COURSE: Hons III -

Law of Mergers and

Governance
COURSE CODE: LH 523
SURYA SAXENA
ICFAI LAW SCHOOL
 SUGGESTED READINGS
• 1. H. R. Machiraju : Mergers, Acquisitions and
Takeovers
 Introduction
• Merger and Acquisition are most talked about subjects these
days.
• Often these are interchangeably used although they have
different legal meanings.
• Merger means integration of two entities into one.
• In short in India mergers are called Amalgamation.
• In Amalgamation, at least two entities are needed to form a
new entity.
• The acquisition means absorbing or buying the entity.
Basically, taking over the assets and liabilities of one entity
and influencing the voting rights.
• Both the entities separately exist whereas in mergers there is
the dissolution of one entity.
• Examples of mergers: 
In 2020, Indus Tower merged with Bharti Infratel.
In 2019, Bank of Baroda merged with Vijaya Bank
and Dena Bank.
• Examples of Acquisition: 
Zomato acquired Uber Eats in 2020.
Walmart acquired Flipkart in 2018.
• It is done for the purpose of expansion,
diversification, optimum utilization of resources etc.
to increase the GDP of the economy and also to help
sick companies. 
• Through this one can achieve cost reduction, tax
benefit, increase in market capitalization,
employment, and access to foreign markets etc.
Laws Governing M&A in India
• The Companies Act, 2013
• Section 230-240 of the act covers the provisions relating to
M&A including arrangements that cover companies, their
members, and creditors. All sections except 234 became
effective on 15th December 2016 and S-234 was notified on
13th April 2017.
• These sections are completely different from The Companies
Act, 1956. Moreover, we had only four sections relating to
M&A i.e., 391-394.
• Apart from these sections, we have Compromise,
Arrangements and Amalgamation Rules, 2016 (‘CAA
RULES’) 
• S-230 is R.W. S-232.Talks about corporate re-structuring
through compromise and arrangement.
• Under S-231 Power is with NCLT to enforce compromise
and arrangement by 
1.Accepting the proposal 
2.Modifying the proposal and
3.Lastly by rejecting the proposal i.e., winding up of a
company if they are unable to pay a debt.
• Section 232 talks about the procedure for the same.
Moving ahead towards Section 233, it is read with Rule 25
of CAA.
• It talks about fast-track mergers. This section was inserted
to prevent companies from going through a lengthy
procedure given under S-232. Provided they need to have
approval from shareholders, directors, creditors of the
company.
• Merger schemes can be vested between the
following companies:
1.Holding Company and its wholly-owned subsidiary
company;
2.The merger between two or more small companies;
• Prominent features of this section are:
1.No mandatory approval of NCLT is required.
2.No need of issuing public advertisements.
3.Less administrative burden.
4.Series of hearing may be avoided.
 Competition Act, 2002
• This act is designed to regulate the activities and
operation of combinations.
• This includes Mergers, Amalgamation and Acquisition.
• If the combinations exceed the threshold limit are
prevented they will or are likely to cause adverse
effects on the economy.
• But if CCI wants then they tell them to modify the
same and then go ahead with the scheme. 
• The threshold limit is decided by the turnover and
assets of the company. 
• Section 5 deals with the regulation of combinations.
• It has exempted certain companies from this section if they
fulfil certain criteria.
• However, these exempted companies don’t have any
competitive impact on assessment under section 6 of the act
• Section 6 talks about void combinations, this combination
will cause or is likely to cause an adverse effect on the
economy.
• If any company wishes to go ahead and follow the
combination need to give prior notice to CCI.
• After that procedure for investigation takes place which is
given under Section 29 of the act and company need to go
ahead as per the orders of the commission which is given
under Section 31.
 Theories
• Differential efficiency Theory: Higher efficient firms will
acquire lower efficient firms and realize gains by improving
their efficiency. It would be most likely to be a factor in
mergers between firms related industries where the need for
improvement could be more easily identified.
• Operating Synergy Theory: Economies of scale or of
scope and those mergers help achieve levels of activities at
which they can be obtained. It includes the notion of
complementary of capabilities. For example, one firm might
be strong in R&D but weak in marketing while another has
a strong marketing department without the R&D capability.
Merging the two firms would result in operating synergy.
• Theory of Strategic Alignment to changing
environment: External acquisitions of needed capabilities
by a firm, allow such firms to adapt more quickly and
with less risk than developing capabilities internally.
• Undervaluation Theory: Mergers occur when the market
value of target firm stock for some reason does not reflect
it true of potential value. Firms acquire assets for
expansion more cheaply by buying the stock of existing
firms than by buying or building the assets when the
target's stock price is below the replacement cost of its
assets.
• Monopoly Theory: It posits that companies merge
in order to increase their market power and create
monopoly. In the absence of competition, the prices
increase and the companies maximize their profits
through limited product lines. The wealth is
transferred from customers to producers. Horizontal
mergers are more likely to support this theory.
• The Empire-Building Theory: This suggests that
managers tend to make mergers in order to make their
empires larger and increase their control over the
company. It is often argued that the managers attempt to
merge or acquire the target company at a price far above
their actual value. This theory explains that managers
satisfy their egos and increase their reputation through
mergers. Managers have incentives to increase the size of
the company. Some managers receive extra bonuses or
compensation for completing the merger and acquisition
process. The managers’ enthusiasm to involve in M&A
activities may constrain the company’s cash flow such as
shareholders dividend payments. Since the managers focus
on their power, and prestige, merger and acquisition may
result in reduction in the shareholders’ wealth.
 Types of Mergers
• Conglomerate
A merger between firms that are involved in totally unrelated
business activities. There are two types of conglomerate mergers:
pure and mixed. Pure conglomerate mergers involve firms with
nothing in common, while mixed conglomerate mergers involve
firms that are looking for product extensions or market extensions.
• Example
A leading manufacturer of athletic shoes, merges with a soft drink
firm. The resulting company is faced with the same competition in
each of its two markets after the merger as the individual firms were
before the merger. One example of a conglomerate merger was the
merger between the Walt Disney Company and the American
Broadcasting Company.
• Horizontal Merger
A merger occurring between companies in the same industry.
Horizontal merger is a business consolidation that occurs between
firms who operate in the same space, often as competitors offering
the same good or service. Horizontal mergers are common in
industries with fewer firms, as competition tends to be higher and
the synergies and potential gains in market share are much greater
for merging firms in such an industry.
• Example
A merger between Coca-Cola and the Pepsi beverage division, for
example, would be horizontal in nature. The goal of a horizontal
merger is to create a new, larger organization with more market
share. Because the merging companies' business operations may
be very similar, there may be opportunities to join certain
operations, such as manufacturing, and reduce costs.
• Market Extension Mergers
A market extension merger takes place between two companies that deal
in the same products but in separate markets. The main purpose of the
market extension merger is to make sure that the merging companies can
get access to a bigger market and that ensures a bigger client base.
• Example
A very good example of market extension merger is the acquisition of
Eagle Bancshares Inc by the RBC Centura. Eagle Bancshares is
headquartered at Atlanta, Georgia and has 283 workers. It has almost
90,000 accounts and looks after assets worth US $1.1 billion.
Eagle Bancshares also holds the Tucker Federal Bank, which is one of
the ten biggest banks in the metropolitan Atlanta region as far as deposit
market share is concerned. One of the major benefits of this acquisition
is that this acquisition enables the RBC to go ahead with its growth
operations in the North American market.
With the help of this acquisition RBC has got a chance to deal in the
financial market of Atlanta , which is among the leading upcoming
financial markets in the USA. This move would allow RBC to diversify
its base of operations.
• Product Extension Mergers
• A product extension merger takes place between two
business organizations that deal in products that are related
to each other and operate in the same market. The product
extension merger allows the merging companies to group
together their products and get access to a bigger set of
consumers. This ensures that they earn higher profits.
• Example
• A historic example of a product extension merger was the
acquisition of Pizza Hut by Pepsi Co in 1977. Pepsi
understood that lots of people went to Pizza Huts, and that
by merging with them, Pepsi would be able to reach a
much wider market. The beloved pizza chain became a
division of the soft drink maker which meant that
everyone who bough a pizza from Pizza Hut would only
be able to purchase drinks in the Pepsi Co line.
• Vertical Merger
A merger between two companies producing different goods or
services for one specific finished product. A vertical merger
occurs when two or more firms, operating at different levels
within an industry's supply chain, merge operations. Most often
the logic behind the merger is to increase synergies created by
merging firms that would be more efficient operating as one.
• Example
A vertical merger joins two companies that may not compete with
each other, but exist in the same supply chain. An automobile
company joining with a parts supplier would be an example of a
vertical merger. Such a deal would allow the automobile division
to obtain better pricing on parts and have better control over the
manufacturing process. The parts division, in turn, would be
guaranteed a steady stream of business.
Synergy, the idea that the value and performance of two
companies combined will be greater than the sum of the separate
individual parts is one of the reasons companies merger.
• Congeneric Merger (also known as ‘Concentric
Merger’)
In a congeneric merger, the acquirer and target company
have different products or services, but operate within the
same market and sell to the same customers. They could
be indirect competitors, although their products often
complement each other. As these companies already share
similar distribution channels, production or technology,
this type of merger can allow the new business entity to
expand its product lines and increase market share.
• Example:
Banking giant Citicorp merged with financial services
company Travelers Group in 1998. In a deal valued at
$70 billion, the two companies joined forces to create
Citigroup Inc. While both companies were in the financial
services industry, they had different product lines.
Citicorp offered consumers traditional banking services
and credit cards. Travelers, on the other hand, was known
for its insurance and brokerage services. The congeneric
merger between the two allowed Citigroup to become one
of the biggest financial services companies in the world.
 Advantages of a Merger
• 1. Increases market share
When companies merge, the new company gains a
larger market share and gets ahead in the competition.
• 2. Reduces the cost of operations
Companies can achieve economies of scale, such as
bulk buying of raw materials, which can result in cost
reductions. The investments on assets are now spread
out over a larger output, which leads to technical
economies.
• 3. Avoids replication
Some companies producing similar products may
merge to avoid duplication and eliminate competition.
It also results in reduced prices for the customers.
• 4. Expands business into new geographic areas
A company seeking to expand its business in a certain
geographical area may merge with another similar
company operating in the same area to get the
business started.
 Disadvantages of a Merger
• 1. Raises prices of products or services
A merger results in reduced competition and a larger
market share. Thus, the new company can gain a
monopoly and increase the prices of its products or
services.
• 2. Creates gaps in communication
The companies that have agreed to merge may have
different cultures. It may result in a gap in
communication and affect the performance of the
employees.
• 3. Prevents economies of scale
In cases where there is little in common between the
companies, it may be difficult to gain synergies. Also,
a bigger company may be unable to motivate
employees and achieve the same degree of control.
Thus, the new company may not be able to achieve
economies of scale.
 Structuring An M&A
Transaction
• Commonly, there are three principal deal structures
that a buyer might use to acquire an existing
business along with the most common legal
considerations related to each structure.
• It is always a good idea for the parties to involve
experienced legal counsel, tax advisors, investment
bankers and other M&A professionals to ensure the
deal structure and its material terms are thoughtful
and achieve the parties' respective objectives.
 Acquisition Structures
• There are three principal deal structures that a buyer might use
to acquire an existing business:
• (1) Asset acquisition
• (2) Stock acquisition
• (3) Merger
• Each structure has different benefits and drawbacks for the
parties involved.
• Because it is uncommon in an acquisition for the interests of the
buyer, the target company and its stockholders to be perfectly
aligned, extensive negotiations determine the allocation of
benefits, liabilities and risks among the parties and lead to a deal
structure and terms designed to accomplish the agreed-upon
allocation.
 Asset Acquisitions
• Basic Structure –
• In an asset acquisition, the buyer purchases
individual assets of the target company and usually
agrees to assume specific liabilities of the target
company.
• After closing, the target company continues to own
any assets the buyer did not purchase and remains
liable for any liabilities the buyer did not assume.
• The buyer may purchase any type of asset,
including machinery, equipment, inventory, real
estate, contract rights, intellectual property, claims
against third parties, employee relationships, etc.
• The buyer typically assumes liabilities associated
with the purchased assets, such as contract
obligations, employment-related liabilities, etc.
• The buyer may enter into an asset acquisition to purchase
the entire business of the target company, a particular
operating division of the target company or specific assets
owned by the target company.
• If the buyer purchases the entire business of the target
company, it will purchase all or substantially all of the
target company's assets and, after closing, the target
company will be a non-operating entity that holds the deal
consideration (pending distribution to its stockholders) and
any specific assets the buyer did not purchase (which are
likely to be obsolete or unrelated to the purchased
business).
• The target company will also remain obligated for any
liabilities the buyer did not assume.
• Benefits –
• From the buyer's perspective, an asset acquisition
may generally be the preferred deal structure
because it allows the buyer to avoid spending funds
on unwanted assets and avoid known and unknown
liabilities of the target company that it does not
want or need to assume.
• In addition, the buyer may realize better tax
treatment in an asset acquisition relative to a stock
acquisition.
• From the perspective of the target company and its
stockholders, an asset acquisition may be the preferable
structure if the target company is not selling its entire
business because it is the simplest way to sell a subset of
assets.
• Approvals –
• The target company's board of directors must approve a
sale of all, substantially all or a material portion of the
target company's assets.
• The buyer's board of directors must approve an asset
acquisition.
 Stock Acquisitions
• Basic Structure –
• In a typical stock acquisition, the buyer purchases all of
the outstanding shares of the target company's stock
directly from the target company's stockholders for cash
or other consideration.
• After closing, the buyer owns 100% of the target
company's shares and the target company becomes a
subsidiary of the buyer.
• The target company owns the same assets and remains
liable for the same obligations as before the transaction.
• From a legal perspective, nothing about the target
company changes except for its owners.
• So long as there are a manageable number of target
company stockholders, a stock acquisition is generally
a simpler deal structure than an asset acquisition or a
merger.
• Because the target company remains a going concern,
there is no need to transfer assets or assign liabilities to
the buyer.
• Accordingly, the anti-assignment provisions in the
target company's contracts are not triggered and there
is no need to obtain third party consents to an
assignment of the contracts.
• Most target companies have a few contracts that
require the counterparty's consent to a change in
control, but change in control provisions are far less
common than anti-assignment provisions.
• There are typically no sales, use or other transfer taxes
imposed on the sale of target company stock (though a
few states impose stock transfer taxes).
• Also, there is typically no need to make a filing with a
government agency to effectuate a stock acquisition
and there are generally few statutory requirements that
apply to a stock acquisition
• Stock acquisitions become less practical if there are
a large number of target company stockholders.
Because each stockholder independently decides
whether to sell its shares, the chances of having
holdouts or time-consuming individual negotiations
are higher.
 Mergers
• In a merger, two companies combine into one legal
entity, with the surviving entity succeeding to all of
the assets and liabilities of both entities.
• Every state has statutory and case law that governs
the merger process and the laws of each state of
incorporation of each entity participating in the
merger must be complied with.
• These statutes require the parties to make detailed
filings with the applicable states to effectuate the
merger.
• There are two basic merger structures: direct and
indirect.
• A direct merger occurs when the target company and
the buyer merge directly with either the buyer
surviving the merger (forward merger) or the target
company surviving the merger (reverse merger).
• An indirect merger occurs when the target company
merges with a subsidiary of the buyer with either the
buyer's subsidiary surviving the merger (forward
triangular merger) or the target company surviving the
merger (reverse triangular merger).
• An indirect merger allows the buyer to keep the assets and
liabilities of the target company separate from the buyer in
a subsidiary, whereas, in a direct merger, the assets and
liabilities of the target company and the buyer are
combined.
• Approvals –
• The applicable statutes dictate the director approvals and
stockholder approvals necessary to consummate a merger.
• The board of directors of the buyer and the target company
must approve any merger and the board of directors of the
buyer's subsidiary must approve an indirect merger.
 Cross Border Mergers
• Cross border merger is a combination of two or more
companies incorporated in two or more countries.
• Companies of different jurisdictions choose this
inorganic method to enhance their growth and uplift
their standard to compete in the global market.
• In pursuant to the viability of the converted deals,
some of the reasons as to why foreign companies are
crossing borders to acquire domestic targets and
trying to find a home in India can be summed up as -
• Globalized Financial markets:
The Indian financial markets have globalised themselves
with the help of technology. Some of which are the
Bombay Stock Exchange, the National Stock Exchange.
The Bond market also known as the debt market has
allowed the free flow of foreign investment in the country.
With good technical support and rapid technological
development clubbed with the liberalisation of the
financial market, it is possible to make the world a global
market. The risk has spread out wider and diversified due
to globalisation of the financial market. 
• Market pressure and stiff international
competition:
There is stiff competition in the industry, and hence
one cannot help but be part of the competitive race.
There is immense market pressure and therefore, a
huge competition amongst entities to rank on top of
the ladder and get recognised globally. The aim is to
build a global brand. Crossing borders helps the
companies to achieve synergies in local/global
operations and across industries.
• To explore new market opportunities due to rapid
evolving technology –
Cross border mergers could be vertical or horizontal,
forward or reverse or a conglomerate which enables the
multinational companies to seek new opportunities. The
technological developments that take place every minute
also enhance the chance of seizing new opportunities.
Modern and latest technology helps approach remote
locations within a click of a button, therefore, it is possible
to reach out faster to the customer base. At the beginning of
the year 2021, we heard about Tesla, starting its operations
in India and having its registered office in Bengaluru.  
• Exploring assets in India due to its diverse
geography and location -
India is a geographically diverse country with rich
history and heritage where the language, culture and
customs are widespread and different at every
kilometre travelled to the last mile. India is the
second-largest populated country in the world and
hence the second-largest customer base from the
perspective of a global market. 
Multinational companies want to invest in India to
spread out their reach which in turn will result in
exploring the assets in India. The foreign company
will gain access to strategic proprietary assets owned
by the domestic target company. Furthermore,
economically, the situation will create good value and
efficiency. Diversification generates an opportunity
for investors to develop their business geographically,
at a bigger scale, or by type of industry. 
• Growth in production –
In integrated companies, double activities are
eliminated due to the large scale of operations
resulting in a reduction in cost. For example, new
ideas can be implemented and products can be
diversified and supply chains can be modified which
extends the market share. With enhanced support in
terms of machinery, labour and other resources the
companies can operate at double their capacity,
resulting in an increase in the scale of production. 
Cross border merger leads to large productions of
goods and services with fewer inputs which helps in
gaining efficiency. Apart from this it also benefits the
Indian economy such as increased productivity,
increases in economic growth and development
particularly gaining market power and dominance.
When the companies become larger than it is easy to
reap the benefits of size in competition and
negotiation.
• Innovation in technology reduces costs -
The immense progress in technology and innovation
has reduced the costs involved, may it be in
production or to provide services. The factors of
production majorly have a reduced labour force and
being replaced by machinery which works double
that of the speed of a human. The research and
development costs are distributed over a broader base
which enables us to reduce costs.
Cross border mergers allow global transfer of capital,
goods and services, intellectual property, technology
and unites for universal networking and effectively
reducing the cost. Although restructuring may lead to
downscaling, in the long term it would lead to
employment gains. It is essential sometimes for the
continuity of business operations to downsize.
Downsizing would in the long run expand the
business and successfully create new employment
opportunities. 
Types of Cross Border Mergers
• Inbound mergers:
In this method, the foreign company mergers with or
acquires shares in an Indian organisation.
An example of Inbound Merger is Daiichi acquiring
Ranbaxy.
• Outbound mergers:
In this method, an Indian company merges with or
acquires shares in a foreign company.
An example of the outbound merger is Tata metal
acquiring Corus.  
 Legal Regime Of Cross Border
Mergers In India
• Corporate restructuring is one of the ways to satiate the
demand of the companies to grow inorganically across
geographies, expand the utilization of their competitive
advantages; it allows the firms to do so in a fast,
effective and perhaps in an inexpensive manner.
• Mergers are complex in its dimensions and for an
effective implementation and execution involve a
plethora of laws and regulations.
• And when it comes to regulations governing cross
border mergers, the number of regulations has increased
by two fold as such transactions include the laws and
regulations of two different countries.
• The cross border activity attracts the following important
Indian legislations which are:
• Companies Act, 2013
• Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016
• Company Court Rules 1959
• Competition Act, 2002
• Foreign Exchange Management Act, 1999
• Income Tax, 1961
• RBI polices
• SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015
• Securities and Exchange Board of India Act, 1992
Cross Border Merger under Section 234
• Section 234 of the Companies Act, 2013 states that
provisions of Chapter XV shall apply to schemes of
mergers and amalgamations between companies registered
in India and companies incorporated in the jurisdictions of
such countries as may be notified by the Central
Government.
• The Central Government may make rules, in consultation
with RBI, in connection with such mergers and
amalgamations.
• Subject to the provisions of any other law, a foreign
company may, with the prior approval of the RBI, merge
into an Indian company or vice versa and the terms and
conditions of the scheme of merger may provide for the
payment of consideration to the shareholders of the
merging company in cash, or in Depository Receipts.
 Understanding Depository
Receipt
• A depositary receipt is a negotiable instrument
issued by a bank to represent shares in a
foreign public company, which allows investors to
trade in the global markets.
• Depositary receipts allow investors to invest in
companies in foreign countries while trading in a
local stock exchange in the investor’s home country.
• It is advantageous to investors since shares are not
allowed to leave the home country that they trade
in.
• Depositary receipts were created to minimize the
complications of investing in foreign securities.
• Previously, if investors wanted to buy shares in a foreign
company, they would need to exchange their money into
foreign currency and open a foreign brokerage account.
• Then, they would be able to purchase shares through the
brokerage account on a foreign stock exchange.
• The creation of depositary receipts eliminates the entire
process and makes it simpler and more convenient for
investors to invest in international companies.
 Transferor and Transferee
Company
• According to Section 394 of the Companies Act 1956,
‘transferor company’ included any body-corporate, whether a
company within the meaning of this Act or not, while a
‘transferee company’ did not include any other than a company
within the meaning of this Act.
• In case of cross border merger, this provision had restricted the
merger of Indian company into foreign company. For the
purpose of Section 394, the foreign company could be
transferor Company, even if the company will not have place
of business in India.
• Due to this, Indian company could not merge into foreign
company but vice-versa was possible, provided the law of that
country where the transferor company is registered did not
prohibit the same.
• Companies Act 1956 provided that the transferor
company can be a foreign company but the
transferee company shall invariably be a company
within the meaning of the Act.
• With the notification of section 234, amendment has
been made to Companies (Compromise,
Arrangements and Amalgamation) Rules, 2016 and
a new rule has been inserted i.e. 25A which deals
with cross border mergers and lays down the scope
of applicability of section 234.
• Under Section 234 of the Companies Act, 2013,
‘transferor Company’ and ‘transferee company’ both
include body-corporate.
• For the purpose of Section 234, the term ‘foreign
company’ means any company or body corporate
incorporated outside India whether having a place of
business in India or not.
• The provision of the new Act seeks to simplify the
overall process of Cross Border Mergers that make
Indian firms relatively more attractive to the Investors.
 Central Government to notify
Jurisdictions
• The introduction of Section 234 of the Companies Act, 2013 is a
welcome step towards purely opening economy for the
Multinational Corporations (MNCs) in the sphere of Mergers and
Acquisitions.
• It will allow the Indian company to merge into the foreign
company but there was one hitch i.e. the jurisdictions of such
countries where the foreign company is located were to be notified
by the government.
• Basically, such cross border merger only with the foreign
companies incorporated in the ‘notified jurisdictions’ seemed to
nullify the idea of introducing outbound mergers.
• Now, it was the complete discretion of the government that in
which jurisdictions of the world, the outbound merger would
be allowed.
• It seemed that the government would notify those
jurisdictions where government will feel
comfortable for the Indian firms and their
stakeholders taking into consideration the overall
growth of the particular sector and the economy of
the nation.
• The power given to the government with respect
to notifying jurisdictions implied the protectionist
approach of the drafters of the provision.
• The notification of section 234 and corresponding
amendment made to the Companies (Compromise,
Arrangements and Amalgamation) Rules, 2016 has
clarified the term “notified jurisdictions” by
insertion of Annexure B listing jurisdictions referred
to the newly inserted Rule 25A, sub-rule 2, clause
(a) through the Companies (Compromise,
Arrangements and Amalgamation) Amendment
Rules, 2017.
• Indian companies can only merge with foreign companies
in certain specified jurisdictions.
• Those are:
• (i) jurisdictions whose securities regulator is a
member of IOSCO or has a bilateral memorandum of
understanding with SEBI,
• (ii) those whose central bank is a member of the
Bank for International Settlements (BIS), and
• (iii) those who have not been identified in the public
statement of the FATF as regards certain specified
matters.
• (Note - The International Organization of Securities
Commissions (IOSCO) is the international body that
brings together the world's securities regulators and is
recognized as the global standard setter for the
securities sector.
• IOSCO develops, implements and promotes
adherence to internationally recognized standards for
securities regulation.
• It works intensively with the G20 and the Financial
Stability Board (FSB) on the global regulatory
reform agenda.
 Section 234 Of The Companies Act,
2013 Vis-à-vis Other Laws
• The idea of outbound investments has become very popular
in India in recent times with the advent of globalization
and development of international financial markets.
• The companies in India have been particularly active in
making outbound investments since the last decade.
• A noticeable clear trend towards overseas acquisition has
emerged even after being influenced by short-term
economic factors.
• Because of recent emerging trends a number of Indian
corporations aspire to go global which has led to the
significant increase in Cross Border Mergers.
• Along with the constant need of companies to
strengthen their business and broaden their market
and optimizing capital, makes it inevitable that such
companies will explore cross-border mergers to grab
the opportunities.
• As already discussed, Section 234 of the Companies
Act 2013 has lifted the bar on outbound mergers,
but it has come with some restrictions.
• The effective implementation of this provision will
require amendments to various laws like foreign
exchange laws, securities laws, taxation laws, etc.
 Role of Reserve Bank of India
• The provision of Section 234 provides that the rules
regarding outbound merger are required to be made by
Ministry of Corporate Affairs (Central Government) in
consultation with the RBI. (Proviso to sub-section (1) of
Section 234 provides, ‘that the Central Government may
make rules, in consultation with the Reserve Bank of India,
in connection with mergers and amalgamations provided
under this section.’)
• Section 234(2) requires a prior RBI approval in the cross
border mergers.
• The need for RBI approval arises due to the involvement of
foreign currency transactions
Role of National Company Law
Tribunal (NCLT)
• The Companies Act, 2013 has sought to provide a single
window approval and dispute settlement mechanism through
constitution of NCLT, taking into consideration the practical
aspects of the current judicial system in India.
• NCLT will deal with wide range of matters including corporate
insolvency, class action and merger & amalgamation schemes.
• The Tribunal will handle all the matters that were handled by
erstwhile Company Law Board (CLB), Board for Industrial
and Financial Reconstruction (BIFR) and (Debt Recovery
Tribunal) DRT.
• Additionally, the NCLT will also have the power to winding up
companies within the ambit of new Insolvency and Bankruptcy
Code, 2016.
• The constitution of the NCLT as a single forum to deal
with Company Law matters is a welcome move to various
stakeholders as it is aimed at providing a speedy and
efficient disposal of the matters.
• In addition, it will also help in taking the load off the
overburdened High Courts.
• Recently, the government has transferred all the
proceedings relating to arbitration, compromise,
arrangements and reconstruction pending before the
various High Courts to the various benches of Tribunal
(The Ministry of Corporate Affairs, Government of India
has notified Companies (Transfer of Pending Proceedings)
Rules, 2016 on 7th December, 2016).
• The NCLT is provided with the consolidated jurisdictions
of the corporate person which seems to be more complex
in nature.
• Traditionally, the High Courts are dealing with the
inbound mergers, but now, the NCLT are set to deal with
the outbound mergers where the laws of at least two
jurisdictions are involved which requires advanced
machinery to effectively and efficiently implement merger
regulations.
• The new merger regulations aim for strong NCLT team
which has the ability to look after the effective cross
border mergers in the Indian jurisdiction.
 Competition Law
• The growth of the cross border M&A has attracted major
challenges for competition authorities around the globe.
• In cross border Merger, Competition Law is one of the
essential and foremost law required to be complied with
which basically prevents monopolization and practices
having adverse effect on the fair competition. In India, the
Competition Act, 2002 prohibits the abuse of dominant
position by merging enterprises.
• In cross border deal, the enterprises are required to comply
with the provisions of ‘Combination’ which provides
threshold limits in terms assets and turnover, rendering it a
little restrictive in scope.
• The Competition Act prohibits enterprises from entering into
agreements that cause or are likely to cause an “appreciable
adverse effect on competition within the relevant market in
India”.
• In future, the same is required to be applied for outbound
merger in the existing or in amended form.
• Competition regulator must be ready to deal with the
outbound merger where competitions from the foreign
jurisdictions can affect the domestic market.
• CCI has the power to examine a combination already in effect
outside India and pass orders against it, provided that it has an
‘appreciable adverse effect’ on competition in India.
• It has to set up the mechanism to deal with the outbound
mergers taking into consideration the Competition Laws of
both the jurisdictions.