Legal Framework for Mergers and Acquisitions in India: Challenges and Reforms

LALITH SWETHA

3^rd Year LAW

SASTRA UNIVERSITY

ABSTARCT

The Mergers and Acquisitions (M&A) landscape in India has experienced significant growth and resilience from 2015 to 2021, driven by key sectors such as finance, retail, technology, and manufacturing. The COVID-19 pandemic further accelerated this trend as businesses sought mergers and acquisitions for sustainable growth. India has become a focal point for foreign direct investment (FDI), with global companies eyeing the market’s potential despite challenges posed by the country’s complex regulatory and political environment. Legal frameworks governing M&A in India are extensive, covering areas like corporate law, competition, taxation, and insolvency. These regulations ensure transparency and fairness, yet they also present challenges due to bureaucratic hurdles and regulatory delays. Recent reforms have sought to streamline the M&A process, making it more efficient and attractive to investors. However, there remains a need for further legal enhancements to reduce risks, improve predictability, and bolster investor confidence. Reforms that promote clearer and more efficient procedures, along with stronger enforcement mechanisms, would strengthen India’s position as a premier destination for global mergers and acquisitions. While M&A activity in India has faced occasional setbacks, the evolving legal framework and continued market opportunities position the country for sustained growth in the global M&A arena.

KEY WORDS: listed companies, securities, regulatory, compliance

Introduction to M&A Activity in India

Between 2015 and 2021, merger and acquisition (M&A) activity in India has shown remarkable resilience and growth, despite occasional downturns. The surge in M&A transactions has been particularly notable in sectors such as finance, retail, technology, automotive, manufacturing, and logistics. This trend has been driven by an influx of foreign direct investment (FDI) and ample cash reserves within many Indian startups and digital-first companies.

The disruptions caused by the COVID-19 pandemic accelerated this trend, prompting businesses to turn to M&As as a strategy for sustained growth. Pragmatic reforms in India’s regulatory landscape have further facilitated the M&A process, making it more efficient. Although some exceptions exist, these reforms have significantly streamlined the procedure for corporate amalgamations in India.

Types of M&A Transactions

1. Mergers

In India, while the term “merger” is not explicitly defined under the Companies Act, 2013, or the Income-tax Act, 1961, the Income-tax Act’s Section 2(1B) refers to “amalgamation” as a synonymous term. Amalgamation involves the merger of one or more companies into another or the combination of two or more companies to form a single entity. The conditions for a valid amalgamation are as follows:

• All assets and liabilities of the merging companies are transferred to the merged company.
• Shareholders holding at least three-fourths of the value of shares in the amalgamating company must become shareholders in the amalgamated company.

Sections 230 to 234 of the Companies Act, 2013 outline the legal procedures for mergers, including the need for approval from shareholders, creditors, and regulatory bodies. Mergers can be classified into several categories:

• Horizontal Merger: Between companies in the same industry and at the same stage of production, usually to reduce competition or increase market share.
• Vertical Merger: Between companies at different stages of the production process, aimed at enhancing operational efficiency and supply chain control.
• Co-generic Merger: Between companies in related industries, allowing easier integration due to shared customer bases or technologies.
• Conglomerate Merger: Between companies in unrelated industries, typically aimed at diversification and risk management.
• Forward Merger: Between a company and its customer, enhancing market control and customer relationships.
• Reverse Merger: Between a company and its supplier, enabling better control over raw material sourcing.
• Cash Merger: Where shareholders of the acquired company receive cash in lieu of shares in the merged entity.

2. Acquisitions

An acquisition refers to the purchase of a controlling interest in the share capital or assets of another company. Acquisitions can be either friendly or hostile, depending on whether the target company consents to the acquisition. Acquisitions can take various forms:

• Share Acquisition: Acquiring shares either by purchasing from existing shareholders or subscribing to new shares issued by the target company.
• Asset Transfer: Acquiring specific assets, such as intellectual property, real estate, or equipment.
• Business Sale (Slump Sale): Acquiring an entire business as a going concern, where the company’s assets and liabilities are transferred as a whole. This is often used for tax efficiency, as no individual asset valuation is necessary.
• Subscription to Fresh Shares: Acquiring shares by subscribing to new stock issued by the target company.

3. Joint Ventures

A joint venture (JV) is a strategic partnership between two or more companies to pursue a specific objective, such as entering a new market or developing new products. JVs involve shared investments, management, risks, and rewards, and can be structured as a new entity or operate through an existing one. The JV agreement governs the rights, responsibilities, and management of the venture, with the parties typically sharing control in proportion to their contributions.

Regulatory Authorities

M&A transactions in India are governed primarily by the Companies Act, 2013 and the Income Tax Act, 1961. The regulatory environment is complex, involving multiple authorities depending on the nature of the companies involved, such as listed vs. unlisted companies, and domestic vs. foreign companies. Key authorities involved in M&A proceedings include:

• National Company Law Tribunal (NCLT): The NCLT plays a pivotal role in approving mergers and acquisitions, particularly through the scheme of arrangement under Sections 230 to 232 of the Companies Act, 2013. The NCLT requires approval from shareholders and creditors (representing at least 75% of the value) before granting approval for mergers and acquisitions.
• Regional Directors: Regional directors ensure compliance with the law and examine whether the merger or acquisition is in the public interest.
• Registrar of Companies (RoC): Once NCLT approval is granted, the merger must be filed with the RoC for registration. Non-compliance within the specified period (30 days) results in penalties.
• Official Liquidators: In cases of liquidation, official liquidators are appointed by the government to oversee the winding-up of a company’s affairs.

M&A Procedures

The procedural steps for mergers and acquisitions in India are as follows:

1. Scheme of Arrangement: A detailed proposal outlining the terms of the merger or acquisition, which must be approved by the boards of both the transferring and receiving companies.
2. First Motion Application: A petition is filed with the NCLT to seek permission to convene meetings of shareholders and creditors.
3. Approval of Shareholders and Creditors: Shareholder and creditor meetings are convened, with approvals required from at least 75% of the value.
4. Second Motion Application: After obtaining necessary approvals, a second petition is filed with the NCLT for final approval.
5. Registration with RoC: After NCLT approval, the order must be filed with the RoC within 30 days.

A Fast-Track Merger process, available under Section 233 of the Companies Act, is also available for small companies, holding companies, subsidiaries, and startups. This procedure simplifies the process and requires approval from the Ministry of Corporate Affairs within 60 days.

Distressed Acquisitions

The Insolvency and Bankruptcy Code (IBC), 2016 governs distressed acquisitions in India. The IBC provides a time-bound resolution for corporate defaults, managed by a Resolution Professional (RP) appointed by the Insolvency and Bankruptcy Board of India (IBBI). Key steps in the process include:

1. Initiation: The process begins when a debtor defaults on a debt of INR 1 crore or more.
2. Moratorium: A temporary suspension of all legal proceedings against the debtor.
3. Resolution Plan: Interested parties submit plans to resolve the company’s financial distress.
4. NCLT Approval: The NCLT reviews and approves the resolution plan, which must be endorsed by creditors.

Recent Trends and Key Sectors in M&A Activity

India’s M&A landscape has been particularly vibrant between 2015 and 2019, continuing to grow in recent years. In 2022, M&A deals in India hit a record USD 107 billion, highlighted by the landmark USD 60 billion merger of HDFC and HDFC Bank—the largest transaction in Indian corporate history.

Key sectors contributing to M&A activity include:

• Banking and Financial Services
• Information Technology (IT) and Fintech
• Energy and Infrastructure
• Manufacturing
• Aviation and Cement

The growing M&A activity reflects India’s increasing prominence in global dealmaking and its evolving role as a hub for corporate restructuring and expansion.

Mergers and acquisitions in India have become a vital part of the business landscape, driven by strategic objectives such as market consolidation, technology acquisition, and diversification into new sectors. The regulatory framework, including the Companies Act, 2013 and the Income-tax Act, 1961, along with reforms that streamline the M&A process, have made the country an attractive destination for M&A activity. Companies engaging in M&As must navigate a complex legal environment, but the potential benefits in terms of growth, efficiency, and market control make it a powerful tool in today’s corporate strategy. The continued rise in deal activity across multiple sectors underscores India’s robust M&A market and its emergence as a global player in corporate transactions.

Regulatory Framework for Mergers and Acquisitions

Mergers and acquisitions in India are governed by a comprehensive set of laws and regulations that ensure fairness, transparency, and protection for stakeholders. These frameworks span various legal domains including corporate, contractual, financial, competition, tax, and insolvency laws. Below is a detailed analysis of how these legal fields regulate M&A transactions in India:

1. Companies Act, 2013 (CA 2013)

The Companies Act, 2013 serves as the primary legislation governing corporate restructuring in India. Sections 230-240 regulate mergers, demergers, and capital reductions, requiring approval from shareholders, creditors, and the National Company Law Tribunal (NCLT). The Act provides specific provisions for fast-track mergers (Section 233) for small companies and subsidiaries, and allows cross-border mergers (Section 234) with approval from the Reserve Bank of India (RBI). It also facilitates minority shareholder protection (Section 235) and governs share issuance, transfer, and capital reduction with NCLT oversight. Squeeze-out provisions in Section 236 allow majority shareholders to buy out minority interests.

2. Indian Contract Act, 1872

The Indian Contract Act, 1872 ensures the validity of agreements formed during M&A transactions. It lays down essential principles for contract formation, including mutual consent, lawful consideration, and the capacity of parties. The Act also provides a framework for resolving disputes arising from breaches or violations of contract terms during M&As, ensuring enforceability of the agreements entered into by the parties involved.

3. Securities and Exchange Board of India (SEBI) Regulations

SEBI regulates M&As involving listed companies through various key frameworks:

• SEBI Takeover Code (2011): Regulates share acquisitions, requiring acquirers to make an open offer if acquiring 25% or more of voting rights, ensuring fair treatment of minority shareholders.
• SEBI Listing Regulations (2015): Mandates disclosures regarding merger schemes, shareholding patterns, and valuation reports, and requires approval from stock exchanges before seeking NCLT approval.
• SEBI Insider Trading Regulations (2015): Prevents insider trading by controlling the dissemination of non-public, price-sensitive information during the M&A process.
• SEBI Delisting Regulations (2009): Provides the process for voluntary delisting of shares following an M&A, including reverse book-building for exit price determination.
• SEBI ICDR Regulations (2018): Governs the issuance of securities in M&As, specifying pricing mechanisms and lock-in periods, with particular provisions for preferential allotments and their regulation.

4. Foreign Exchange Management Act, 1999 (FEMA)

FEMA regulates foreign investments and cross-border M&As in India. It mandates compliance with foreign direct investment (FDI) norms, sets conditions for foreign capital inflows, and requires prior RBI approval for certain foreign investments. The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 ensure that cross-border mergers align with foreign exchange policies. Furthermore, FEMA and RBI jointly establish valuation norms for cross-border transactions and ensure compliance with FDI guidelines through rigorous reporting and documentation.

5. Income Tax Act, 1961 and GST Act, 2017

The taxation framework for M&A is governed by the Income Tax Act, 1961, and the Goods and Services Tax (GST) Act, 2017. The Income Tax Act addresses capital gains tax, treatment of losses, and Minimum Alternate Tax (MAT) implications. It provides exemptions for capital gains in specific M&A scenarios, with provisions for carrying forward accumulated losses. The GST Act regulates the tax treatment of asset purchases and slump sales in M&A, while exempting share transfers, including those occurring in amalgamations and demergers. The tax regime encourages tax-efficient structuring of M&A, supported by advance rulings from tax authorities and the application of Double Taxation Avoidance Agreements (DTAAs) in cross-border M&A.

6. Competition Act, 2002

The Competition Act, 2002 regulates anti-competitive practices arising from M&A. Sections 5 and 6 impose notification requirements on companies meeting specified thresholds for assets and turnover, requiring clearance from the Competition Commission of India (CCI). The CCI evaluates whether the merger will lead to an Appreciable Adverse Effect on Competition (AAEC) in the market and may impose remedies like asset divestitures or licensing. The decision of the CCI can be appealed before the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court.

7. Insolvency and Bankruptcy Code, 2016 (IBC)

The IBC provides a legal framework for the restructuring and acquisition of insolvent companies through the Corporate Insolvency Resolution Process (CIRP). M&A in insolvency situations are facilitated by the IBC, which prioritizes the sale of distressed companies as going concerns. The NCLT supervises the insolvency process, including the approval of resolution plans and M&As. The IBC has become a significant mechanism for acquiring insolvent firms, ensuring continuity in business operations and value maximization for creditors.

8. Indian Stamp Act, 1899

The Indian Stamp Act governs the stamp duty applicable to transaction documents in M&As including share transfers, merger agreements, and NCLT orders. Stamp duty is levied on documents effecting the transfer of property, and the rate varies depending on the type of transaction. A nominal stamp duty of 0.015% applies to share transfers, while other agreements related to mergers and acquisitions may incur varying stamp duty based on state-specific regulations.

9. Specific Relief Act, 1963

The Specific Relief Act, 1963 provides remedies for breach of contract in M&A transactions. It allows parties to seek specific performance, compelling the defaulting party to honor contractual obligations. Injunctions may be sought to prevent breaches of contract, ensuring the continuation of M&A transactions as per agreed terms. The Act facilitates dispute resolution through civil courts and arbitral tribunals, ensuring that contractual obligations are enforced.

10. Criminal Laws

The Bhartiya Nyaya Sanhita, 2023, and the Bhartiya Nagarik Suraksha Sanhita, 2023 address criminal penalties and investigative procedures in M&A disputes involving fraud or other criminal activities. In cases of money laundering, the Enforcement Directorate (ED) acts under the Prevention of Money Laundering Act, 2002 (PMLA) to investigate M&A involving illicit financial activities.

11. Other Legislation

Labor laws govern employment-related matters in M&As, including the transfer of employees, changes to service terms, wages, and working conditions. Sector-specific regulations such as the Banking Regulation Act, 1949 and Insurance Act, 1938 apply in regulated sectors like banking and insurance. Regulatory bodies like the RBI and IRDAI issue sector-specific guidelines to address employment issues during M&A in these industries.

The regulation of mergers and acquisitions in India is multifaceted, encompassing a wide range of legal domains. From corporate governance and competition law to taxation and labor regulations, these legal frameworks collectively ensure that M&A transactions are conducted transparently, efficiently, and in compliance with national interests. Each piece of legislation serves to balance the interests of various stakeholders, including shareholders, creditors, employees, and regulators, while fostering fair competition and financial stability.

Challenges Faced by Multinational Corporations (MNCs) in Mergers and Acquisitions

In the current era of globalization, multinational corporations (MNCs) are increasingly focusing on expanding their business operations into developing markets, with India being a prime target for foreign direct investment (FDI) and mergers and acquisitions. While these transactions offer significant growth opportunities, they are also fraught with various challenges that stem from India’s complex regulatory and political environment. The success of such investments depends heavily on factors such as the host country’s legal frameworks, institutional stability, political environment, and economic conditions. Research has indicated that weak corporate governance, inadequate regulatory enforcement, and the risk of political interference can severely hinder the success or failure of cross-border mergers and acquisitions. For MNCs, the need for thorough due diligence and careful assessment of India’s institutional landscape is paramount to mitigating these risks.

1. Weak Legal and Regulatory Framework

India’s legal and regulatory system has been a subject of criticism due to its inefficiencies and lack of transparency, factors that can cause substantial delays in the completion of M&A transactions. Several high-profile deals have faced prolonged approval processes or even failed due to issues related to the regulatory environment. For example, the Bharti Airtel-MTN telecom merger and the Vedanta-Cairn India energy acquisition were both delayed due to challenges in regulatory approvals, such as disputes over open offers and concerns related to state-owned enterprises. Similarly, the Aircel-Maxi’s deal was stalled for months, primarily due to the involvement of government officials who held equity stakes in the target company (India Today, 2012). The lack of coordination between regulatory agencies such as the Competition Commission of India (CCI) and other relevant bodies often leads to contradictory decisions, creating an unpredictable environment for foreign investors. Such regulatory inconsistencies not only result in delays but also heighten the risks associated with non-compliance, further deterring MNCs from entering the Indian market.

2. Political Interference and Institutional Instability

Political instability and the influence of coalition politics present considerable risks for MNCs seeking to invest in India. The unpredictable nature of the country’s political system, combined with delays in the passage of critical legislation, can complicate investment decisions. For instance, the Vodafone-Hutchison telecom deal faced a lengthy tax dispute between 2007 and 2012, where the Indian government attempted to impose tax liabilities retroactively on the deal, despite it having been concluded earlier. Such instances of political interference and retrospective tax claims create significant legal and financial uncertainties for foreign investors. Furthermore, the example of the Mahindra Satyam-Tech Mahindra merger, which was severely impacted by Satyam’s accounting fraud, demonstrates how institutional instability and political factors can derail even well-structured mergers. Given these risks, MNCs must be prepared to face potential disruptions caused by political interference when entering the Indian market.

3. Regulatory Approvals and Compliance

M&A transactions in India are subject to a highly complex regulatory framework that involves multiple agencies and compliance requirements. Among the key agencies that oversee M&As are the Competition Commission of India (CCI), Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and the Enforcement Directorate (ED). For example, the Companies Act, 2013 provides the legal framework for mergers, while SEBI’s takeover regulations govern mergers involving listed companies. The CCI ensures that no anti-competitive practices result from such transactions, and the ED enforces compliance with FEMA (Foreign Exchange Management Act) and PMLA (Prevention of Money Laundering Act).

The requirement to secure approval from all these agencies creates a cumbersome and time-consuming process for foreign investors. Delays in obtaining necessary regulatory approvals can lead to disruptions in deal structures, affect valuations, and extend timelines, further complicating the M&A process. The necessity of complying with diverse and sometimes contradictory regulations can also introduce risks related to non-compliance, which may result in penalties or even the cancellation of deals. These regulatory challenges make M&A in India more difficult to navigate compared to more streamlined processes in other markets.

4. Business Valuation

Valuation is a crucial aspect of any merger or acquisition, as it determines the financial terms of the deal and ensures that both parties are receiving a fair exchange of value. However, in India, accurately valuing a business can be fraught with challenges. A key issue is the lack of transparency in financial reporting, which can make it difficult to fully assess the financial health of a target company. In addition, discrepancies in accounting practices and the absence of standardized valuation methods across industries can lead to inconsistencies in the way businesses are valued.

Further complicating the process, the valuation of an acquired company may be influenced by factors such as regulatory restrictions on foreign investments, which can impact the price at which a company is bought or sold. Currency fluctuations also play a significant role in altering the financial landscape of an M&A transaction, especially in cases involving cross-border investments. As a result, MNCs must account for a variety of variables, including regulatory restrictions, economic conditions, and financial market volatility, when determining the value of a target company.

5. Comprehensive evaluations of M&A transaction

Conducting comprehensive due diligence is an essential step in any M&A transaction, as it helps identify potential legal, financial, and operational risks that may affect the success of the deal. However, due diligence in India is often more challenging due to a range of factors. For instance, assessing a target company’s capital structure, shareholding patterns, and board composition is crucial, but the presence of multiple layers of ownership or complex shareholder agreements can make this process more complicated.

MNCs must also evaluate a company’s debt levels, existing financial liabilities, and any potential claims or litigation. This includes understanding asset security, pending regulatory filings, and assessing the company’s overall financial health. Another significant aspect of due diligence in India is examining employee contracts, outstanding litigation, and any liabilities—whether they are current or potential—that could affect the acquisition.

Thorough due diligence helps ensure that MNCs are fully aware of any risks associated with the target company before proceeding with a deal. By identifying potential legal or financial hurdles early in the process, MNCs can adjust their bid price or make modifications to the deal structure, ultimately safeguarding their investment and ensuring that the acquisition process goes smoothly.

6. Corporate Governance Issues

Corporate governance remains a significant challenge in India, particularly for MNCs seeking to engage in M&As. Weak corporate governance practices, such as lack of transparency, poor internal controls, and insufficient shareholder protection, can create significant risks for foreign investors. These issues can manifest in various forms, including misreporting of financials, conflicts of interest within the company, and failure to comply with statutory obligations.

Given the importance of strong governance in ensuring the success of M&A transactions, MNCs must carefully evaluate the corporate governance standards of a target company before proceeding with any deal. If the target company’s governance practices are found to be lacking, MNCs may need to invest additional resources in restructuring the company’s internal controls and management practices post-acquisition. This can significantly affect the overall value of the deal, both in terms of financial and operational costs.

7. Currency and Exchange Rate Volatility

Currency fluctuations are another major challenge when conducting M&As in India, especially in cases involving cross-border transactions. Given the volatility of the Indian Rupee (INR), foreign investors are exposed to the risk of changes in exchange rates that can affect the overall cost of the deal. Fluctuations in currency can lead to significant variations in the valuation of the target company, potentially altering the agreed-upon terms of the deal.

To mitigate these risks, MNCs must carefully assess currency market trends and consider employing hedging strategies to protect themselves against unfavorable exchange rate movements. These strategies can help stabilize the financial terms of the deal and reduce the potential impact of currency volatility on the overall cost of the transaction.

8. Taxation Issues

Taxation is a critical consideration for any M&A transaction, as it can significantly affect the financial structure of the deal. India’s complex tax system presents various challenges for foreign investors, especially with regard to capital gains tax, stamp duties, and transfer pricing regulations. For example, cross-border M&As may trigger capital gains tax liabilities, which could erode the financial benefits of the transaction.

Moreover, India’s transfer pricing rules require that transactions between related parties be conducted at arm’s length, adding another layer of complexity to cross-border deals. Non-compliance with these regulations can result in penalties or delays in securing regulatory approval. Given these complexities, MNCs must engage tax advisors and legal experts to ensure that they comply with all tax regulations and minimize their tax liabilities.

9. Integration Challenges

Once an M&A deal is completed, the integration process often proves to be one of the most challenging aspects of the transaction. In India, integration is further complicated by cultural differences, differing business practices, and the complexity of local regulations. For MNCs, successfully integrating an acquired company into their existing operations requires careful planning, effective communication, and a deep understanding of the local market dynamics.

Cultural integration, in particular, poses a unique challenge in India, where businesses often operate with different management styles, organizational structures, and decision-making processes compared to those in Western countries. These differences can create friction between employees, management, and stakeholders, potentially disrupting the integration process. Therefore, MNCs must invest in human resources and management strategies that foster collaboration and alignment between the two companies.

10. Regulatory Environment for Foreign Investments

India’s regulatory environment for foreign investments continues to evolve, and MNCs must stay informed about changes in policies that may impact their investment decisions. The Indian government has introduced a variety of restrictions and conditions on foreign direct investment (FDI) in certain sectors, such as defense, retail, and telecommunications. These restrictions can significantly affect the ownership structure and control that foreign investors can exert over the target company.

Additionally, changes in the government’s stance on foreign investments or shifts in economic policy can introduce uncertainty and complicate the investment process. To successfully navigate these regulatory hurdles, MNCs must closely monitor policy developments and engage local experts who can provide insights into the regulatory environment and help mitigate risks associated with foreign investments.

Investing in India through mergers and acquisitions offers MNCs vast opportunities for growth but also presents a range of challenges. From navigating a complex regulatory framework to dealing with political instability, MNCs must carefully assess the legal, financial, and political landscape before entering the Indian market. By conducting thorough due diligence, understanding the local regulatory environment, and preparing for potential risks, MNCs can enhance the likelihood of success in their M&A ventures in India.

KEY REFORMS

To enhance the legal framework for mergers and acquisitions (M&A) in India, several reforms can be implemented to improve clarity, efficiency, and investor confidence. Firstly, the definition of key terms in existing legislation, such as “merger,” “acquisition,” and “dominant position,” should be clarified to ensure consistency and reduce ambiguity in the interpretation of laws. Ambiguous legal terminology often leads to delays and legal uncertainties, which hinder the smooth completion of M&A transactions.

Secondly, the government should consider creating a dedicated high-level committee consisting of experts from institutions such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI), and the Ministry of Corporate Affairs. This committee could streamline regulatory processes, offer guidance on complex M&A transactions, and resolve legal ambiguities, ensuring that mergers and acquisitions are completed in a timely and transparent manner.

Further, there is a need for better coordination between regulatory bodies such as RBI, SEBI, and CCI in handling cross-border transactions. A special bench, consisting of representatives from these bodies, could be established to oversee M&A processes involving foreign investors, ensuring that transactions are handled with greater efficiency, reducing the time and cost involved. This could also help in addressing concerns related to investor protection and corporate governance.

Additionally, M&A laws should be modernized to reflect international best practices while taking into account India’s unique legal and economic context. The framework for antitrust reviews should be made more robust to prevent anti-competitive practices and ensure that mergers do not lead to monopolies or harm consumer welfare. Similarly, simplifying the tax treatment of M&A transactions, including clarity on cross-border tax credits and deductions, would promote foreign investment and enhance the ease of doing business.

These legal reforms would contribute to a more predictable, transparent, and efficient M&A environment in India, fostering greater foreign investment and economic growth.

CONCLUSION

The Mergers and Acquisitions (M&A) landscape in India remains dynamic and evolving, marked by notable transactions and legislative advancements that demonstrate the sector’s resilience amid a challenging global environment. Despite a dip in the number of deals in 2023 compared to the previous year, significant transactions continued to shape the market, underscoring India’s position as an attractive destination for investment.

Key developments, such as the enactment of the Digital Personal Data Protection Act, highlight India’s commitment to creating a robust data privacy regime, while the simplification of the Foreign Exchange Management (Overseas Investment) Rules has streamlined the process for outbound investments. These changes reflect the country’s progressive approach to enhancing its regulatory framework, making it more transparent and investor-friendly. The introduction of the Competition (Amendment) Act, 2023, which includes a “deal value threshold” for M&A approvals, further demonstrates the government’s focus on refining the legal landscape for corporate transactions, particularly for deals of significant scale.

Some of the major transactions in the past year, such as Adani Group’s acquisition of Ambuja Cements and ACC, the merger of PVR and Inox Leisure, and Reliance Retail Ventures’ stake acquisition in Ed-a-Mamma, showcase the diversity and scale of M&A activity in India. Additionally, Axis Bank’s acquisition of Citibank’s consumer business and the Adani Group’s merger with NDTV illustrate the continued confidence in India’s growing corporate sector, especially in the banking, media, and retail segments.

Looking ahead, while the slowdown in deal activity is expected to persist in the short term, driven by factors such as the general elections and global uncertainties, the longer-term outlook remains promising. The rise of sustainability and Environmental, Social, and Governance (ESG) considerations is likely to shape future investment strategies, as businesses increasingly align their operations with global ESG standards. Furthermore, strategic disinvestments, such as the expected sale of IDBI Bank, signal continued transformation in the financial sector, with potential for substantial restructuring and growth.

The future of M&A in India hinges not only on the continued regulatory improvements but also on the timely implementation of reforms in the legal framework governing corporate restructuring. Proposals such as the recognition of ‘contractual mergers’ and restricting objections to schemes of merger/acquisition to substantial stakeholders could significantly expedite deal closures, fostering a more efficient M&A environment. These changes, as recommended in the JJ Irani Report, would help remove bureaucratic hurdles, paving the way for smoother transactions and greater deal-making activity.

In conclusion, the Indian M&A sector stands poised for further growth, propelled by a combination of strategic investments, evolving regulatory frameworks, and the increasing importance of ESG criteria. With the right legal reforms in place, the sector can unlock its full potential, attracting more global players and reinforcing India’s position as a key player in the global M&A landscape. As India continues to embrace these transformative changes, the future of its corporate sector appears increasingly bright, supported by a forward-thinking regulatory and legal environment.