Mergers and Acquisitions – Its Legal Research and Analysis
🔹 What Are Mergers and Acquisitions?
➤ Merger
A merger is a legal consolidation of two or more entities into one, where one company survives and the others cease to exist.
➤ Acquisition
An acquisition involves one company taking over another, either by purchasing its assets or shares, where both may continue to exist as separate entities.
🔹 Legal Framework Governing M&A in India
Mergers and acquisitions in India are governed primarily by:
Companies Act, 2013
Competition Act, 2002
Securities and Exchange Board of India (SEBI) Regulations
Income Tax Act, 1961
Foreign Exchange Management Act (FEMA), 1999
Insolvency and Bankruptcy Code (IBC), 2016 (in case of distressed acquisitions)
🔹 Legal Process of Mergers Under the Companies Act, 2013
Under Sections 230 to 240 of the Companies Act, 2013, the following process applies:
Proposal of Scheme of Amalgamation or Arrangement
Approval by Board of Directors
Application to NCLT for Directions
Notice to Creditors/Shareholders and Regulatory Authorities
Approval by Majority (75%) of Creditors and Members
Approval by NCLT (National Company Law Tribunal)
Filing with ROC (Registrar of Companies)
🔹 Objectives of M&A
Business expansion
Synergy and efficiency
Market entry
Risk diversification
Tax benefits
Acquiring technology or talent
🔹 Legal Issues in M&A
Regulatory Approvals
From SEBI, CCI, RBI (FEMA), etc.
Due Diligence
Legal, financial, and operational audits to identify liabilities.
Contractual Obligations
Reviewing employee contracts, leases, vendor agreements, etc.
Minority Shareholder Protection
Ensuring rights under Sections 230–240 and SEBI Takeover Code.
Competition Law Compliance
Merger filings under Section 5 & 6 of the Competition Act, 2002.
🔹 Legal Doctrines Relevant to M&A
Doctrine of Ultra Vires: Acts beyond the powers of the company (as per MoA) are invalid.
Doctrine of Legitimate Expectation: Shareholders may have expectations of fair treatment.
Minority Protection: Under Section 241–242 of the Companies Act, minority oppression can be challenged.
🔹 Key Indian Case Laws on Mergers and Acquisitions
1. Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997)
Facts: A shareholder challenged the scheme of amalgamation.
Held: The Supreme Court laid down the standard of judicial review in amalgamation cases — Courts should not interfere unless the scheme is unfair, unreasonable, or illegal.
Importance: Clarified that NCLT (then High Court) does not sit as an appellate authority over the commercial wisdom of shareholders.
2. Hindustan Lever Employees' Union v. Hindustan Lever Ltd. (1995)
Facts: Merger of Hindustan Lever and Tata Oil Mills.
Held: The Court upheld the merger and emphasized that the interests of shareholders and fairness of valuation are key considerations.
Importance: Recognized the economic rationale and shareholder democracy in approving M&A.
3. Reliance Natural Resources Ltd. v. Reliance Industries Ltd. (2010)
Facts: Dispute over demerger and gas supply agreement.
Held: Supreme Court ruled that family settlements in corporate mergers must comply with statutory requirements and cannot override public interest or government policy.
Importance: Reiterated that contracts post-merger must align with law and policy.
4. Jet Airways (India) Ltd. Insolvency Case (2019)
Under the IBC, Jet Airways went through resolution proceedings, highlighting how distressed acquisitions occur through CIRP (Corporate Insolvency Resolution Process).
Importance: Legal framework under IBC now plays a huge role in M&A for insolvent companies.
🔹 Role of Regulatory Authorities
| Authority | Role in M&A |
|---|---|
| NCLT | Approves schemes under Companies Act |
| SEBI | Regulates public companies, takeover, and listing requirements |
| CCI | Ensures combinations do not adversely affect competition |
| RBI | Regulates FDI aspects under FEMA |
| ROC | Final recording and documentation of merged entities |
🔹 SEBI Regulations in M&A
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Acquirer of more than 25% of shares must make an open offer.
Protects minority shareholders during hostile or friendly takeovers.
🔹 Tax Implications
Section 47 of Income Tax Act: Certain mergers (amalgamations) are not treated as transfer, hence exempt from capital gains.
Tax neutrality applies only if the merger meets certain conditions (e.g., all assets and liabilities are transferred, shareholders receive shares).
🔹 Recent Trends in M&A Law
Cross-border mergers allowed under Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
Start-up acquisitions and tech company mergers growing rapidly.
Distressed M&A under IBC (e.g., Bhushan Steel acquired by Tata Steel).
🔹 Conclusion
Mergers and acquisitions are complex corporate actions involving multiple legal, regulatory, and financial considerations. The Indian legal framework aims to:
Facilitate business restructuring,
Protect stakeholders,
Ensure fair competition,
Safeguard public interest.
Courts and tribunals, especially NCLT, play a crucial role in balancing commercial expediency with legal safeguards. Case law reflects a pro-reform, pro-business approach, while ensuring that mergers comply with the rule of law, transparency, and fairness.
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