Mergers Acquisitions in India

MUMBAI SILICON VALLEY BANGALORE SINGAPORE MUMBAI BKC NEW DELHI MUNICH NEW YORK
Mergers &
Acquisition
s in India
April 2016
Copyright 2016 Nishith Desai Associates

www.nishithdesai.com
Mergers & Acquisitions in India
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Contents
1. INTRODUCTION
01
I.
Overview of the M&A Market
01
II.
Conceptual Overview
01
MERGERS AND AMALGAMATIONS: KEY CORPORATE AND SECURITIES
LAWS CONSIDERATIONS
04
I.
Company Law
04
II.
Securities Laws
04
3. ACQUISITIONS: KEY CORPORATE AND SECURITIES LAWS CONSIDERATIONS
06
I.
Company Law
06
II.
Other Securities Laws
09
III.
Listing Regulations
13
IV.
Insider Trading
13
V.
CA 2013
16
4.
COMPETITION LAW
17
I.
Anti - Competitive Agreements
17
II.
Abuse of Dominant Position
17
III.
Regulation of Combinations
17
5.
EXCHANGE CONTROL
21
I.
Foreign Direct Investment
21
II.
Indirect Foreign Investment
21
III.
Investment in a holding company
22
IV.
Overseas Direct Investment
23
6.
TAXES AND DUTIES
26
I.
Income Tax Act, 1961.
26
II.
Service Tax
33
III.
Value Added Tax / Sales Tax
33
IV.
Stamp Duty
34
7.
CONCLUSION
35
ANNEXURE 1
36
ANNEXURE 2
38

2016
Legal & Tax Issues
1. Introduction
The term merger is not
defined under the
Companies Act, 1956
International factors such (CA 1956), and under
as decline in the crude
Overview of the M&A prices and low inflation
Income Tax Act, 1961
(ITA). However, the
locally will also help the
Market government to unleash
Companies Act, 2013
(CA 2013) without
flexible business policies strictly defining the term
In the last few years, India had witnessed a substantial to draw interest of the explains the concept. A
slowdown in the mergers and players in the India merger is a combination
acquisitions (M&A) activity. In the year 2014, Indian economy. of two or more entities into
one; the desired effect
companies were involved in transactions worth $ 33
being not just the
billion whereas in the year 2015, the value of M&A
activity saw a dip to $ 20 billion. It is forecasted that II. accumulation of assets and
liabilities of the distinct
2016 will see heightened global M&A activity and it is
anticipated that the value of transactions would cross $ Conceptual entities, but organization
of such entity into one
30 billion easily.
1
Overview business. The possible
objectives of mergers are
manifold - economies of
The election of the Modi led government has brought In the sections that follow, scale, acquisition
back tremendous faith in investor community. The we provide an overview of
coming year is expected to be a booming year in terms of certain laws that would be
of technologies, access to
M&A activity as the investor community has seen of significance to M&A in sectors / markets etc.
certainty in Modi led governments reform agenda and India. Mergers and
Generally, in a merger, the
the policies have been largely formulated to encourage acquisitions are modes by merging entities would
foreign investments. It is strongly believed that year which distinct businesses cease to be in existence
2016 will see a surge in M&A activity due to the new may combine. Joint and would merge into
bankruptcy law, the faster pace of approvals initiated by ventures are another way a single surviving entity.
the government as part of its ease of doing business in for two businesses to work
India campaign and the relaxation in Foreign Direct together to achieve growth
as partners in progress, The ITA does however
Investment norms. defines the analogous term
though
amalgamation: the
Sectors such as IT-ITes, healthcare, energy, pharma, e- merger of one or more
commerce and banking and financial services were the a joint venture is more of companies with another
key sectors in 2015. a contractual company, or the merger of
arrangement between two or more companies to
two or more businesses. form one company. The
In 2015, inbound deals dominated the Indian M&A
landscape with interest coming from US, German and ITA goes on to specify
certain other conditions
Canadian bidders. A. Mergers and that must be satisfied for
One can expect the increase in the M&A deals and activities
Amalgamation an amalgamation to
benefit from beneficial tax
in the upcoming time as both local and international s treatment (discussed in
investors and business houses are eyeing India with a hope Part VI of this Paper).
of tremendous growth.
http://articles.econom eal-value-deals-
ictimes.indiatimes.co worth-inbound-deals
m/25-12-25/
news/69300489_1_d 1
) are ged
veste com
d in pany
anot ).
O her The
ur com merg
la pany ing
ws (the com
en merg panie
vised s
ag com lose
e pany their
m ). ident
er The ity.
ge merg The
rs ing share
ca com hold
n pany ers
oc loses of
cu its the
r ident merg
in ity ing
m and com
or its panie
e share s
th hold beco
an ers me
on beco share
e me hold
washare ers
y, hold of
forers the
ex of merg
a the ed
m merg com
pl ed pany.
e com
in pany.
The
a Anot
CA
sit her
1956
ua meth
(Sect
tio od
ions
n coul
390
in d be,
to
w whe
394)
hi n the
and
ch asset
CA
th s and
2013
e liabil
(Sect
as ities
ions
set of
230
s two
to
an or
234),
d more
deal
lia com
with
bil pani
the
iti es
sche
es (mer
mes
of ging
of
a com
arran
co pani
geme
m es)
nt or
pa beco
com
ny me
prom
(m veste
ise
er d in
betw
gi anot
een a
ng her
com
co new
pany,
m com
its
pa pany
share
ny (mer
hold
erspes, refer
an depe red
d/ ndin to as
or g on a
its the hori
cr requ zont
ed irem al
ito ents integ
rs.
of ratio
Th
the n,
es
e merg this
pr ing kind
ov entit of
isi ies: merg
on er
s Alth takes
ar ough plac
e , e
discorp betw
cu orate een
ss laws entiti
ed may es
in enga
be
gr ged
indif
eat in
er fere com
de nt to
petin
tai the
g
l diffe
in rent busi
Pa com ness
rt merc es
II ial whic
of form h are
thi s of at
s merg the
Pa er / same
pe amal stage
r. gam of
ation the
C , the indu
o Com strial
m petit proc
m ion 2
ess.
er Act, A
ci 2002 horiz
all does ontal
y, pay merg
m spec er
er ial takes
ge atten a
rs tion com
an to pany
d the a
a form step
m s. close
al r
ga
m
i. towa
rds
ati Ho mon
on riz opol
s ont y by
m elimi
ay al natin
be Me ga
of rge com
se
ve rs
petit
or
ral and
ty Also
estope. pany
ab Thes enga
lis e ged
hi form in
ng s of the
a merg cons
str er truct
on are ion
ge heav busi
r ily ness
pr scrut
es inize with
en d by a
ce the com
in com pany
th petit enga
e ion ged
m com in
ar miss prod
ke ion. uctio
t. n of
Th brick
e or
ot ii. steel
he Ver woul
r tica d
be lead
ne
l
to
fit Me verti
s rge cal
of rs integ
thi ratio
s n.
fo Verti Com
rmcal pani
of merg es
m ers stan
er refer d to
ge to gain
r the on
ar com acco
e binat unt
th ion of
e of lowe
ad two r
va entit trans
nt ies actio
ag at n
es diffe costs
of rent and
ec stag sync
on es of hron
o the izati
mi indu on
es strial of
or
dem
prod
of and
uctio
sc and
n
al supp
proc
e ly.
ess.
an Mor
For
d eove
exa
ec r,
mple
on verti
, the
o cal
merg
mi integ
er of
es ratio
a
of n
com
sc help
s a tities 3
es.
co enga
m ged
pa in iv.
ny the Co
m sam
ov e
ngl
e gene om
to ral era
w indu te
ar stry
ds and Me
gr som rge
ea ewh rs
ter at
in inter
A
de relat
cong
pe ed, lome
nd but rate
en havi merg
ce ng er is
an no a
d com merg
selmon er
f- cust betw
su omer een
ffi - two
ci supp entiti
en lier es in
cy.relat unrel
ions ated
indus
iii hip.
A tries.
. com The
princ
C pany ipal
o uses reaso
this
n type n for
a
g of cong
e merg lome
n erorde
in rate
merg
e r to er is
ri use utiliz
c the ation
of
resul
M ting finan
e abili cial
resou
r ty to rces,
use
g the enlar
e sam geme
nt of
rs e debt
sales
capa
and city,
Th
distr and
es
ibuti incre
e
on ase
ar
chan in
e
nels the
m
to value
er
reac of
ge
h the outst
rs
cust andi
be ng
ome
tw share
rs of
ee s by
both
n incre
busi
en ased
ness
le sines merg
ve s er,
ra also also
ge helps kno
an the wn
d com as a
ea pany cas
rni to h-
ng foray
out
s into
merg
pe varie
r d er,
sh busi the
ar ness shar
e, es ehol
an with ders
d out of
by havi one
lo ng to entit
weincur y
rin large recei
g start- ves
th up cash
e costs inste
av norm ad of
er ally shar
ag asso es in
e ciate
the
co d
merg
st with
of a ed
ca new entit
pit busi y.
al. ness. This
4 is
effec
A v. tivel
m Ca
y an
er
exit
ge sh
r Me
for
wi the
th
rge cash
a r ed
di out
ve In a shar
rsecas ehol
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n . e h
d 5n a
T 9t ll
a a a
k n ,
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o P t
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er 4 ad p
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s into ders,
the purchase
subsidia of shares
ry and from the
vi. the open
Tria subsidia market,
ngul ry or by
survives making
ar ), or an offer
Mer reverse for
ger (when acquisiti
the on of the
subsidia targets
A
ry shares to
triangu
lar
merges the entire
merger into the body of
is target sharehol
often and the ders.
resorte target
d to, survives Acquisiti
for ). ons may
regulat be by
ory way of
and B.Ac acquisitio
tax
reason
quisi n of
shares of
s. As tions the target,
the or
name acquisitio
An
sugges n of
ts, it is
acquisit assets
a ion or and
triparti takeove liabilities
te r is the of the
arrang purchase target. In
ement by one the latter
in person, case the
which of business
the controlli of the
target ng target is
mergesinterest usually
with a in the acquired
subsidi share on a
ary of capital, going
the or all or concern
acquir substanti basis.
er. Such a
ally all
Based transfer is
of the
on referred
which
assets to as a
entity and/or slump
is the liabilitie sale
surviv s, of the under the
or target. A ITA and
after takeover benefits
such may be from
merger friendly favourabl
, or e taxing
hostile, provision
a and may s vis--
triang be vis other
ular effected transfers
of
merge through
assets/lia
r may agreeme
nts bilities
be (discusse
forwar between d in
d the
greater
(when offeror detail in
the and the Part VI of
target majority this
merge sharehol Paper).
Sectio acquirer to hive
n may off or
2(42C) hold spin off
of the 26% of one of its
ITA the business
define shares es into a
s of the new
slump target entity.
sale as
but may The
a
enjoy sharehol
trans
fer of dispropo ders of
one rtionate the
voting original
rights, entity
or
more manage would
undert ment generally
akings rights or receive
as a veto shares of
result rights in the new
of the the entity.
sale target.
for a
lump If one of
sum the
consid businesse
eration s of a
withou company
t is
values financiall
being y sick
assign and the
ed to other
the business
individ is
ual financiall
Nishith
assets Desai y sound,
and Associates
the sick
liabilit 2016
business
ies in
Legal & Tax may be
such Issues
sales. demerged
from the
Another company.
An form of
acquir acquisiti
This
er ons may facilitates
may be by the
also way of restructur
acquir demerge ing or
ea r. A sale of
greate demerge the sick
r r is the business,
degree opposite without
of of a affecting
contro merger, the assets
l in involvin of the
the g the healthy
target splitting business.
than up of Converse
what one ly, a
would entity demerger
be may also
into two
associ or more be
ated entities. undertak
with An en for
the moving a
entity
acquir which lucrative
ers has business
stake more into a
in the than one separate
target, business entity. A
e.g., , may demerger
the may be
decide
complete
d may or parties is
throug may not a norm
ha be for a for most
court limited joint
proces duration ventures.
s . The The joint
under purpose venture
the of the parties
Merge joint may also
r venture incorpor
Provis may be ate a new
ions for the company
or entry of which
contra the joint will
ctuallyventure engage
by parties in the
way into a proposed
of a new business.
busine business In such a
ss , or the case, the
transfeentry byelaws
r into a of the
agree new joint
ment. market, venture
which company
requires would
C.J the incorpor
oint specific ate the
skills, agreeme
Ve expertis nt
e or the between
ntu investm the joint
res ent of venture
each of parties.
A the joint
joint venture
ventur parties.
e is The
the executio
comin n of a
g joint
togeth venture
er of agreeme
two or nt
more setting
busine out the
sses rights
for a and
specifi
c obligatio
purposns of
e, each of
3
which the
2. Mergers and Amalgamations: Key

Corporate and Securities Laws
Considerations
CA 2013 recognize and
company. The Merger permit a
Provisions constitute merger/reconstruction
where a foreign company
I. Company Law a comprehensive code in merges into an Indian
company. Although the
themselves, and under
these provisions Courts Merger Provisions do not
Sections 390 to 394 of the CA 1956 (the Merger permit an Indian
Provisions) and Section 230 to 234 of CA 2013 have full power to
company to merge into a
govern mergers and schemes of arrangements between asanction any alterations foreign company, the
company, its shareholders and/or its creditors. However, in the corporate structure merger provisions under
considering that the provisions of CA 2013 have not yet of Section 234 of the CA
been notified, the implementation of the same remains 2013 do envisage this,
to be tested. The currently applicable Merger Provisions a company. For example, subject to rules made by
are in fact worded so widely, that they would provide in ordinary the Government of India.
for and regulate all kinds of corporate restructuring that circumstances a However, neither is
a company can possibly undertake, such as mergers, company must seek the Section 234 currently in
amalgamations, demergers, spin-off/hive off, and every approval of the Court for force nor have any rules
other compromise, settlement, agreement or effecting a reduction of been formulated by the
arrangement between a company and its members its share capital. Government of India.
and/or its creditors. However, if a reduction
of share capital forms
A. Procedure under the Merger

part of the corporate
restructuring proposed
II.
Provisions by the company under
the Merger Provisions,
Securities
Since a merger essentially involves an arrangement
then the Court has the
power to approve and
Laws
between the merging companies and their respective sanction such reduction
shareholders, each of the companies proposing to merge in share capital and
with the other(s) must make an application to the
A.Takeover
separate proceedings for
5
Company Court having jurisdiction over such reduction of share capital Code
company for calling meetings of its respective would not be necessary.
shareholders and/or creditors. The Court may then order The Securities and
Exchange Board of India
a meeting of the creditors/shareholders of the company.
If the majority in number representing 3/4th in value of
B. (the SEBI) is the
the creditors and shareholders present and voting at Applicability of nodal authority
such meeting agrees to the merger, then the merger, if regulating entities that
sanctioned by the Court, is binding on all Merger are listed and to be listed
creditors/shareholders of the Provisions to on stock exchanges
The High Court of each Indian State will usually designate a specific foreign in India. The Securities
bench of the High Court as the Company Court, to which all such
applications will be made. Upon the constitution and notification of the companies. and Exchange Board of
India (Substantial
National Company Law Tribunal (NCLT), the competent authority for
filing this application will be the NCLT and not the Company Court. Acquisition of Shares and
Sections 230 to 234 of Takeovers)
4 Nishith Desai Associates
2016
Legal & Tax Issues

offer a
Regula must be compan
tions, to y for the
2011 further purpose
(the acquire of
Take at least listing
over 26% of
Code the
) voting
restrict capital
s and of the Sr.
regulat company Particul
es the .6 ars
acquisi However Listing
tion of , this Agreem
shares, obligatio ent
voting n is No
rights subject
and to the
control exempti
in ons
listed provided
compa under
nies. the
Acquis Takeove
ition r Code.
of its
Exempti
shares ons from shares
or with a
open
voting offer stock
rights requirem exchang
of a ent e
listed under prescrib
compa the ed
ny, Takeove certain
entitlin r Code conditio
g the inter alia ns for
acquir include the
er to acquisiti listed
exercis on compani
e 25% pursuant
es which
or to a they
more scheme
of the of
have to
voting arrange follow
rights ment in the
in the approve case of a
target d by the Court
compa Court. approve
ny or d
acquisi scheme
tion of B.Li
control of
, sting merger/a
obligat
es the
Reg malgama
tion/reco
acquir ulati nstructio
er to n.
make ons However
an , on
offer Prior to Septemb
to the Decemb er 2,
remain er 1, 2015, the
ing 2015, SEBI
shareh (Listing
the
olders Obligati
listing
of the ons and
target agreeme Disclosu
7
compa nt re
ny. entered Require
The into by ments)
Regula securitie the key
tions, s under changes
2015 the that
(Listi Listing have
ng Regulati been
Regul ons, introduc
ations SEBI ed by
) has the
were
altered Listing
notifie
the Regulati
d and
has conditio on and
been ns for table
effecti the highligh
ve listed ting the
from compani compari
Decem es son
ber 1, which between
2015. they the
The have to conditio
Listing follow ns
in the prescrib
Regul case if a ed under
ations Court the
provid approve listing
e for a d agreeme
compr scheme nt and
ehensi of Listing
ve merger/ Regulati
frame amalga on:
work mation/r
gover econstru
ning ction
variou has been
s typesaltered.
of Followi Listing
Regulati
listed ng are
on
r to e 10
s.
filin
g
1. wit 3.
Filinh sec Pre and
g of the uriti Listed
sch es compan Audi
em law ies have tors
e doe to certi
List ch s disclose f-
ed an viol the pre Liste
d
com ge ate and
comp
pani Co or anies
es urt. ove have
hav 8 rrid to file
e to e with
file the a
the 2. pro stock
sch Co visi exch
ange
eme mp ons
with lian of
post-
stoc ce any icate
merger
k wit sec an
post-
h uri- merger audi
List
sharehol tors
ed ding to certi
with co the ficat
stocmp sharehol e to
k ani ties ders.12 the
ex- es law effec
exc sh /sto t
han all ck that
ge en exc shareho the
at sur ha lding
leas e ng acco
t tha e untin
one t req g
mo the uir treat
nth sch em ment
prio em ent
cont Sec ck t the e as
aine tion exc scheme per
d in 211 ha does the
dis-
the (3C ng violate closu
sch ) e or re
eme for override requi
is in of ob or limit reme
the ser the nts of
vati provisio stock
com CA exch
plia 19 on ns of
ange
nce 56. lett any 13
er securitie .
with 14
all or s
the no law/stoc
Acc - k
obj exchan Ther
ount List e is
ing ed ecti ge
on. require no
Sta co
9 1 corr
ndarmp ments. esp
ds ani 1 ondi
spe es ng
c- ha prov
ve List ision
ed The
ified to und
co listed
by file er
mp entity
the the the
ani shall
Cen sch Listi
es have to ng
tral em disclose
sha
Gov e Reg
ll the
ern wit details ulati
ens with the on.
men h
ure stock
t in sto
tha exchang
s li under ge ns
e s go me Liste of
t t acqui nt, d th
5. o e sition, spi comp e
Co p d n anies list
rp u c merg off have ed
or b en
o er or to
at li tit
mmerg selldisclo
e c y
p er, ing se to as
ac if a de- diviStock w
tio t n merg sio Exch ell
ns h y er, ns ange as
Lis e i amal of all
pri
te s gama the
ce
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p tion, se
co p r restru of
s
ns
m u o cturin thewill
which
itiv
pa r p g, co e
have
ni s o mp inf
beari
es u s an ng on or
ha a i y, the m
ve n n sche etc perfo ati
to t g me of .15 rman
on
dis t t arran ce/op 16
.
clo o o eratio
k ebay e se e L
e Stock listin 2 i
o LEx- Re g 4(
v ichan gu agre h)
e sge as lat eme of
r ta io nt. th
istand n e
nard 37
C lis
gsince (1)
Re o it is ti
gu d of n
AIndia th
lat e gs g
io . e ag
rlarge
n Li re
est
3 sti 11. e
eStock
re mExch ng Reg m
ad
W eange. Re ulati en
e n gu on
wi t.
th r t lat 11
Clau io of
Re e
gu f ose n. the R
f24(f) eg
lat e Listi ul
of
io r Cl ng ati
tthe
n hlistin au Reg on
7 t eg se ulati 69
of o 24 on. (2
agree
th Bment (g) )
e t o. of Clau of
Ta h m th th
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24
(i)
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5 Nis hi
t
3. Acquisitions: Key Corporate and Securities

Laws Considerations
and subsidiaries of the
Please note we have not addressed acquirer must be
issues with respect to a non-In- excluded.
I. Company Law dian acquirer, which we have
briefly addressed in our section on
Exchange Control in Chapter V. If the transferee already
holds more than 10% (in
A. Acquisition of Shares.17 Not including employees and
former employees.
value) of the shares
(being of the same class
Acquisitions may be via an acquisition of existing as those that are being
shares of the target, or by subscription to new shares acquired) of the
of the target. transferor, then the
ii. Squeeze Out following conditions
must also be met:
i. Transferability of shares Provisions
The transferee offers
Broadly speaking, an Indian company is set up as a. Section 395 of the the same terms to all
19
CA 1956 holders of the shares of
a private company or as a public company. that class whose transfer
Membership of a private company is restricted to 200 Section 395 envisages a is involved; and
18
members and a private company is required by the complete takeover or
CA 2013 to restrict the transferability of its shares. A squeeze-out without resort The shareholders
restriction on transferability of shares is consequently to court procedures. holding 90% (in value)
inherent to Section 395 provides that who have approved the
if a scheme or contract scheme/contract should
involving the transfer of also be not less than 3/4th
a private company, such restrictions being contained in shares or a class of shares
its articles of association (the byelaws of the company), in a company (the in number of the holders
and usually in the form of a pre-emptive right in favor of transferor company) to of those shares (not
the other shareholders. With the introduction of CA including the acquirer).
another company (the
2013, although shares of a public company are freely transferee company) is
transferable, share transfer restrictions for even public approved by the holders of The scheme or contract
companies have been granted statutory sanction. The at least 9/10ths (in value) referred to above should
articles of association may prescribe certain procedures of the shares whose be approved by the
relating to transfer of shares that must be adhered to in transfer is involved, the shareholders of the
order to affect a transfer of shares. While acquiring transferee company may transferee company within
shares of a private company, it is therefore advisable for give notice to the 4 months from the date of
the acquirer to ensure that the non-selling shareholders dissenting shareholders the offer. The dissenting
(if any) waive any rights they may have under the that it desires to acquire shareholders have the right
articles of association. Any transfer of shares, whether of the shares held by them. to
a private company or a public company, must Once this notice is issued,
the make an application to
comply with the procedure for transfer under its the Court within one
articles of association. transferee company is not month from the date of
only entitled, but also the notice, if they are
bound, to acquire such aggrieved by the terms of
shares. In computing the offer. If no
90% (in value) of the application is made, or
shareholders as
mentioned above, shares
held by the acquirer, Corresponding provisions of the
nominees of the acquirer CA 2013 have not yet been
notified.
6 Nishith Desai Associates
2016
cannot However,
direct the a
acquirer transfere
to pay a e
the price that company
applic has not (i.e. the
ation been acquirer),
is offered. must be
dismis The
sed Court an
within would be Indian
one guided company
month by the .
of fairness
issue of the b.
of the scheme Section
including
notice, 236 of
the
the the CA
valuation
transfeoffered. 2013
ree However, (not yet
compa if an notified)
ny is overwhel
entitle ming
Under
d and majority
the CA
bound has 2013, if a
to approved person or
acquir the group of
e the scheme, persons
shares it would acquire
of the be a 90% or
dissen heavy more of
ting burden the
shareh on the shares of
olders. dissentin a
g company,
sharehold then such
Secter to
ion establish person(s)
have a
395 why his
right to
does shares make an
not should offer to
regula not be buy out
te the compulso the
pricin rily minority
g of acquired. sharehold
the ers at a
offer Sectio price
made n 395 of determin
by the the CA ed by a
acquir 1956 registere
er, and provides d valuer
the that the in
power transfero accordan
s of r ce with
company prescribe
the
(i.e. the 20
court d rules.
target)
are can be The
limite any body provision
d if an corporate s in the
objecti, whether CA 2013
on is or not aim to
made incorpora provide a
by ted under fair exit
Indian to the
law. minority
a
sharehold
dissent Therefore
the target ers, as
ing
the price
shareh can also
offered
older. be a
must be
The foreign
based on
court company.
a being approved
valuati transferre by, (i)
on d or the
condu alternativ sharehol
cted ely, an ders of
by explanati the
on be company
a provided vide a
registe in the special
red provision resolutio
clarifying
valuer. n; and
that
Howe (ii)
Section
ver, it 236 only
is not applies to a
clear the competen
wheth acquisitio t court by
er the n of an order
minori shares so confirmi
ty as to ng the
shareh clearly reduction
olders exclude . When
can amalgam the
choos ations company
e to and applies to
retain mergers the court
their from the for its
shareh ambit of approval,
the
olding this
provision creditors
.
. of the
Howe company
ver, would be
the Schem
entitled
Comp e of to object
anies capital to the
Law reductio scheme
Commn under of capital
ittee section reduction
vide 100 of . The
report the CA court will
dated 1956 approve
Febru the
ary, Section reduction
2016 100 of only if
has the CA the debt
recom 1956 owed to
the
mende permits a
objecting
d that company
creditors
the to reduce is
refere its share safeguard
nces capital in ed/provid
to the any ed for.
phrase manner What is
transf and interestin
eror prescribe g to note
compa s the is that the
ny procedur framewor
e to be k for
Legal & Tax reduction
Issues followed
of capital
for the
in same.
Sectio The under
n 236, scheme section
may of capital 100 has
be reductio been
modifi n under utilized
ed to a section to
comp 100 of provide
any the CA exit to
whose certain
1956
shares sharehol
must be
are
ders, al n of
as reductio capital to
oppos n under the
ed to Section Central
all 66 of Govern
shareh the CA ment and
olders 2013 the SEBI
on a (not yet (in case
propor notified) of a
tionate listed
basis. company
The The ), who
capital
courts will have
reduction
have requirem a period
held ents are of three
that more months
reduct stringent to file
ion of under the any
share CA 2013. objection
capital In s.
need addition Compani
not to giving es will
necess notice to have to
arily creditors mandato
be qua of the rily
all the company, publish
shareh the the
olders NCLT NCLT
of the is order
compa required sanctioni
21 to give ng the
ny. notice of scheme
the of
Sche applicati capital
me of on for reductio
capit reductio n.
msi natio 20. Section 236
and nal of the CA 2013
Ors Limi LJ 406 (Bom))
ted
(200
94
21. Com Nishith Desai
Sand p Associates 2016
7
vik
Asia [200
Limi 9]92
ted SCL
vs. 272(
Bhar Bom
at );
Kum Elpr
ar o
Pada Inter
quire mark
ment et
s for valu
any e of
e. new the
N issua shar
e nce es
w of for
s share the
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a
ar nce
prefe
e renti of
is al shar
s basis 22
es.
u (i.e.
a any
T
n issua
he
c nce issua
e that nce
is not
a must
Se right be
cti s or auth
on bonu orize
42 s d by
, issue
the
62 to
articl
of existi
C ng es of
A share asso
20 holde ciati
13 rs) on of
an by an the
d unlist com
R ed pany
ul comp 23
e any.
and
13 Som
of e of appr
th the oved
e impo by
C rtant a
o requi speci
m reme al
pa nts resol
ni unde ution
es r 24
(S these
ha provi pass
re sions ed
Ca are by
pit descr shar
al ibed ehol
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d w: in
D
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en Th gene
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ul must
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20 ge a orizi
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es valu boar
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e fair of
re
th e ,
e share prici
co hold ng of
m ers. shar
pa If es
ny share inclu
to s are ding
iss not the
ue issue relev
th d ant
e withi date
sh n 12 for
ar mont calc
es.hs of ulati
25 the on of
resol the
A
ution price
sp
, the ,
ec
resol shar
ial
ution ehol
re
will ding
so
lapse patte
lut
and a rn,
io
fresh chan
n
resol ge of
is
ution contr
on
will ol, if
e
be any,
th
requi and
at
red whet
is
for her
pa
the the
ss
issua pro
ed 2 mote
by nce.
rs/di
at 6
recto
le
rs/ke
as
y
t Th
man
3/ e
age
4t expl
ment
hs anat
pers
of ory
ons
th state
prop
e ment
ose
sh to
to
ar the
acqu
eh notic
ire
ol e for
shar
de the
es as
rs gene
part
pr ral
of
es meet
such
en ing
issua
t shou 2
an ld nce.
d cont 7
vo ain
tin key
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at osur
a es Sh
m perta ares
ee ining must
tin to be
g the allott
obje ed
ct of withi
of
the na
th
issue
pe Th acqui
ri ese rer
od requi that
of reme is an
60 nts India
da appl n
ys y to com
, equit pany
migh
fai y
t
lin share acqui
g s, re by
w fully way
hi conv of
ch ertibl subs
th e cripti
e debe on,
m nture purc
on s, hase
ey partl or
my other
us conv wise,
t ertibl the
be e secur
ret debe ities
ur nture of
ne s or any
other
d any
body
wi other
corp
thi finan orate
n cial upto
a instr (i)
pe ume 60%
ri nt of
od conv the
of ertibl acqui
15 e rers
da into paid
ys equit up
th y.29 share
er capit
ea al
fte f. and
r. Limi free
In ts reser
ves
ter on
and
es acq
secur
t uirer ities
is prem
pa Secti ium,
ya on or
bl 186 (ii)
e of 100
@ CA % of
12 2013 its
% provi free
p. des reser
a. for ves
fr certai and
o n secur
limit ities
m
s on prem
th
inter- ium
e corp
acco
60 orate
unt,
th loans
whic
da and heve
y. inves r is
28 tmen
high
ts. er.
An How
ev g. derat
er, Ass ions,
th et/ an
e Busi acqui
ac rer
nes
qu may
ire s opt
r Pur for
is cha (i)
pe se asset
rm purc
itt As hase
ed again wher
to st a eby
ac share one
qu acqui com
ire sition pany
sh , the purc
ar acqui hases
es rer all of
be may
yo also part
nd decid of
su e to the
ch acqui asset
li re the s of
mi busin the
ts, ess other
if of com
it the pany
is targe ; or
au t (ii)
th whic slum
ori h p
ze could sale
d typic wher
by ally eby
its entail one
sh acqui com
ar sition pany
eh s of acqui
ol all or res
de speci the
rs fic busi
vi asset ness
de s and unde
liabil rtaki
a ities ng
sp of of
ec the the
ial busin other
re ess com
so for a pany
lut consi as a
derat goin
io
ion. g
n
Ther conc
pa efore ern
ss , i.e.
ed depe acqui
in ndin ring
a g all
ge upon asset
ne the s and
ral com liabil
m merc ities
ee ial of
tin objec such
g. tive busin
and ess.
consi
S
e) d
ct o D
iof eR
n th bu
6e e le
2C n1 S
( o t 3 e
1m u( ct
) p r 2 i
(ca e) o
) ni ) ( n
e Rd 4
s u) 2
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ulS sf 6
eh 2t )
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3e 1e
( C R
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oa len (
f n 1 ie 1
thd 3s )
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me (f a h
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ar2 mn s
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l R ( n e
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ular )
ee R
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8 h ai
Ni DAssoc
it eiates
sh s2016
precedin
g II.
financial
Under
year, or Oth
an
CA
2013,
undertak er
the ing
sale, which
Sec
lease generate
or s 20% of uriti
other the total
dispos income es
ition of the
of the company Law
whole during
or the s
substa previous
ntially financial
the year.
A.
whole Further Secu
of any this
undert requirem rities
aking
ent and
of a
compa
applies if Exch
20% or
ny
requir more of
ange
es the the Boar
approvundertak d
al of ing
the referred
shareh to above
olders is sought
of
throug to be India
ha sold,
specialleased or (Issu
resolut disposed
30
e of
ion. off.
The
Capi
term An tal
Unde importan
rtakin t and
g consider
means ation for Discl
an these osur
undert options
aking e
in
which is the Req
statutory
costs
uire
the
invest
involved ment
i.e.
ment
stamp s)
of the
duty, tax
comp
implicati
any
ons etc.
Reg
excee
ds
We have ulati
delved
20%
into this ons,
of its
net 2009
worth in brief
as per in our If the
the chapter acquisitio
audite on n of an
d Taxes Indian
balanc and listed
e Duties. company
sheet involves
of the the issue
of new
equity Issues from the
shares date of
or ii. the
securit
ies
Lock- trading
approval
conver in . If
tible securitie
into Securitie s are
equity s issued
allotted
shares to the
on a
(Spe acquirer
cified (who is preferent
Securi ial basis
not to
ties)
by the promoter
target a s/
to the promoter promoter
acquir of the 32
group ,
er, the target)
they are
provisiare
ons of locked-in
locked in
Chapt for a for 3
er VII period of years
(Pref 1 year from the
erenti from the date of
al date of trading
Allot trading approval
ment approval. subject
Regul The date to a limit
ations of trading of 20%
) approval of the
contai is the total
ned latest capital
date
of the
when
in trading company
ICDR approval . The
Regul is granted locked-
ations by all in
will stock securitie
apply exchange s may be
(in s on transferr
additi which ed
on to amongst
comp the promoter
any securitie /
law s of the promoter
requir company group or
ement are any
s listed. person in
menti Further, control
oned if the of the
above acquirer company
). We holds , subject
have any to the
highli equity transfere
ghted shares of e being
below the target subject
some prior to to the
of the such remainin
impor preferent g period
tant ial of the
provis allotmen lock in.
ions t, then
of the such iii.
Prefer prior
ential holding Exem
Allot will be ption
ment locked in to
Regul for a court
ations.period of
appro
6 months
Legal & Tax ved
mer r/ acquisiti
amalgam on is
ger
ation contempl
approved ated by
The by the way of
Prefer Court issue of
ential under new
Allot the shares,
ment Merger or the
Regul Provisio acquisiti
ations ns on of
do not discusse existing
apply d above. shares or
in the voting
case rights, of
of a B.Ta a listed
prefer
ential keov company
, to or by
allotm er an
ent of
shares Cod acquirer,
the
pursu
ant to
e provisio
ns of the
merge Takeover
If an
ed p wide
are r
i. tothe
defi con-
ned notat
Pr ave 30. in ion
Secti great and
ici rag on detai woul
e of 180 l by
ng the of the
d
inclu
of wee the Reg
CA ulati
de
imm
th kly
hig
2013 ons, edi-
Gen ate
e h erall relat
Is and 31. y
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ives
of
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clos
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ferestoc - the r is a
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All co over woul
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otmmp cont inclu
ent any Nishi
rol de, a
th
Re ove Desa of subs
gul r a i the idiar
Asso com y or
atio 26 ciate pany hold
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set k 2016 who com
a peri are pany
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s the the r,
10% equit pro- 9
ny.
35 case
The they
key do
not
C obje
wish
od ctive
to
e s of
ar the retai
e Take n
ap over their
pli Code share
ca are holdi
bl to ng in
e. provi the
Thde com
e pany
Ta the .
ke shar
ov ehol
er ders i.
C of a Ma
od liste nd
e d
re com ato
gu
pany ry
lat
es
with off
bo adeq er
th uate
dirinfor Unde
ec mati r the
t on Take
an abou over
d t an Code
in impe , an
dirndin acqui
ec g rer is
t chan mand
ac ge in atoril
qu cont y
isi rol requi
tio of red
ns the to
of make
com
sh an
pany
ar offer
es or to
33 subs acqui
tanti
or al re
vo acqu share
tin isitio s
g n by from
rig the
an other
ht
acqu share
s
in,
irer, holde
an and rs in
d prov order
co ide to
ntrthem provi
ol with de an
34 an exit
exit oppo
ov rtunit
opti
er y to
on
a them
tar (albe prior
ge it a to
t limit cons
co ed umm
m one) ating
pa in the
ac man or
qu dato more
isi ry of
tio open the
n, offer votin
if by g
th the right
e acqu s in
ac 3 the
qu irer
targ
isi 6
is et
tio
n trigg com
fulered pany
fil in .
s the
th follo
e wing
co even
nd ts: b.
iti Cre
on a. epin
s g
Initi
as Acq
setal uisiti
ou Trig on
t ger
in
If the
Re If
acqui
gu the rer
lat acq alrea
io uisit dy
ns ion holds
3, of 25%
4 or
shar
an more
es
d and
5
or less
of voti than
th ng 75%
e righ of the
Ta ts in share
ke a s or
ov targ votin
g
er et
right
C com
s in
od pan the
e. y targe
U entit t,
nd les then
er the any
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N i Desai
i t Assoc
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0 h 2016
evidently, precedent.
a grey With no
area clear
under the jurisprude
Rig Takeover nce on the
ht to Code. subject-
contro The matter,
l the Supreme each veto
manag Court right
ement order in would
or case of typically
policy SEBI vs. be
decisi Subhkam reviewed
ons Ventures from the
exerci Private commerci
sable Limited
3 al
parameter
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person
accepted underlyin
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PAC, of-court right and
directl settlemen its impact
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indire the general
ctly, parties, managem
includ had ent and
ing by policy
virtue left open decisions
of the legal of the
their question target
shareh as to company.
olding whether Given the
or negative Jet-Etihad
39
manag control deal ,
ement would SEBI,
rights amount recently
or to indicated,
control its plans
under the to
shareh Takeover
olders Code. In introduce
agree fact, the new
guidelines
ments Supreme
or Court
voting had ruled to define
agree that SAT bright
ments ruling in lines to
or in this case provide
any (against more
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manne SEBI had regards
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before in
Over
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Supreme in cases
time,
Court) of
the
which mergers
definit
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ion of
negative acquisitio
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control 40
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attract obligatio eighty
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tory Code. basis of
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obliga audited
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Date of
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of the offer for of 75%.
offer, acquirin As per
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g of additiona Takeover
the l shares Code
offer of the Frequentl
etc. company y Asked
subject Question
iii. to their
aggregat
s, any
person
Volu e holding
ntar sharehol less than
y ding 25%
after sharehold
Ope completi ing/votin
n on of the g rights
Offe open can also
offer not make a
r exceedin
41 voluntary
An g 75%.
open
acquir In the offer for
er case of
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betwe voluntar
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and must be
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of the least
shareh 10% of
olding the
/ shares of
Regulation 6
voting the target (1) of the
rights company Takeover
, but the Code.
Nishith Desai
Associates 2016
11
share right
s of s, the
the offer
targe must
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Boations,
Nishith
rd 2015 Desai
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a Regul 2016
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ters
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atio III of the
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uc Se ers,
h deme
wi nsit rgers
th ive ,
th Inf acqui
e sitio
co or ns,
m ma delist
pa ings,
ny
tion dispo
53
wi ? sals
ll and
als UPSI expa
o mean nsion
be s any of
co infor busin
ve mati ess
re on and
d. relati such
Ce other
tra avail er is
ns able perm
ac 54 itted
tio if
mean
ns such
s
; com
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that n,
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acces urem
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publi furth
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non- legiti
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tory
on oses,
basis.
ne perf
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an iii. nce
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m
Def of
dutie
at ens s or
eri es/
disc
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ev
Ex harg
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ts tion legal
in oblig
ac s ation
co s.
rd The
an com The
ce muni follo
wi catio wing
th n of are
th UPS valid
e I by defe
Li an nses
sti avail
Insid
ng able
er
A to a
gr and perso
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m proc who
en urem trade
t. ent s in
Th of secur
e UPS ities
ter I by when
ma in
g pers poss
en on essio
er from n of
all an UPSI
y insid 55
:
m b rs who
Ga e
er t
nk w
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rt e possessi
a tr n on of the
l a p same
An r UPSI
ns o
oa m
ff ct o
- io t
n e
e s
(a w
wc h
it o o possessi
hn e on of
os x UPSI
u ci e and
t o c were not
bu u in
es t possessi
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nn d such
gd t UPSI; or
i in h
nf e
bo tr
rr a
em d
ae e
cd w
h tr e
oa r
f d e
Re d
ed iffChinese
ge e wall
u ci r arrangem
l si e ents were
ao n in place
ti n t and there
o. fr was no
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3 mof
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o violated;
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14
be involving
reviewed mergers
and and
approved acquisitio
iv. by the ns.
56
Tradcomplian Therefore
ing ce , based
officer of on
Plan the whether
s company or not a
and then transactio
A key publicly n entails
making
chang disclosed
an open
e in . Trading
offer
the cannot under
frame begin for SEBI
work (Substant
of a period ial
inside of 6 Acquisiti
r months on of
tradin after the Shares
g plan is and
regula publicly Takeover
tions disclosed s)
is the . Trading Regulatio
introd plans are ns, 2011
uction a defense (Takeov
of and do er
tradin not Code),
g provide informati
on may
plans. absolute
be
Typic immunit
communi
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insid investiga provided,
ers tion allowed
who under the access to
are PIT or
liable Regulati procured
to ons. on the
posses following
s v. condition
UPSI s:
round Due-
the Dilige Legal & Tax
Issues
year nce
are
permit
Carve
under the
ted to -Out
Regulati
formu
ons has
late The PIT
amply
tradin Regulatio
clarified
g ns
that the
plans contain a
communi
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cation or
appro carve-out
procure
priate for
ment of
safegu communi
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ards. cation
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informati diligence
must on (due-
shall be
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permitte
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period d) in
subject
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year, transactio
s set out
must ns
in the going director
Regul forward, would be
ations.every required
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key continual
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Disc al es
losu personnel
and
(within 2
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days of
of a
company such
A
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on) in
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of the disclose traded
insider to the value of
tradin company securities
g his over a
norms holding calendar
is of quarter
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ure of the the
requir company monetary
ement as on threshold
s for date of of INR
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ries of notificati value as
person on of the
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s
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the Compan
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affairs May 15, y is
of the 2015. required
compa More to notify
ny. It importan the stock
is exchange
tly, every
import s in case
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ant to such
bear in , transacti
mind employe ons by
that e or the pro-
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en opi pan proposed
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igat the No the company.
ion pro Ope Information
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ere ed Offe UPSI is
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rd ion gati
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ctor Tak ere least 2 trading
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mp is in
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N i Desai
i t Associ
1 s hates
6 h 2016
Legal & Tax Issues
4. Competition Law
or scientific
On the other hand, vertical development, indulging
The Competition Act, 2002(Competition Act) agreements, such as tie-in in practices resulting in
replaced the Monopolies and Restrictive Trade 57 denial of market access
arrangements , exclusive
Practices Act, 1969, and takes a new look at etc.
supply or distribution
competition altogether. The Competition Act primarily
covers (i) anti-competitive agreements (Section 3), (ii)
abuse of dominance (Section 4), and (iii) combinations
agreements, etc., are anti-
competitive only if they
Regulation
(Section 5, 6, 20, 29, 30 and 31). cause or are likely to of
cause an appreciable
The Competition Commission of India (Procedure in adverse effect on Combination
regard to the transaction of business relating to competition in India.
combinations) Regulations, 2011 (Combination s
Regulations) govern the manner in which the
Competition Commission of India (CCI) will regulate Abuse of The Combination
Regulations are the key
combinations which have caused or are likely to cause Dominant regulations through
an appreciable adverse effect on competition
(AAEC) in India. Position which the CCI regulates
combinations such as
mergers and acquisitions.
Anti - Competitive An entity is considered to
be in a dominant position
Under Section 32 of the
Competition Act, the CCI
Agreements if it is able to operate
independently of
has been conferred with
extra-territorial
competitive forces in jurisdiction. This means
The Competition Act essentially contemplates two kinds India, or is able to affect that any acquisition
of anti-competitive agreements horizontal agreements its competitors or where assets / turnover
i.e. agreements between entities engaged in similar trade consumers or the relevant are in India (and exceed
of goods or provisions of services, and vertical agreements
market in India in its specified limits) would
i.e. agreements between entities in different stages / levels
favor. be subject to the scrutiny
of the chain of production, in respect of production,
supply, distribution, storage, sale or price of goods or of the CCI, even if the
services. Anti-competitive agreements that cause or are The Competition Act acquirer and target are
likely to cause an AAEC within India are void under the prohibits an entity from located outside India.
provisions of the Competition Act. A horizontal agreement abusing its dominant
that position. Abuse of
dominance would include
(i) determines purchase / sale prices, or (ii) limits or imposing unfair or
controls production supply, markets, technical discriminatory conditions A tie-in arrangement would
development, investment or provision of services, or (iii)or prices in purchase/sale include any agreement requiring a
shares the market or source of production or provision of of goods or services and purchaser of goods, as condition
services, by allocation of geographical of such purchase to purchase
predatory pricing, some other goods. A classic
limiting or restricting example of this on a global scale
areas/type of goods or services or number of customers production may be Mi-crosofts bundling of
its web browser Internet Explorer
in the market, or (iv) results in bid rigging / collusive along with the Windows operating
bidding, are presumed to have an AAEC. / provision of system, limiting Netscapes web
browser, Navigator, from having a
goods/services, technical significant presence in the market.
17
on; s
pres
a cribe
d
An unde
acq r the
C uisit Com
o ion petit
m of ion
bi cont Act.
na rol
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The
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grou
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N i Desai
i t Assoc
1 s hiates
h 2016
Legal & Tax Issues

which financi
notice al
other thresho
docu is given lds are
ment to the notifie
for CCI, or d to
acquis after CCI,
ition the CCI Combi
and has nations
seek passed Regula
its an tions
appro order provid
val approvi e that
prior ng the in a
to combin situatio
effect ation. n
uating where
the
the
same.
E. ultimat
Mult e
intende
The
CCI
iple d
effect
must tran
form a of
prima che
a
facie
opinio
s busine
n on ss
wheth In order transac
er a to tion is
combi ensure achiev
nation that all ed by
has the way of
caused combin a series
or is ations of
likely arising
steps
to from or
cause small
an
smaller
individ individ
AAEC
ual ual
within
the transact transac
releva ions tions
nt which which
marketotherwi are
in se in inter-
India, isolatio connec
within n may ted or
30 not inter-
days qualify depend
of the ent on
filing. financia each
The l other,
combi threshol one or
nation ds but
more
will along
of
becom with
e
which
inter- may
effecti
connect amoun
ve
only ed or t to a
after inter- combi
the depend nation,
expiry ent
of 210 transact a
days ions single
from may notice,
the qualify coveri
date the ng all
on
these whole ent or
transa or a in the
ctions,part of ordinar
may the y
be combin course
filed ation of
by the shall be busine
partie disregar ss as
s to ded. long as
the the
combi total
nation F. shares
59
. Exc or
voting
Furthe epti
rights
r,
Comb ons
held by
the
inatio
ns to
Regul Filin
ations Regulatio
were g
n 9(4)
amen
ded in Schedul
2014, e I to acquire
where the r
in a Combin directl
provis ation y or
ion Regulat indirec
was ions tly is
insert specifie less
ed s than
which certain 25% of
mand categori the
ates es of total
comp transact shares
anies ions or
to which voting
notify are rights
CCI if ordinari of the
the ly not compa
substa likely ny, and
nce of to have as long
the an as
transa AAEC control
ction and is not
and therefor acquire
any e would d.
struct not
ure of normall Acq
the y uisition
transa require of not
ction( to be more
s), notified than
compr to the 5%
ises a CCI shares
or
combi which
voting
nation inter
rights
, and alia in any
that include: financi
has al year
the Acqu (on a
effect isitions gross
of of basis)
avoidi shares by an
ng or acquire
notice voting r or its
in rights group,
respec as an if (a)
t of investm the
the acquire
r or its in a rights
group transfer pursua
alread from nt to
y hold joint a
25% control bonus
or to sole or
more control. rights
of the issues,
shares
An or
or
buybac
voting acquisiti
rights on of k of
of the assets shares,
acquir unrelate not
ed d to the leading
enterp business to
rise of the acquisi
but do acquirer tion of
not , or control
hold acquired .
50% solely
or as an
Acq
more investm uisitio
shares ent or in
the n of
of
shares
voting ordinary
rights course or
of the of voting
acquir business rights
ed , other or
enterp than an assets
rise acquisiti within
either on of a the
prior substant same
to or ial group,
after business except
such operatio where
acquis n. the
ition acquire
and Acqu d
(b) isitions enterpr
joint of ise is
or sole stock-
jointly
contro in-
control
l is not trade,
acquir raw
led by
ed. enterpr
material ises
s, stores that are
Ac and
not
quisiti spares,
part of
on by trade
the
an receiva same
acquir bles
group.
er and
who other
alread similar Mer
y had current ger or
50% assets amalga
or mation
(in the
more ordinar : (i) of
shares y holdin
or g and
course
voting of subsidi
rights busines ary
except s). compa
in ny and/
cases Acqu or (ii)
where isitions of
the of compa
transa shares nies
ction or which
results voting are
majorit
y held iption, nt,
by the financin would
same g not
group. facility qualify
Howe or any as a
ver, acquisiti combin
on by a ation
public that
the financia will be
merge l regulat
r or instituti ed by
amalg on, the
amatio foreign CCI,
n must instituti and
not onal such
lead to investor, transact
the bank or ions are
transfe venture exempt
r of capital from
joint fund the
contro pursuant Combi
l to nation
sole related
contro to any provisi
l. A loan or ons
share investm under
subscr ent the
agreeme
Nishith Desai
Associates 2016
19
isit ifi
ion cat
wit ion
hin wit
C 7 h
o da C
my CI
pe of an
titico d
on mp su
A leti bs
ct. on eq
H of ue
o the nt
w ac op
ev qui en
er, siti off
th on. er
e obl
pu iga
bli tio
c Im n
fi pa un
na ct der
nc on the
ial tra Ta
in ns ke
sti act ov
tut ion er
io s Co
n, inv de.
FI olv In
I, ing cas
ba list es
nk ed wh
or co ere
ve mp cle
nt ani ara
ur es. nc
e In e
ca co fro
mb
pit m
al ina the
fu tio
nd n
is inv
re olv
qu ing C
ire list CI
d ed is
to co not
no mp rec
tif ani eiv
y es, ed
th wit
e a hin
C pri the
CI ma sta
of ry tut
th tra or
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de act ti
tai ion me
ls ma per
of y iod
th tri req
e gg uir
ac er ed
qu not to
co en del
m as ay
pl per be
et the yo
e Ta nd
th ke the
e ov ma
op er xi
en Co mu
of de, m
fe SE per
r BI iod
as ma wit
pr y hin
es dir wh
cri ect ich
be the the
d ac ten
un qui der
de rer ing
r to sh
th pa are
e y -
Ta int hol
ke ere der
ov st s
er to are
R sh req
eg are uir
ul hol ed
ati der to
on s be
s, for pai
th the d.
20
Nishith
Desai
Associate
s 2016
Legal & Tax Issues
5. Exchange Control will be treated as a debt and the An FVCI registered with
External Commercial Borrowings
(ECB) policy will be applicable.
the SEBI can invest in
Indian venture capital
I. Foreign Direct Investment undertakings, venture
capital funds or in schemes
approval of the Foreign floated by venture capital
Indias story with respect to exchange control is one of a Investment Promotion funds under the terms of
gradual, deliberate and carefully monitored advance Board (FIPB) of the Schedule 6 of the FI
towards full capital account convertibility. Though Government of India, Regulations. One
significant controls have been removed and foreign which is granted on a case
companies can freely acquire Indian companies across to case basis. As per Press
most sectors, these are subject to strict pricing and of the important benefits
Note 6 of 2015, any
reporting requirements imposed by the central bank, the of investing as an FVCI is
foreign equity inflow that
Reserve Bank of India (RBI). Investments in, and that an FVCI is not
requires prior FIPB
acquisitions (complete and partial) of, Indian companies approval and is above INR required to adhere to the
by foreign entities, are governed by the terms of the 3,000 crores requires a pricing requirements that
Foreign Exchange Management (Transfer or Issue of prior approval of the are otherwise required to
Security by a Person Resident outside India) Regulations, Cabinet Committee on be met by a foreign
2000 (the FI Regulations) and the provisions of the Economic Affairs. investor under the
Industrial Policy and Procedures issued by the Secretariat 61
automatic route when
for Industrial Assistance (SIA) in the Ministry of
Commerce and Industry, Government of India. B. Portfolio purchasing or subscribing
to shares or when selling
The FI Regulations segregate foreign investments into
Investment such shares.
various types: foreign direct investments (FDI), foreign Scheme
portfolio investments (FPI), investments by non-resident
Indians (NRI) on portfolio basis, or on non-repatriation Foreign portfolio
Indirect
basis, foreign venture capital investments.
investors registered with
the SEBI as per the SEBI
Foreign
A. Foreign Direct Investment (FDI) (Foreign Portfolio
Investment) Regulations,
Invest-ment
Schedule 1 of the FI Regulations contains the Foreign 2014 and non-resident
Indians (NRI), are Foreign investment may be
Direct Investment Scheme (FDI Scheme), and sets direct or indirect.
out the conditions for foreign direct investments in permitted to invest in
Generally speaking (and
India. Annex A of the FDI Scheme sets out the sectors shares / convertible
subject to certain
in which FDI is prohibited. This list includes sectors debentures under the exceptions) if an Indian
such as lottery, gambling , defence etc. A foreign portfolio investment
60 scheme. This scheme
investor can acquire shares or convertible debentures permits investment in
in an Indian company upto the investment (or sectoral) listed securities through
the stock exchange.
caps for each sector provided in Annexure B to the FDI
Scheme. Investment in certain sectors requires the prior Foreign venture
capital investors The automatic route generally
means that investments do not
A foreign investor may also subscribe to preference shares. However, in (FVCI) need to any permissions /
approvals under the FDI Scheme.
order to fall under the automatic route, the preference shares / debentures
must be compulsorily convertible into equity, failing which the investment
21
e non-
subje oper
ct ation
down al
in strea com
ve m pany,
sti India inclu
ng n ding
co inves a
m tee holdi
pa comp ng
ny any com
is woul pany,
o d be requi
w consi res
ne dered prior
d as appr
62
indir oval
or ect of
c forei the
on gn FIPB
tr inves .
olltmen
ed t.
6 A.
Ac
3
b In
y qui
n ve siti
on
- st on
re
si m of
de rig
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en hts
tit t sh
ie
s in ar
64
,
a es/
th ho bo
en nu
th ldi
e s
en ng
tir
sh
e co ar
in
ve m es
st
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en non-
t ny resid
by ent
th may
e Forei subs
in gn cribe
ve inves to
sti tmen share
ng t, s
co whet issue
m her d on
pa direc a
ny t or right
intindir s
o ect, basis
th into a by an
In ce at Sh
di whic
an h the are
co share s
m s are
pa offere un
ny d to der
pr the
ov
non-
resid
me
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rge
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th the
am
e price alg
of offere am
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r the ati
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ar share /
es holde de
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es non- me
no resid rge
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re
may r
also
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acqui
lt re A
in bonu transf
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cr share comp
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se under may
in the FI issue
th Regu share
e lation s to
the
pe s.
share
rc The
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ta rights a
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reis will any
gn howe under
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ct to
pe of
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r merg
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micondi er or
tte tions amal
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ch to the
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tsi porat accor
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In expe e
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di nses
the
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de g exch
r paym ange
th ents laws,
e of and
au rent, (ii)
to etc.) the
m subje share
ati ct s
c to issue
ro comp d
ut lianc shall
e e be
ag with subje
ai the ct to
ns condi the
appli
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presc cable
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po 65 laws
rt and
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ca er, conv
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od s/ y
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ment
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unde
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l s. As may
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et
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2016,
tr it has route.
This
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e expa
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n the r shot
scope
t of in the
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s permi for
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C le
ur instru tment
re ment s into
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ntls.
since
y, Whil
it
on e provi
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sh ment bility
ar s in
es have terms
, not
been
co of
detail
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ed, it
pu seem turin
ls s that g of
in is atory
ve opti persp
st mize ectiv
m d for e.
en the
ts inves
in tor http://r
a and bidocs.
m the rbi.org.
in/rdoc
an inves s/notifi
ne tee cation/
PDFs/
r from 1CAP
w 74300
hi a 611.pd
f
ch regul
h Desai
Nis Associate
hit s 2016
22
share automati
warrants, c route
the can issue
following partly
As percondition paid
the s must be shares or
curren complied warrants.
t with: (i) For
excha pricing compani
nge and es under
contro conversio the
l n approval
regula formula / route,
tions, price is prior
partly required FIPB
paid to be approval
shares determin will be
66
can ed up required
be front and to issue
issued 25% of partly
to the total paid
non- considera shares or
reside tion is warrants.
nts if required
(i) to be
pricin paid up
Pricin
g of front; g
partly and (ii) under
paid the
shares remainin the
is g amount auto
deter is
mined required matic
up to be route
front brought
and at in within Acquisiti
least a period on of
25% of 18 shares of
of the months. an Indian
total Further, company
consid the price
eratio at the
n time of by a
amou conversio person
nt is n should resident
paid not be outside
up less than India
front; the fair under the
and value of automati
(ii) the c route
the shares as may only
remai calculate be made
ning d at the in
amou time of accordan
nt is issuance ce with
invest of such the
ed warrants. pricing
within requirem
a ents
It must
period also be provided
of 12 noted in the
month that only FDI
s of companie Regulati
issuan s in ons. The
ce. As which price of
regard investme shares
s the nt can be issued to
issuan made non-
ce of under the residents
cannot be
less ons
than Ove
the
fair Payments rse
value for
of foreign as
shares technolo
as gy Dire
deter collabora
mined tion by ct
as per Indian
any companie
intern s are Inve
ationa allowed
lly under the stm
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hDesai
N iAssoc
2 i tiates
s h2016
Legal & Tax Issues
the
nt by foreign
Indian Indivi exchange
party dual facilities
on available
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down Regulatio Remittan
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The individua individua
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engag Scheme.
Nishith Desai
Associates 2016
25
and
ct,
61
Tr
ansfe
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s.
T1. The
ITA
aThe defin
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pitaIn case
l the
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ns held as Desai
cha a Associ
ates
racttrading 2016
eriz
amating also been
compan included
y in case
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Gai involvin
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ns Section banking
47(vi):
Tax The compani
74
Impl transfer es.
icati of a
ons capital
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Mer a amalga
gers scheme mating
of company
amalga (transfer
Sectio
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n 47
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rs that
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n 45 transfers
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y is an
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Indian
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company
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and note that company
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The essential of the
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nt merger asset i.e.
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Under the
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This amalgam
section
only ated
Nishith
requires Desai company,
that the Associates this
amalga 2016
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between pricing
gains
the requireme
realize
consider nts under
d
ation and Indian
would
the fair law,
be
market mandatin
taxed
value g the
as
would be transactio
short
added to n to be
term undertake
its gross
capital n at an
total
gains, arms
income
and length
i.e. at taxed at price and
the applicabl other
rate of e rates in document
30% the ation
(exclu hands of requireme
sive of transfere nts.
surcha 87
rge e.
and
educat Applicab Computable
ion le under the
Income Tax
cess). surcharg Rules, 1962.
e on
Furthe compani However,
r, if es would this liability
may be
shares be 5% if neutralized
of an income for a non-
Indian is resident if it
is resident in
unliste between a jurisdiction
d INR 1- with which
compa 10 crores India has
entered into
ny are and 10% a beneficial
transfeif tax treaty.
rred to
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reside exceeds
nt or INR 10 31
crores.
provi gam
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previous
void permissio
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shareh 281 is key
olders Where in a
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amate nt n
d or proceedin situation
the gs or tax in a case
resulti litigations where the
ng under the transferor
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n pending pending
compa on any tax
89 person, litigations
ny. including under the
a ITA at
Furthe company, any level.
r, any
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ITA 281 of slump
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payabl Karnatak could be
e as a Value said that a
per Added transfer of
Financ goods in
Tax Act,
e Bill, connectio
2003
2016.. n with the
(KVAT sale of the
Legal & Tax
), in business
Issues
connecti of the
on with seller, is
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Ni D ai 2016
33 shi e A
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aj n
3 hith Desai
N Associate
4 is s 2016
Legal & Tax Issues
7. Conclusion
procedure required for the should only be available to
sanction of a scheme of persons holding a
91
arrangement. substantial stake in the
As Dale Carnegie said Flaming enthusiasm, backed by company.
horse sense and persistence, is the quality that most
frequently makes for success. A quote that holds good for As George Bernard
The recommendations of
M&A in India, and a credo to which Indian companies seem 92
the JJ Irani Report are of Shaw is reputed to
to subscribe given their successes to date in completing
particular significance in have said we are made
acquisitions. There is little to stop Indian companies that
this regard. The Report
desire to be global names for playing the merger and wise not by the
has recommended that
amalgamation game globally. With a plethora of financing recollection of our past,
legal recognition to
options, this aspiration has become a reality for many but by the responsibility
contractual merger (i.e.,
corporate houses, who can now boast of having the best in for our future, and the
mergers without the
the industry under their wings. Indian companies have often future of India is bright
intervention of the court)
surpassed their foreign counterparts in corporate indeed.
can go a long way in
restructuring both within and beyond the national frontiers.
eliminating the
Mergers and acquisitions are powerful indicators of a robust
obstructions to mergers in
and growing economy. The legal framework for such
India. The report also
corporate restructuring must be easy and facilitative and not
recommended that the
restrictive and mired in bureaucratic and regulatory hurdles. Team M&A
right to object to a scheme
The biggest obstacle in the way of completing a merger or an
of merger/ acquisition
amalgamation remains the often long drawn out court
91. November 24, 1888 November 1, 1955.

1925.
92.
July 26, 1856
November 2, 1950,
Nobel Prize for
35
Literature Nishith Desai Associates 2016
Annexure 1
sponsor, trustees, offer under these
trustee company, regulations;
and asset
Meaning of management
company;
Persons an investment
company or fund
Acting in a collective
investment
and any person
who has an
Concert scheme and its
collective
interest in such
investment
investment company or fund
Regulation 2(1) (q) management as a shareholder
person acting in concert company, trustees
or unit holder
means, - persons who, and trustee having not less
with a common objective company;
than 10 per cent
or purpose of acquisition
of the paid-up
of shares or voting rights
a venture capital capital of the
in, or exercising control
fund and its investment
over a target company,
sponsor, trustees, company or unit
pursuant to an agreement
trustee company capital of the
or understanding, formal
and asset fund, and any
or informal, directly or
management other investment
indirectly co-operate for
company; company or fund
acquisition of shares or
in which such
voting rights in, or
person or his
exercise of control over
a foreign associate holds
the target company.
institutional not less than 10
per cent of the
Without prejudice to the investor and its paid-up capital of
generality of the sub-accounts;
that investment
foregoing, the persons company or unit
falling within the a merchant banker capital of that
following categories shall and its client, who fund:
be deemed to be persons is an acquirer;
acting in concert with
Note: For the
other persons within the a portfolio
purposes of this
same category, unless the manager and its
clause `associate
contrary is established, client, who is an
means:
acquirer;
a company, its holding
any immediate
company, subsidiary banks, financial
relative of such
company and any advisors and stock
person;
company under the same brokers of the
management or control; acquirer, or of any
company which is trusts of which
a holding company such person or his
a company, its directors,
or subsidiary of the immediate
and any person entrusted acquirer, and where
relative is a
with the management of the acquirer is an
trustee;
the company; individual, of the
immediate relative partnership firm
directors of companies of such individual:
in which such
referred to in item (i) and
person or his
(ii) of this sub-clause and Provided that this
immediate
associates of such direc- sub-clause shall
relative is a
tors; not apply to a partner; and
bank whose sole
promoters and members role is that of
members of
of the promoter group; providing normal
Hindu undivided
commercial families of which
immediate relatives; banking services such person is a
or activities in coparcener.
a mutual fund, its relation to an open
2016
36
than
three
years
Qu prior to
the
alif propose
yin d
acquisiti
g on;
Pe a
company
rso , its
subsidiar
ns ies, its
un holding
company
der ,subsidiar
other
the ies
such
of
Ta holding
company
ke ,holding
persons
ov not
than
less
er fifty per
cent
Co of the
de equity
shares
inclofcompan
such
ud y,compani
other
e es in
which
imme such
diate persons
relativ hold not
es; less than
fifty per
cent of
person the
s equity
named shares, Nishith
as and
Desai
Associates
promo their 2016
ters in subsidia
the ries Legal & Tax
Issues
shareh subject
olding to
iv.
patter control
persons
n filed over
acting in
by the such
concert
target
for not
compa
less than
ny in qualifyi
three
terms ng
years
of the persons
prior to
listing being
the
agree exclusiv
propose
ment ely held
by the d
or
acquisiti
these same
on, and
regula persons;
disclose
tions
d as
for not
such
less
pursuant
to and any
filings compan
under y in
the which
listing the
agree entire
ment; equity
and share
capital
shareh is
olders owned
of a by such
target sharehol
compa ders in
ny the
who same
have proporti
been on as
person their
s holdings
acting in the
in target
concer
t for a compan
period y
of not without
less any
than different
three ial
years entitlem
prior ent to
to the exercise
proposvoting
ed rights in
acquis such
ition compan
and y.
are
disclo
sed as
such
pursua
nt to
filings
under
the
listing
agree
ment,
37
Annexure 2
considered; respectively, of
the consolidated
the volume- net asset value
weighted average consolidated
I. market price of
such shares for a
sales turnover
and the
Regulation period of sixty
trading days
enterprise value
entity or
8 immediately
preceding the
business being
directly acquired
date of the public is in excess of
announcement as fifteen per cent,
The highest negotiated traded on the on the basis of
price per share of the stock exchange the most recent
target company under the where the audited annual
agreement triggering the maximum financial
open offer; volume of trading statements.
in the shares of
The volume-weighted the target where the shares
average price paid or company are are not
payable for acquisitions, recorded during frequently
by the acquirer or person such period, traded, the price
acting in concert with provided such determined by
him, during the fifty-two shares are the acquirer and
weeks immediately frequently traded; the man-ager to
preceding the date of the the open offer
public announcement; taking into
In case of indirect account valua-
In case of indirect acquisition the tion parameters
acquisition the fifty-two sixty trading days including, book
weeks immediately immediately value, compara-
preceding the earlier of, preceding the ble trading
the date on which the earlier of, the date multiples, and
primary acquisition is on which the such other
contracted, and the date primary parameters as
on which the intention or acquisition is are customary
the decision to make the contracted, and for valuation of
primary acquisition is the date on which shares of such
announced in the public the intention or companies; and
domain is considered; the decision to
make the primary In case of
the highest price paid or acquisition is indirect
payable for any announced in the acquisition, (f)
acquisition, by the public domain above shall not
acquirer or by any person shall be be considered to
acting in concert with considered; the determine the
him, during the twenty-sixper share value offer price and
weeks immediately computed for any instead the
preceding the date of the indirectly following
public announcement; acquired target parameter will
company in cases be considered:
where the
In case of indirect proportionate net
acquisition the twenty-six asset value, the highest price
weeks immediately paid or payable
proportionate for any
preceding the earlier of, sales turnover
acquisition,
the date on which the and proportionate whether by the
primary acquisition is market acquirer or by any
contracted, and the date capitalization of person acting in
on which the intention or the indirectly concert with him,
the decision to make the acquired target between the
primary acquisition is earlier of, the date
company as a on which the
announced in the public percentage
domain shall be primary
acquisition is contracted, the public domain, shares of the
and the date on which the and the date of the target company
intention or the decision to public made under these
make the primary announcement of regulations.
acquisition is announced in the open offer for
38 Nishith Desai
Associates 2016
The following research papers and much more are available on our Knowledge Site: www.nishithdesai.com
Fund Structuring
E-Commerce in
The Curious Case
and Operations
India
of the Indian
Gaming Laws
July 2016
July 2015
September 2015
Corporate Social
Joint-Ventures in
Outbound
Responsibility &
India
Acquisitions by
Social Business
India-Inc
Models in India
March 2016
November 2014
September 2014
Internet of Things
Doing Business in
Private Equity
India
and Private Debt
Investments in
India
April 2016
June 2016
June 2015
M&A Lab
Real Financing - Onshore and May 2014
Offshore Debt Funding Realty in M&A Lab
India May 2014
NDA Insights M&A Lab
May 2014
Pharma Patent Case Study Patni
plays to iGates tunes IP Lab
TITLE September 2013
Vedanta Acquires Control Over
Cairn India Corporate Citizenry M&A Lab
Thomas Cook Sterling Holiday Buyout Reliance tunes in the face of Corruption August 2013
into Network18! IP Lab
Sun Pharma Ranbaxy, A Panacea for Ranbaxys ills? Jet April 2013
Etihad Jet Gets a Co-Pilot Funding Real Estate Projects - M&A Lab
Apollos Bumpy Ride in Pursuit of Cooper Exit Challenges January 2013
Realty Check
Diageo-USL- King of Good Times; Hands over Crown May 2012
Jewel to Diageo IP Lab
March 2012
Copyright Amendment Bill 2012 receives Indian M&A Lab
Parliaments assent January 2012
M&A Lab
TYPE January 2012
Public M&As in India: Takeover Code Dissected DATE Yes, Govern-
M&A Lab September 2011
File Foreign Application Prosecution History With Indian December 2014 ance Matters!
Patent Office M&A Lab
December 2014
Realty Check
Warburg - Future Capital - Deal Dissected M&A Lab
April 2011
December 2014
Associates 2016
40
Nishith Desai
Research@NDA
Research is the DNA of NDA. In early 1980s, our firm emerged from an extensive, and then pioneering, research
by Nishith M. Desai on the taxation of cross-border transactions. The research book written by him provided the
foundation for our international tax practice. Since then, we have relied upon research to be the cornerstone of our
practice development. Today, research is fully ingrained in the firms culture.
Research has offered us the way to create thought leadership in various areas of law and public policy. Through
research, we discover new thinking, approaches, skills, reflections on jurisprudence,
and ultimately deliver superior value to our clients.
Over the years, we have produced some outstanding research papers, reports and articles. Almost on
a daily basis, we analyze and offer our perspective on latest legal developments through our Hotlines. These
Hotlines provide immediate awareness and quick reference, and have been eagerly received. We also provide
expanded commentary on issues through detailed articles for publication in newspapers and periodicals for dis-
semination to wider audience. Our NDA Insights dissect and analyze a published, distinctive legal transaction
using multiple lenses and offer various perspectives, including some even overlooked by the executors of the
transaction.
We regularly write extensive research papers and disseminate them through our website. Although we invest
heavily in terms of associates time and expenses in our research activities, we are happy to provide unlimited
access to our research to our clients and the community for greater good.
Our research has also contributed to public policy discourse, helped state and central governments in drafting
statutes, and provided regulators with a much needed comparative base for rule making.
Our ThinkTank discourses on Taxation of eCommerce, Arbitration, and Direct Tax Code have been widely
acknowledged.
As we continue to grow through our research-based approach, we are now in the second phase of establishing a
four-acre, state-of-the-art research center, just a 45-minute ferry ride from Mumbai
but in the middle of verdant hills of reclusive Alibaug-Raigadh district. The center will become the hub for research
activities involving our own associates as well as legal and tax researchers from world over.
It will also provide the platform to internationally renowned professionals to share their expertise and experience
with our associates and select clients.
We would love to hear from you about any suggestions you may have on our research reports.
Please feel free to contact us at research@nishithdesai.com

2016
SILICON VALLEY BANGALORE
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80539 Munich, Germany
tel +49 89 203 006 268 fax +49

89 203 006 450
tel +91 22 6159 5000
fax +91 11 4906 5001
fax +91 22 6159 5001
NEW YORK
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New York, NY 10152
tel +1 212 763 0080

International Commercial Arbitration
Law and Recent Developments in India
Copyright
2016 Nishith
Desai
Associates
www.nishithde
sai.com

Mergers Acquisitions in India

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MUMBAI SILICON VALLEY BANGALORE SINGAPORE MUMBAI BKC NEW DELHI MUNICH NEW YORK

Copyright 2016 Nishith Desai Associates

Nishith Desai Associates

Nishith Desai Associates 2016

MERGERS AND AMALGAMATIONS: KEY CORPORATE AND SECURITIES

Nishith Desai Associates

Legal & Tax Issues

2. Mergers and Amalgamations: Key

A. Procedure under the Merger

Legal & Tax Issues

3. Acquisitions: Key Corporate and Securities

Legal & Tax Issues

Legal & Tax Issues

Legal & Tax Issues

Legal & Tax Issues

Mergers & Acquisitions in India

Legal & Tax Issues

91. November 24, 1888 November 1, 1955.

and ultimately deliver superior value to our clients.

Please feel free to contact us at research@nishithdesai.com

Nishith Desai Associates

220 S California Ave., Suite 201

Mumbai 400 021, India Palo Alto, California 94306, USA

SINGAPORE fax +1 650 325 7300

80539 Munich, Germany

tel +49 89 203 006 268 fax +49

fax +91 22 6159 5001

375 Park Ave Suite 2607

New York, NY 10152

tel +1 212 763 0080

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