Cross-border transactions

India has witnessed an increasing interest in cross-border transactions over the last few years due to growing confidence in the economy and the various government initiatives designed to build a conducive ecosystem for doing business in India.

The key rationale behind cross-border transactions includes technological collaborations/research and development, contract manufacturing for domestic operations as well as exports, distribution, market acquisition and penetration, etc.

Some of the major regulations to be considered while undertaking an M&A transaction in India are as follows:

Companies Act, 2013

• The Companies Act, 1956, has been replaced by the Companies Act, 2013. The Act governs mergers and schemes of arrangement, including procedures for approval from the Tribunal and various stakeholders, such as shareholders, creditors, etc. While the Companies Act, 1956 did not permit an Indian company to merge with a foreign company, the Companies Act, 2013 allows such mergers subject to certain rules.
• Acquisitions must comply with the procedure stated in the company's Articles of Association for transfer of shares and the provisions relating to shareholders' approval.
• Sale of an undertaking or part thereof can be undertaken by a company with the approval of at least 75% of its shareholders.

Securities Law (governed by SEBI)

• Takeover Code: Regulates the acquisition of shares and control in listed companies
• Listing regulations: Prescribes certain mandatory conditions and procedures that listed companies must comply with
• Issue of capital and disclosure requirements: Regulates the provisions of preferential allotment for the new issue of shares
• Insider trading regulations: Controls the dispersion of unpublished price-sensitive information

Taxes and duties applicable on the basis of the mode of the transaction (acquisition, slump sale, and asset sale)

• Direct tax provisions: To consider taxes on account of transfer of capital assets and business undertakings, utilization of carried forward losses, and unabsorbed depreciation of the amalgamating company.
• Stamp duty: Payable on certain instruments/documents, such as National Company Law Tribunal (NCLT) orders for mergers and demergers, share transfer forms, shareholders' agreement/joint venture agreement, share purchase agreements, and conveyance deeds for the transfer of assets.
• FEMA: The Foreign Exchange Management (Cross-Border Merger) Regulations, 2018 (FEMA Regulations) address various issues that may arise concerning cross-border mergers from an exchange control perspective.
• Goods and Services Tax provisions: For transactions under the asset sale mode, supply or acquisition of assets will be liable for taxation under GST, while the transfer of business on a going concern basis will not be taxable. In certain cases, however, the business undertaking may be considered an asset, and therefore, GST may be applicable to such transactions.

Competition Act³⁵

The Competition Act, 2002 regulates combinations (acquisitions, acquiring of control, and mergers and acquisitions) which cause or are likely to cause an appreciable adverse effect on competition within India. The law has prescribed certain financial thresholds based on turnover/assets of the combined entity to ascertain the applicability of competition law provisions and the necessity of taking approval from the Competition Commission of India prior to the merger/acquisition, unless expressly exempted. This 'de minimis' exemption which was initially available for five years beginning 28 March 2017 has been recently extended for another five years until 28 March 2027. Furthermore, new amendments, such as the introduction of deal value thresholds, reduction of time-limit for CCI approval, enhanced penalties, etc. have been recently brought in to strengthen and simplify the provisions of the Competition Act.

With the increase in M&A activities, a robust regulatory framework is required to boost transactions. The recent passage of the Insolvency and Bankruptcy Code, GST legislation, and FEMA regulations mentioned above further strengthen India's regulatory framework. While the bankruptcy law promotes foreign investment and domestic lending by expediting debt recovery, GST promises to boost GDP growth through increasing transparency and efficiency across different sectors of the economy. The IBC Code, via an amendment in 2019, has now allowed the inclusion of mergers, amalgamations, and demergers in the resolution plan for restructuring of corporate debtors³⁶. The FEMA Regulations guide foreign companies for ease of mergers with domestic companies. Bolstered by these policy developments, along with liberalized FDI thresholds and relaxed sectoral reforms, both M&A activity and private equity investments are likely to rise in the coming years.

• 35. The Competition Act, 2002, Competition Commission of India, https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf, as accessed on 17 July 2023
• 36.What's New, Insolvency and Bankruptcy Board of India, https://www.ibbi.gov.in/uploads/whatsnew/bill, as accessed on 17 July 2023