Mergers and Acquisitions Laws in India

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A business identity goes for mergers and acquisitions for strengthening a disjointed market and for elevating their functional competence in order to boost their competitive streak. Many countries have propagated Mergers and Acquisitions Laws to control the operations of the trade units within.

Most of the mergers and acquisitions have been successful in elevating the functional competence of companies but on the flip side this activity can lead to formation of monopolistic power. The anti-competitive results are accomplished either by synchronized effects or by one-sided effects.

An open and unbiased competition is ideal for capitalizing on the consumers' interests both in contexts of capacity and worth.

Laws governing Mergers and Acquisitions in India

  • Mergers and Acquisitions in India are governed by the Indian Companies Act, 1956, under Sections 391 to 394. Although mergers and acquisitions may be instigated through mutual agreements between the two firms, the procedure remains chiefly court driven. The approval of the High Court is highly desirable for the commencement of any such process and the proposal for any merger or acquisition should be sanctioned by a 3/4th of the shareholders or creditors present at the General Board Meetings of the concerned firm.

  • Indian antagonism law permits the utmost time period of 210 days for the companies for going ahead with the process of merger or acquisition. The allotted time period is clearly different from the minimum obligatory stay period for claimants. According to the law, the obligatory time frame for claimants can either be 210 days commencing from the filing of the notice or acknowledgment of the Commission's order.

  • The entry limits for companies merging under the Indian law are considerably high. The entry limits are allocated in context of asset worth or in context of the company's annual incomes. The entry limits in India are higher than the European Union and are twofold as compared to the United Kingdom.

  • The Indian M&A laws also permit the combination of any Indian firm with its international counterparts, providing the cross-border firm has its set up in India.

There have been recent modifications in the Competition Act, 2002. It has replaced the voluntary announcement system with a mandatory one. Out of 106 nations which have formulated competition laws, only 9 are acclaimed with a voluntary announcement system. Voluntary announcement systems are often correlated with business ambiguities and if the companies are identified for practicing monopoly after merging, the law strictly order them opt for de-merging of the business identity.

Provisions under Mergers and Acquisitions Laws in India

  • Provision for tax allowances for mergers or de-mergers between two business identities is allocated under the Indian Income tax Act. To qualify the allocation, these mergers or de-mergers are required to full the requirements related to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the pertinent state of affairs.

  • Under the “Indian I-T tax Act”, the firm, either Indian or foreign, qualifies for certain tax exemptions from the capital profits during the transfers of shares.

  • In case of “foreign company mergers”, a situation where two foreign firms are merged and the new formed identity is owned by an Indian firm, a different set of guidelines are allotted. Hence the share allocation in the targeted foreign business identity would be acknowledged as a transfer and would be chargeable under the Indian tax law.

  • As per the clauses mentioned under section 5(1) of the Indian Income Tax Act, the international earnings by an Indian firm would fall under the category of 'scope of income' for the Indian firm.