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Regulatory Framework Governing Mergers and Acquisitions

The Indian Companies Act, 2013 (the “Companies Act”) is indeed the primary piece of Indian legislation governing the formation and operation of enterprises in India. It includes laws (sections


The Indian Companies Act, 2013 (the “Companies Act”) is indeed the primary piece of Indian legislation governing the formation and operation of enterprises in India. It includes laws (sections 230 to 240[1]) and guidelines governing mergers and acquisitions. The Company Act laws that apply to a corporation differ based on if it is private or public, publicly listed, has international investors, and is also subject to the jurisdiction of any particular authority. Many authorities under the Companies Act, such as the Registrar of Companies (ROC), the official liquidator, the Regional Director (RD), and the National Company Law Tribunal (NCLT), may play a significant role in an M&A deal, along with other sector-specific regulators or governmental agencies depend on the type of enterprise and business sector. Any amalgamation would be subject to final approval by the national company law tribunal.

Important regulations related to Mergers and acquisitions-


The Indian Companies Act of 2013 (“Company Act”) is an important part of Indian law governing the incorporation and management of companies in India. It also contains laws and guidelines relating to mergers and acquisitions (sections 230-240)[2].

The rules of the Companies Act that apply to a corporation will be based on whether that company is public or private, the company is listed on a stock or not, has an overseas investment or not, and is also subject to the jurisdiction of a particular regulatory authority. Other than industry regulators or government agencies many authorities under the company act, like the Regional Director (RD), the Registrar of Companies (ROC), the National Company Law Tribunal (NCLT), and the Official Liquidator (OL), can play a role. NCLT eventually approves the merger.


Section 5[3] of the Competition Act of 2002 deals with “Combinations,” which define a combination based on assets and turnover –

(a) in India and

(b) in India and overseas.

‘’No person or organization shall enter into a combination that creates or is sufficient to make an adverse effect on competition within the concerned sector in India’’, as per Section 6[4] of the Competition Act, and such a combination shall be void.

This legislation’s objective is to govern the activities and functions of combinations. This can be seen in mergers, amalgamations, and acquisitions. If the combinations surpass the threshold limit, the economy will or is likely to suffer.


The Foreign Exchange Management Act of 1999 (“FEMA”) addresses the issue of cross-border mergers. The primary goal of introducing FEMA in India was to ease external trade and transactions. According to the 25th rule of the CAA Rules, 2016, any cross-border transaction must be done through the RBI. The Companies Legislation was amended in 2017 to include Section 234[5] on cross-border mergers. The RBI issued a notice in the government gazette in 2018 inviting stakeholders to engage in the formulation of regulations. They will be critical in keeping tabs on the market condition. FERA 1973, commonly known as the Foreign Exchange Regulating Act, existed before 1999. As the name implies, it was a governing body.


This regulation is critical for listed firms’ mergers, acquisitions, and arrangements. It requires that an acquirer gaining substantial offers or voting rights, i.e., 25% or more, submit an open proposal to all public shareholders of the target business. Independent of the bids or voting rights obtained, the acquirer should also make an open proposal after gaining control of the target organization.

In the context of M&A deals initiated by listed businesses in India, the LODR (Listing Obligations and Disclosure Requirements) Regulations must be followed. When a listed business intends to carry out a scheme of the arrangement, it is required to file the draft scheme of arrangement with the stock market or exchanges to acquire a no-objection letter. The corporation can only file a scheme of arrangement with the NCLT for approval after receiving the no-objection document[6].


Income tax act (ITA) did not specify the term merger, it was addressed by the word “amalgamation” as specified in section 2(1B)[7] of the Act. Mergers and demergers have been given favorable treatment in the Income-tax Act from its creation to stimulate restructuring. Finance Act, 1999 simplified various issues of business restructure, hence easing and making tax-neutral business restructuring. This was done, according to the minister of finance, to expedite the process of liberalization. 

Exempted under Section 47[8] of the Act are:

  1. If the acquirer is an Indian company, all assets transferred by one acquirer to another are excluded.
  2. Where the transfer of shares of shareholders is carried out by a merged company which is an Indian company, as well as the allotment of shares by the merged company.
  3. No tax if two foreign companies merge. When an Indian company and a foreign company merge, the resulting company has to be in India. As a result, shareholders will benefit from a capital gain.

In addition to these income tax exemptions, inheritance is tax-free because there is no sale or transfer of ownership.


Before the IBC, there was the 1985 Sick Industrial Companies Act (SICA). The law aims to identify sick entities and, if possible, rejuvenate them through mergers and acquisitions. If not, an order was issued to dissolve the sick company. The law also established two quasi-judicial bodies, both of which were subsequently abolished. As a result, the SICA Law was abolished in 2003 and a newly revised law was enacted. It was characterized by strict guidelines and filled all the gaps left by the 1885 enactment.

IBC is nothing more than a method of merging and acquiring distressed assets. Companies were hesitant to acquire distressed assets before the introduction of the IBC due to the extraordinarily high risks associated with them. However, more and more businesses seem to become interested. Due to the time constraints, all stakeholders have a feeling of urgency when attempting to alleviate the stress that has resulted in these assets being available at a discounted price. These assets offer a far cheaper alternative to organizations that would otherwise have to spend large sums for their purchase or invest a significant amount of time and money in building assets from scratch.


All merger plans must be approved by the state court. Under the Companies Act, the high courts of any state in which the transferor and the transferee have their registered office, have the requisite jurisdiction to issue a winding-up or control order on the merging of companies that are located within or outside of India[9].

Under Section 392[10] of the Companies Act, the High Court may also oversee agreements or changes to agreements after the scheme of mergers has been sanctioned. The court then imposes the necessary financial penalties on the proposed merger if it deems the proposed merger to be ‘fair and impartial. The jurisdiction of the courts exercising jurisdiction is also limited, which extends significantly beyond their judgment. E.g., if the transaction will be impacted by other rules and regulations of the company act then the court will not allow that transaction. If both the parties will not reach the point of consensus on a particular issue then the court will not allow that merger to take place as well as the transaction will not be allowed if certain legal provisions will be violated[11].


The stamp duty varies from state to state. E.g. The Bombay Stamp Act includes a merger order; whereby the property is transferred or belongs to another person. The stamp duty under this law is 10%[12].


In India, mergers and acquisitions negotiations are becoming more common and at an increasing pace as FDI, regulations are becoming more liberal to improve the ease of doing business in India. The records of past and future mergers include organizations of all shapes  and sizes. Mergers are leaping, creating a platform for SMEs (Small and medium-sized enterprises) that can be taken over by large companies. From the perspective of the layman, mergers are seen as an important instrument for companies looking to grow their business and increase their profits depending on the type of business being formed. The increase in mergers in the Indian market may result from the commercial integration of large industrial complexes, and commercial integration of multinational companies functioning in India. Consequently, it is time for business companies, start-ups, and SMEs to grab this opportunity as well as the future market.

Author(s) Name: Sourabh Kumar Singh (Army institute of law, Mohali)


[1] Companies Act, 2013, ss 230-240

[2]Ashish Gupta, ‘Regulatory Interventions in M&A – including CCI, RBI and SEBI’ (Lexology, 10 September 2021) <> accessed 5 August 2022

[3] Companies Act, 2002, s 5

[4] Companies Act, 2002, s 6

[5] Foreign Exchange Management Act, 1999, s 234

[6]Khushi Sharma, ‘Laws regulating mergers and acquisitions in India’ (Ipleaders, 4 November 2021)

<> accessed 5 August 2022

[7] Income Tax Act, 1961, s 2(1B)

[8] Income Tax Act, 1961, s 47

[9]Prabhanshu2007, ‘Laws Regulating Mergers And Acquisition In India’ (Legal Service India)

<> accessed 3 August 2022

[10] Companies Act, 2013, s 392

[11]Sumes Dewan, ‘Merger and acquisition 2021’ (Global Legal Insights, 6 May 2017) <> accessed 2 August 2022

[12]Arjya B. Majumdar, ‘Regulatory Framework Governing Mergers and Acquisitions in India’ (SSRN E-Journal, 10 May 2013) <> accessed 2 August 2022