Indian e-commerce major Flipkart acquired the Indian wing of eBay. The transaction
was announced in April 2017 and completed in August 2017. eBay and Flipkart have
also entered into an agreement for cross border sale. In exchange of equity stake in
Flipkart, eBay had made cash investment of $500 million and sold its eBay.in
business to Flipkart. As a result, Flipkart customers get expanded product choices
with the wide array of global inventory available on eBay while eBay customers
will have access to a more unique Indian inventory from Flipkart sellers.
5. LAWS GOVERNING MERGERS AND ACQUISITIONS IN
INDIA

5.1. The Companies Act, 2013

Companies Act, 20131 lays down explicit provisions governing the mergers and
acquisitions of companies and body corporates, including that with foreign
companies. Relevant sections that deal with mergers and acquisitions include sections
230 to 240. Apart from this, the companies should also adhere to the Companies
(Compromises, Arrangements, and Amalgamations) Rules, 2016.
The Companies Act is the primary legislation in India that governs the incorporation,
management, and operation of companies. It provides a legal framework for
mergers, acquisitions, and combinations in India, which are often used as a
strategy for corporate growth or restructuring.
The Companies Act sets out the procedures for mergers and acquisitions,
including the approval of shareholders and regulatory authorities, the valuation of
shares, and the treatment of minority shareholders.
Approval of Shareholders: Before a merger or acquisition can take place, the proposal
must be approved by the shareholders of each company involved. The Companies Act
requires that at least 75% of the shareholders present and voting must approve the
proposal.
Approval of Regulatory Authorities: The Act also requires approval from various
regulatory authorities, including the National Company Law Tribunal (NCLT), the
Competition Commission of India (CCI), and the Securities and Exchange Board of
India (SEBI). The NCLT and CCI evaluate the impact of the proposed merger or
acquisition on competition and ensure that the rights of minority shareholders are
protected.
Valuation of Shares: The Companies Act also sets out rules for the valuation of
shares, which is necessary for determining the share exchange ratio between
the companies involved in the merger or acquisition. The valuation must be done by
an independent valuer appointed by the company’s board of directors.
Treatment of Minority Shareholders: The Companies Act also provides protection
for minority shareholders. The Companies Act requires that the shares of minority
shareholders be treated on par with the shares of the majority shareholders. Minority
shareholders have the right to object to the merger or acquisition and can ask for
the fair value of their shares to be determined by an independent valuer.

5.1.1 Sec 230.2 Power to compromise or make arrangements with creditors and
members.— (1) Where a compromise or arrangement is proposed— (a) between a
company and its creditors or any class of them; or (b) between a company and its
members or any class of them,
It lays down the procedure whereby the company can enter into any compromise or
arrangement between creditors and members. The procedure shall be equally
applicable for the company entering into merger and acquisition arrangements

1
Companies Act, 2013
2
ibid
In case of a merger between the company and its creditors or members, the tribunal
shall order a meeting of the creditors and members on the application of creditors,
members, or the company. The application shall be made in Form No. NCLT-1.

If the company makes the application to the tribunal for the conduct of the meeting, it
shall make the following disclosures to the tribunal by affidavit:
1.All material facts relating to the company
2.Reduction of share capital, if any
3.The scheme of corporate debt restructuring that is consented to by not less than 75%
of the creditors in value

The notice of the meeting shall be sent to all the creditors, members, and debenture
holders of the company. The notice shall be in Form No. CAA-2 and shall be
accompanied by a statement containing the details of the compromise or arrangement,
a copy of the valuation report, etc.

The notice shall also be placed on the website of the company and the documents
shall be sent to SEBI where the securities of the company are listed for placing on
their website as well as published in the newspaper.

Further, the notice shall also be sent to the following authorities in Form No. CAA-3
to invite their representations within 30 days of receipt of the notice, failing which it
shall be presumed that there are no representations to be made by these regulators:
The Central Government
RBI
Income Tax Authorities
Registrar
Official Liquidator
Competition Commission of India
Any other sectoral regulator.

In the meeting, the majority of the persons (more than 50% in numbers) representing
3/4th in value (75% in value) of the creditors and members, voting in person or by
proxy, shall agree to the merger. If the merger is sanctioned by the tribunal, then an
order of sanction shall be issued in Form No. CAA-6 and it shall be binding all the
company, creditors, members, liquidator, and contributors.

The merger shall not be sanctioned unless a certificate from the company’s auditors
has been filed with the tribunal that the accounting treatment proposed in the merger
scheme conforms to the accounting standards prescribed under section 133.
The order of the tribunal shall be filed with the registrar within 30 days of receipt of
the order.

The tribunal may dispense with calling of the meeting of the creditors if more than
90% of creditors in value agree to the scheme of merger by an affidavit.

5.1.1.2 Miheer H Mafatlal V. Mafatlal Industries Ltd,3

3
(1996)1 scc 579
The Supreme Court Held that, “The provision of Sec 320 show that a compromise or
arrangement can be proposed between a company and its creditors or between a
company and its members. Such a compromise would also cover any scheme of
amalgamation or merger of one company with another”.

5.1.2 Sec 231. Power of Tribunal to enforce compromise or arrangement. 4— (1)

Where the Tribunal makes an order under section 230 sanctioning a compromise or an
arrangement in respect of a company, it—….

5.1.3 Sec 232. Merger and amalgamation of companies. 5— (1) Where an

application is made to the Tribunal under section 230 for the sanctioning of a
compromise or an arrangement proposed between a company and any such persons as
are mentioned in that section, and it is shown to the Tribunal— ….

5.1.4 Following are the compliances that shall be undertaken for the merger of
the companies

5.1.4.1 The application for merger or amalgamation of companies shall be filed with
the National Company Law Tribunal (NCLT) in Form No.- NCLT-1. After receiving
the application, the tribunal shall order the conduct of a meeting of the creditors and
members (as discussed in Section 230).

5.1.4.2. The companies shall conduct a meeting as ordered above and circulate the
following:
5.1.4.3 A draft of the proposed terms of the scheme of merger or amalgamation.
A confirmation that the draft has been filed with the registrar.
Report adopted by the directors of the merging companies.
Report of valuation by an expert.
Supplementary accounting statement.
5.1.4.4. The tribunal may sanction the amalgamation by order after being satisfied that
the procedure has been followed.
5.1.4.5. The companies shall file a certified copy of the order with the registrar within
30 days of receipt of the same.
5.1.4.6. Until the completion of the scheme, the companies shall file a statement
indicating whether the scheme of merger or amalgamation has been carried out in
accordance with the order of the tribunal. The statement shall be filed with the
registrar after being certified by a Chartered Accountant, Cost Accountant, or a
Company Secretary in practice.

5.1.4.7 WA Beardsell & Co (P) Ltd, re:6

The Madras High Court held that, The effect is to wipe out the merging companies
and to fuse them all into the new one created. The new company comes into
existence having all the property, rights and powers and subject to all the duties and
obligations, of both the constituent companies.

4
Supra note 01
5
ibid
6
(1968) 38 comp cas 197, 204(Mad)
It was observed that "The word 'amalgamation' has not been defined in the Act. The
ordinary dictionary meaning of the expression is 'combination'. Judging from the
context and from the marginal note of Section 394 which appears in Chapter V
relating to arbitration, compromises, arrangements and reconstructions, the primary
object of amalgamation of one company with another is to facilitate reconstruction of
the amalgamating companies and this is a matter which is entirely left to the body of
shareholders, (and) essentially an affair relating to the internal administration of the
transferor company. The decision of the body of the shareholders ought not to be
lightly interfered with." 7

5.1.5 Sec 233. Merger or amalgamation of certain companies.8— (1)

Notwithstanding the provisions of section 230 and section 232, a scheme of merger or
amalgamation may be entered into between two or more small companies or between
a holding company and its wholly-owned subsidiary company or such other class or
classes of companies as may be prescribed, subject to the following, namely:—

5.1.5.1.The following companies can adopt the fast-track merger route:

5.1.5.1.1Two or more small companies.
5.1.5.1.2 A holding company and its wholly-owned subsidiary company.
5.1.5.1.3Two or more start-up companies.
One or more start-up companies with one or more small companies.

5.1.5.2.The company shall send a notice of the proposed scheme of merger or

amalgamation to the Registrar and Official Liquidators for inviting suggestions and
objections in Form No. CAA-9 which shall be considered by the amalgamating
companies in their general meeting.
5.1.5.3.The companies shall file a declaration of solvency with the registrar in Form
No. CAA-10.
5.1.5.4. The scheme shall be approved by the members holding at least 90% of the
total number of shares as well as the majority of the creditors holding 9/10th of the
value of creditors. The transferee company shall file the scheme so approved with the
Central Government in Form No. CAA-11. A copy of the scheme along with Form
No. CAA-11 shall also be filed with-
5.1.5.4.1The registrar in Form No. GNL-1.
5.1.5.4.2The official liquidator through hand delivery or speed post or registered post.

5.1.5.5.If the registrar or official liquidator does not have objections, the Central
Government shall approve the scheme. However, in case the registrar or official
liquidator has objections, they shall file the same with the Central Government. If the
Central Government feels that the scheme is not in the public interest, then it may file
objections with the tribunal.

5.1.5.6.The tribunal may either direct to consider the scheme as per Section
232(normal merger) or it may confirm the merger as per this scheme of fast-track
merger.
5.1.5.7.The order of the tribunal confirming the scheme shall be communicated to the
registrar of the transferee company. Such registrar will issue a confirmation which
shall then be forwarded to the registrar of the transferor company.
7
ibid
8
Supra note 1
5.1.6 Sec 234. Merger or amalgamation of company with foreign company. 9— (1)
The provisions of this Chapter unless otherwise provided under any other law for the
time being in force, shall apply mutatis mutandis to schemes of mergers and
amalgamations between companies registered under this Act and companies
incorporated in the jurisdictions of such countries as may be notified from time to
time by the Central Government: Provided that the Central Government may make
rules, in consultation with the Reserve Bank of India, in connection with mergers and
amalgamations provided under this section.
The expression “foreign company” means any company or body corporate
incorporated outside India whether having a place of business in India or not,10

5.1.7. Rule 25A of the Companies (Compromises, Arrangements and

Amalgamations) Rules, 2016 lays down the procedural aspects of
such merger or amalgamation that are as follows:11

A foreign company incorporated outside India may merge with an Indian company
with the prior approval of RBI. It shall comply with the requirements of Section 230
to 232 of companies’ act 2013 and related rules.

A company may merge with a foreign company incorporated in the jurisdiction as

specified in Annexure-B after obtaining prior approval of RBI and complying with the
provisions of Section 230-232 of the act and related rules.

The transferee company shall ensure that the valuation is carried out by the valuers
being the members of the recognized professional body in the jurisdiction of the
transferee company. The valuation shall be as per the internationally accepted
principles on accounting and valuation. A declaration to this effect shall be attached
with the application for prior approval of RBI.
The company shall file the application with the tribunal as per Section 230-232 after
obtaining the approval of RBI.

5.1.8 Sec 235. power to acquire shares of shareholders dissenting from scheme or
contract approved by majority.12— (1) Where a scheme or contract involving the
transfer of shares or any class of shares in a company (the transferor company) to
another company (the transferee company) has, within four months after making of an
offer in that behalf by the transferee company, been approved by the holders of not
less than nine-tenths in value of the shares whose transfer is involved, other than
shares already held at the date of the offer by, or by a nominee of the transferee
company or its subsidiary companies, the transferee company may, at any time within
two months after the expiry of the said four months, give notice in the prescribed
manner to any dissenting shareholder that it desires to acquire his shares.

9
ibid
10
ibid
11
The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
12
Supra note 1
Explanation: - A company may propose a scheme or contract to another company for
transfer of its shares or any class of shares. The company proposing is Transferor
Company and the other is Transferee Company. Four months time is available for
approval of the proposal. It has to be accepted by shareholders with nine-tenth
shareholding in value. Within two months of the expiry of four months the transferee
can give a notice in the prescribed manner to any dissenting shareholder that it desires
to acquire his shares. After service of such notice, the transferee company becomes
entitled and also bound to acquire those shares on the terms on which under the
scheme or contract, the shares of the approving shareholders are to be transferred to
the transferee company.

5.1.9 Sec 236. Purchase of minority shareholding.13— (1) In the event of an

acquirer, or a person acting in concert with such acquirer, becoming registered holder
of ninety per cent. or more of the issued equity share capital of a company, or in the
event of any person or group of persons becoming ninety per cent. majority or holding
ninety per cent. of the issued equity share capital of a company, by virtue of an
amalgamation, share exchange, conversion of securities or for any other reason, such
acquirer, person or group of persons, as the case may be, shall notify the company of
their intention to buy the remaining equity shares.

Explanation: - When the shares of company have been acquired to the extent of
90per cent or more, the acquirers have to notify the company of their intention to buy
the remaining equity shares. The acquirers have to offer to the shareholders the price
for their shares on the basis of valuation by a registered valuer in accordance with
prescribed rules. Alternatively, the minority shareholders may offer to the majority
shareholders to purchase their shareholding at a price to be determined in accordance
with prescribed rules. The amount of consideration has to be deposited in bank
account at the hands of the transferor company for one year to enable it to disburse the
amount to the shareholders entitled to it. The transferor company has to act as the
transfer agent for receiving and paying the price, for taking delivery of those shares
for transferring it to acquirers.

5.1.9.1 Waste Recycling Group plc, re, 14

The shareholders have the option to approve the offer within four months. Approval
must be accorded by at least nine- tenths in value of the shares whose transfer is
involved. This number must be exclusive of any shares already held by the transferee
company or by its nominees or by its subsidiary. Once the approval by nine-tenth
major- ity is accorded, the transferee company gets the right to acquire the shares of
the dissenting shareholders, if any. Within two months, after the expiry of the above
four months, the transferee company should give a notice to such shareholders that it
desires to acquire their shares. Within one month from the date of the notice, the
dissenting shareholders may apply to the Tribunal. But if no application is made, is
made, the transferee company gets the final right and also becomes bound to acquire
those shares on the terms on which the shares of other shareholders are to be
transferred.

13
Supra note 1
14
(2004) 1 BCLC 352 (Ch D),
5.1.10 Sec 237. Power of Central Government to provide for amalgamation of
companies in public interest.15— (1) Where the Central Government is satisfied that
it is essential in the public interest that two or more companies should amalgamate,
the Central Government may, by order notified in the Official Gazette, provide for the
amalgamation of those companies into a single company with such constitution, with
such property, powers, rights, interests, authorities and privileges, and with such
liabilities, duties and obligations, as may be specified in the order.

Explanation :- Where the Central Government is satisfied that an amalgamation of

two or more companies, is essential in public interest, then, the government may by
order notified in the Official Gazette provide for the Government may those
companies into a single company. The amalgamated company shall have such
constitution, property, powers, rights, interests, authorities and privileges and shall be
with such liabilities, duties and obligations as may be specified in the Government's
order. The order may also contain consequential, incidental and supplementary
provisions.

5.1.10.1 Boiron v SBL Ltd, 16

Every member or creditor of each of the companies before the amalgamation shall
have, as nearly as may be, the same rights and interests in the amalgamated company
as he had in the company of which he was originally a member or creditor. But if his
rights in the amalgamated company are less than those, he shall be entitled to
compensation. The Government may prescribe some authority for the assessment of
compensation and it will be paid by the company resulting from the amalgamation

5.1.11 Sec 238. Registration of offer of schemes involving transfer of shares. 17 —

(1) In relation to every offer of a scheme or contract involving the transfer of shares or
any class of shares in the transferor company to the transferee company under section
235,—

Explanation :- In an offer of a scheme or contract involving transfer of shares under

Section 237, (a) the circular containing such offer and recommendation by directors to
members to accept such offers is to be accompanied by such information in such
manner as may be prescribed; (b) a statement by the transferee company disclosing
the steps it has taken to ensure that necessary cash will be available should be made;
and (c) every such circular has to be presented to the Registrar for registration and is
not to be issued unless so registered.

5.1.12 Sec 239. Preservation of books and papers of amalgamated companies. 18—
The books and papers of a company which has been amalgamated with, or whose
shares have been acquired by, another company under this Chapter shall not be
disposed of without the prior permission of the Central Government and before
granting such permission, that Government may appoint a person to examine the
books and papers or any of them for the purpose of ascertaining whether they contain
any evidence of the commission of an offence in connection with the promotion or

15
Supra note 1
16
(1998) 30 CLA 21 (CLB)
17
Supra note 1
18
Ibid
formation, or the management of the affairs, of the transferor company or its
amalgamation or the acquisition of its shares

5.1.13 Sec 240. Liability of officers in respect of offences committed prior to

merger, amalgamation, etc.19— Notwithstanding anything in any other law for the
time being in force, the liability in respect of offences committed under this Act by
the officers in default, of the transferor company prior to its merger, amalgamation or
acquisition shall continue after such merger, amalgamation or acquisition.

In summary, the Companies Act provides a

comprehensive legal framework for mergers, acquisitions, and combinations in India,
which includes procedures for shareholder and regulatory approval, valuation of
shares, and protection of minority shareholders’ rights.

\Following provisions of the

Competition Act, 2002 deals with
mergers of the company: -
• Section 5 of the Competition Act,
2002 deals with “Combinations” which
defines combination by
reference to assets and turnover
o exclusively in India and
o in India and outside India.
For example, an Indian company with
turnover of Rs. 3000 crores cannot
acquire another

19
ibid
Indian company without prior
notification and approval of the
Competition Commission. On
the other hand, a foreign company with
turnover outside India of more than
USD 1.5 billion
(or in excess of Rs. 4500 crores) may
acquire a company in India with sales
just short of Rs.
1500 crores without any notification to
(or approval of) the Competition
Commission being
required.
• 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.

5.2 . SEBI Act, 1992

The Securities and Exchange Board of India (SEBI) act 1992 20 is the primary
regulatory body for the securities market in India. Its objective is to protect the
interests of investors in securities and to promote the development of the securities
market in India. One of the ways SEBI achieves this is by regulating the process of
M&A in the Indian securities market. The Securities and Exchange Board of India
(SEBI) Act, 1992 as well as the rules and regulations issued there under, regulate the
securities markets in India, including acquisitions involving companies listed on stock
exchanges in India.
SEBI regulations require companies to disclose information about M&A
transactions to the stock exchanges and to their shareholders. This is to ensure that
all relevant information is made available to investors so that they can make informed
decisions about their investments. The information that must be disclosed includes
the terms and conditions of the proposed merger or acquisition, the valuation of the
companies involved, and any potential risks or benefits associated with the
transaction.
SEBI also specifies the procedures for obtaining approval from the stock exchanges
for mergers and acquisitions. The companies involved in the M&A transaction must
submit a draft scheme of the merger or acquisition to the stock exchanges for
approval. The scheme must include details about the companies involved, the share
exchange ratio, and the benefits and risks of the transaction. The stock exchanges will
20
SEBI Act, 1992
then review the scheme and provide their approval if they find that it is in compliance
with SEBI regulations.
In addition to the above, SEBI also requires companies to obtain approval from
their shareholders for M&A transactions. The companies must hold a general
meeting of their shareholders to obtain approval for the transaction. Shareholders
must be provided with all relevant information about the transaction and must be
given the opportunity to ask questions and express their views.
Overall, SEBI regulations aim to ensure that M&A transactions in the Indian
securities market are conducted in a fair and transparent manner, with all relevant
information made available to investors and with the approval of the stock exchanges
and shareholders.

5.2.1 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 21

(Takeover Code): This code restricts and regulates the acquisition of shares, voting
rights, and control in listed companies. In December 2021, SEBI amended the
Takeover Regulations. Under the new framework, the existing obligation – of first
selling down to 75 percent and then attempting a delisting process as per the reverse
book building process – has been scrapped and the new delisting threshold has been
set at 90 percent. The new framework has prioritized investor interest by doing away
with the complexities and contradictions in the existing process. This amendment in
regulations will also aid first-time acquirers.

5.2.2 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

(Listing Regulations):22 The Listing regulations provide a comprehensive framework
governing various types of listed securities. Under these regulations, SEBI has laid
down conditions to be followed by a listed company while making an application
before the National Company Law Tribunal (NCLT), for approval of a schemes of
merger/amalgamation/reconstruction.

5.2.3 SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading

Regulations):23 They govern information flow about the target and insider trading.

5.2.4 SEBI (Delisting of Equity Shares) Regulations, 2009 24: They are applicable
where an acquisition may involve delisting of a listed company.

5.3 Competition Act, 200225

This act is designed to regulate the activities and operation of combinations. This
includes Mergers, Amalgamation and Acquisition. If the combinations exceed the
threshold limit are prevented they will or are likely to cause adverse effects on the
economy. But If CCI wants then they tell them to modify the same and then go ahead
with the scheme. The threshold limit is decided by the turnover and assets of the
company.

21
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
22
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations)
23
5.2.3 SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations)
24
SEBI (Delisting of Equity Shares) Regulations, 2009
25
Competition Act, 2002
5.3.1 Section 3 of the act talks about anti-competitive practices. It restricts any kind of
compromise, arrangement, acquisition which will cause or likely cause an adverse
effect on the economy.

5.3.2 Section 4 talks about the abuse of dominant power. when two or more powerful
companies come together and start creating a dominant position in the market and
customers have no choice other than going them. The reason may be the product value
or geographical location. But this exploits the customers a lot.

5.3.3 Section 5 deals with the regulation of combinations. It has exempted certain
companies from this section if they fulfil certain criteria. However, these exempted
companies don’t have any competitive impact on assessment under section 6 of the
act

5.3.4 Section 6 talks about void combinations, this combination will cause or is likely
to cause an adverse effect on the economy. If any company wishes to go ahead and
follow the combination need to give prior notice to CCI. After that procedure for
investigation takes place which is given under Section 29 of the act. And company
need to go ahead as per the orders of the commission which is given under Section 31.

5.4 Contract Act, 187226

The Indian Contract Act, 1872 lays down the general principles relating to the
formation, validity, and enforceability of contracts and the consequences of breach of
contracts.

5.5. Specific Relief Act, 196327

The Specific Relief Act, 1963 provides recourse to the aggrieved party to enforce
specific performance of contracts and for injunctions to prevent breach of contract.
Civil and commercial courts and arbitral tribunals apply the applicable provisions of
the Contract Act and the Specific Relief Act to the dispute.

5.6.The Indian Income Tax Act, 1961 28

Meaning of term Amalgamation has been defined in this act under Section 2(1B),it
means merger of one or more companies into another company or two or more
companies merged to form a new company. The company which is merged is known
as amalgamating company and coin which that company is being merged or formation
of the company is known as the amalgamated company. Also, all the assets and
liabilities of the amalgamating company become the assets and liabilities of
amalgamating company.
Act also has the concept of capital gain, which means gains or profits that one
receives after the sale of capital assets. Any gain from the sale of assets is our income
and hence we need to pay tax for that income in the year in which we have purchased
it. It can be both short term and long term.

26
Contract Act, 1872
27
Specific Relief Act, 1963
28
The Indian Income Tax Act, 1961
5.7 Foreign Exchange Management Act, 1999 29
The concept of Cross border mergers is dealt with by FEMA. It means any merger,
amalgamation, or arrangement between Indian and Foreign companies. FEMA
regulations provide that any transaction taken with respect to cross-border will take
place through RBI, as per the 25th rule of CAA Rules, 2016. Amendment of 2017 in
companies act added Section 234 to the act which talks about cross border merger. In
2018 RBI notified in the official gazette about inviting stakeholders for regulations.
They will have a major role as they will keep an eye on the market situation. Before
1999 we had FERA 1973 i.e., Foreign Exchange Regulating Act. As the name
suggests it was a regulatory body. They had no power of enforcing rules and make
changes in the act. It couldn’t cope with the policy of LPG. There was an urgent need
to repeal the act and form such an act that actually has an impact on the economy and
people start taking it seriously.

29
Foreign Exchange Management Act, 1999
6. Conclusion
We can see that there are many ways a company can restructure itself, with Mergers
and Acquisitions being one of the ways to do so. These forms of inorganic growth
may be chosen by a company to improve upon its current working, operations and
generations of profits, to reach a bigger market and increase their customer base etc.,
there are numerous drawbacks to this as well. each and every category and method
seems well explained and accounted for, but practically, we can see that if company
synergies are not in sync, if the two companies have completely different work
cultures, if the acquired management is resistant to change or are not made to feel
comfortable in the new organization, if there is mistrust between the parties to the
merger or acquisition or any other factor that increases the differences between the
two entities, the situation becomes hostile and ultimately leads to a demerger. Also,
every Merger and Acquisition is an expensive affair and companies end up taking
huge loans to fund the same. A lack of good strategy will decrease the chances for
increasing profits of the resulting company. This may eventually lead to accumulation
of loans against the company and if the company is unable to pay back the loans, it
may be declared as a Non- Performing Asset (NPA). The end- goal of any merger and
acquisition is to enhance the business and profitability of the resulting organization.
Of course, it is natural for clashes to happen, but with proper due diligence and open
communications and negotiations between the companies prior to this step will lead to
a greater understanding of the arrangement and will in turn minimize the risk of
resorting to a demerger in the future. It is completely understandable that the
management of any company works hard to attain a certain level of goodwill in the
market and having to work together with a company having an entirely different set of
ethics, work culture and synergy may be overwhelming post a merger or an
acquisition. In all attempts to ensure harmony, both the parties to the merger or
acquisition should try to incorporate the positive aspects of each other and should try
to do away with practices that have impacted the business negatively in the past.
There should be open dialogue between the companies leading to a greater
understanding. There is no substitute for conducting a proper and detailed due
diligence along with drawing up the right strategy before resorting to such a step. The
compliances should be properly followed as laid down by the respective legislations.
All necessary disclosures should be made by the companies as well.
7.BIBLIOGRAPY

7.1 TEXT BOOKS

9.1.1 SMITH AND KEENAN’S “COMPANY LAW” PERSON
EDUCATION LIMITED, 17th EDITION, 2016.

9.1.2 AVTAR SINGH “COMPANY LAW” EBC PUBLICATIONES,

17th EDITION, 2018.

7.2 JOURNAL ARTICLES

7.2.1 UTSAV HIRANI “MERGERS AND ACQUISITIONS” SATELLITE CPE

STUDY CIRCLE, 28th FEB 2022.
7.3 WEBSITE REFERENCES

7.3.1www.nhrc.ac.in
(Visited on 10.03.2024)

7.3.2www.articlebase.com
(Visited on 18.03.2024)

7.3.3www.indiankanoonkhoj.or
g (Visited on 29.03.2024)

7.3.4http://www.nhrc.nic.in/Documents/Publications/NHRCinda
(Visited on 30.03.2024)

7.3.5www.legal.service.india.com/legal/articals.
(Visited on 02.04.2024)

7.3.6WWW.HEINONLINE.ORG
(Visited on 15.04.2024)

7.4 LIST OF CASES

7.4.1 Miheer H Mafatlal V. Mafatlal Industries Ltd

7.4.2 WA Beardsell & Co (P) Ltd, re:

7.4.3 Waste Recycling Group plc, re,

7.5 LEGISLATURES

7.5.1 The Companies Act, 2013

7.5.2 Competition Act, 2002

7.5.3 Contract Act, 1872

7.5.4 Specific Relief Act, 1963

7.5.5 The Indian Income Tax Act, 1961

7.5.6 Foreign Exchange Management Act, 1999

7.5.7 SEBI ACT 1992

7.5.8 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

(Takeover Code):

7.5.9 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

(Listing Regulations):

7.5.10 SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading

Regulations

7.5.11 SEBI (Delisting of Equity Shares) Regulations, 2009

,2002
Following provisions of the
Competition Act, 2002 deals with
mergers of the company: -
• Section 5 of the Competition Act,
2002 deals with “Combinations” which
defines combination by
reference to assets and turnover
o exclusively in India and
o in India and outside India.