Abstract: This paper aims to examine the role of government in governing the mergers and acquisitions (M&A) in light of the necessity to redefine these concepts as M&A becomes a more innovative phenomenon is the goal of this study. The paper will evaluate, summarize, and discuss major institutional regulations pertaining to mergers and acquisitions (M&A) in India.
In order to compile secondary data for this work, a variety of journals, books, articles, blogs, and researcher perspectives on various facets of M&A in India were studied.
The phrases “acquisitions” and “mergers” are sometimes used synonymously. An acquisition is the outright purchase of another business by one. A merger is the coming together of two businesses to create a new legal entity that operates under a single corporate identity. By employing measures and comparing firms within the same sector, a company’s worth may be determined objectively.
Keywords: Merger and Acquisition, M&A Laws, Business Corporations, Institutional regulations
INTRODUCTION
Background: According to the country’s M&A history, the strict regulations imposed by The Monopolies and Restrictive Trade Practices Act (MRTPA), 1969[1], slowed down the industry’s natural growth. The legislation prioritized the execution of certain Directive Principles of the State Policy of the Indian Constitution over providing prompt justice to market actors attempting to unite or amalgamate as needed.
Following the introduction of Liberalization, Privatization, and Globalization (LPG) to the Indian economy, mergers and acquisitions (M&A) began to occur on their own. Despite the MRTPA’s intention to change the market by altering how businesses behaved through modifications to the market structure, it was seen as excessively restrictive, and the Competition Commission of India (CCI) was setup in 2002 as per the provisions of The Competition Act, 2002.
The legal framework pertaining to mergers and acquisitions (M&A) in India is established to promote smooth corporate transactions while safeguarding the rights and welfare of business organizations. A strong foundation for M&A activity is provided by important laws including the Companies Act of 2013[2], the Competition Act of 2002[3], and the Securities and Exchange Board of India (SEBI),2011 rules.
When combined, these rules provide a fair and balanced framework that permits companies to expand through mergers and acquisitions while upholding moral principles and fair competition. This extensive legislative framework promotes market stability, investor trust, and business growth, all of which contribute to India’s robust and dynamic economy.
Definitions: The definition of a merger according to Scott (2003)[4] is an integration or consolidation of two or more firms, either the same size or separate companies into one entity. Those who do have a better chance of keeping the trademark of the firm they acquired. Companies that are acquired in a merger are legally no longer able to function independently (Depamphilis, 2018)[5]. A company’s assets or shares might be purchased whole, in part, or only a business division in the meantime during an acquisition.
Despite their frequent interchangeability, the phrases mergers and acquisitions have significantly distinct meanings. An acquisition occurs when one business buys out another and declares itself the new proprietor.
Conversely, a merger denotes the coming together of two businesses of roughly equal size in order to proceed as a single new organization as opposed to continuing to be owned and run independently, this process is referred to as a merger of likes.
The regulatory institutions and legal provisions that are made to provide protection to investors and facilitate the procedure of merger and acquisition between corporations, are termed as Merger and Acquisition laws in India.
Developments: India’s merger and acquisition (M&A) regulations have developed throughout time in an effort to provide a strong, open environment that promotes business expansion while safeguarding the interests of stakeholders. The Companies Act of 1956[6] planted the seeds of M&A legislation by establishing the basic rules for mergers and acquisitions. But when the Indian economy opened up in the 1990s, it became clear that more modern and comprehensive rules were required.
In order to curb anti-competitive behaviour and encourage fair competition in the market, the Competition Act of 2002 was passed. In order to ensure that big mergers and acquisitions did not monopolize or suppress competition and instead maintained a healthy market environment, this rule became more important.
A significant influence on the M&A landscape was also exerted by the Securities and Exchange Board of India (SEBI). By enforcing a number of rules, SEBI made sure that listed businesses followed strict disclosure requirements and safeguarded investors’ interests in mergers and acquisitions. Investor trust in the corporate sector increased as a result of these policies’ improvements to accountability and transparency.
The Companies Act, 2013, which was implemented in response to the changing economic climate, significantly changed the M&A and corporate governance procedures. This act ensured a more transparent and efficient approach by streamlining the processes for mergers, acquisitions, and arrangements. It placed a strong emphasis on safeguarding minority creditors and shareholders and making sure their opinions were addressed throughout corporate restructuring.
The National Company Law Tribunal (NCLT)[7] plays an important role in approving mergers and acquisitions. It ensures compliance with legal requirements and addresses any grievances from stakeholders. It is a quasi-judicial body in India that plays a pivotal role in the administration of company law, particularly in matters related to mergers and acquisitions (M&A). Established under the Companies Act, 2013, the NCLT adjudicates issues concerning corporate disputes, insolvency, and restructuring.
When taken as a whole, these provisions have completely changed the M&A scene in India by offering a thorough legal framework that strikes a balance between corporate goals, moral obligations, and stakeholder protection. This development is a reflection of India’s dedication to creating a robust and vibrant business environment while promoting transparency and maintaining fair rivalry.
[source: Institutions and Provisions]
RESEARCH METHODOLOGY
- Objectives of the study
- To determine how India’s Merger and Acquisition laws evolved over time.
- To scrutinize the impact of M&A Laws in Business corporations.
- Data Collection: This study is based on a secondary source of data collection such as research papers, articles, blogs, studies and surveys of different regulatory institutions were reviewed and explored to gather information about how these regulatory frameworks and legal provisions impact the functioning and procedures of Merger and Acquisition between two corporations.
- Ministry of Corporate Affairs, Government of India[8] , provide data and reports based on studies and surveys about company law and corporate affairs.
- The International Comparative Legal Guides (ICLG)[9], is an international website that addresses typical topics found in M&A laws and regulations, such as applicable laws and authorities, target defences, bidder protection, and acquisition processes.
- Live Law.in[10] and Legal services India.com[11] are the online websites that provide blogs and articles containing information about the Merger and Acquisition laws.
- The Competition Commission of India[12], an establishment under the Competition Act, 2002 that provides guidelines about how to create a fair competition in the market and avoid monopoly.
- Data on M&As is mostly gathered from the monthly review of Indian economy, it provides information on M&As on a regular basis since 1995.[13]
- SEBI website is the only means to acquire information about available offerings, both in terms of quantity and value. But it started providing this information since 1996-1997 financial years.[14]
- Google Scholar is an online platform that provides research papers.[15]
- Analysis: To maintain the integrity of the study, the reliability and applicability of the gathered data sources were examined.
- Thematic Analysis:
Legislative Evolution: The research tracks the evolution of M&A regulations in India over time by looking at past legislative texts and modifications (such as the Companies Act and Competition Act). This evolution may be understood in a global perspective thanks to comparative insights from ICLG.
The impact of regulations on mergers and acquisitions (M&A) practices is explained in depth by guidelines and publications issued by the Ministry of Corporate Affairs, CCI, and SEBI. These studies and guidelines aim to promote fair competition and transparency.
Dynamics of the Market: The Monthly Review of the Indian Economy and SEBI’s financial reports provide information that is useful for analysing patterns in M&A activity, pinpointing boom periods and regulatory influences.
Economic Outcomes: Empirical studies on the effects of M&A legislation, such as market consolidation, competitive advantages, and financial performance, may be found on Google Scholar.
- Qualitative Analysis: Examining the content of scholarly papers, blogs, and articles can shed light on the difficulties and practical applications of M&A legislation. Case studies of certain M&A deals illustrate practical uses and results.
- Thematic Analysis:
With the help of this methodological approach, secondary data analysis is ensured, leading to a thorough knowledge of the evolution of India’s M&A legislation and their effects on the business climate. The research objectives are addressed through the formulation of evidence-based insights and recommendations. Utilizing a range of reliable sources and applying methodical analysis methods, the study seeks to make a significant contribution to the fields of business strategy and corporate law.
LITERATURE REVIEW
The evolution of India’s merger and acquisition (M&A) rules and their effects on the business climate are examined in this literature review. M&A is a strategic option for business restructuring that increases profitability, market dominance, and competitiveness in a global marketplace, according to Gupta PK, 2012[16] and Harpreet Singh Bedi, 2010[17].
The Ministry of Corporate Affairs’ historical backdrop clarifies that the M&A process in India has historically been laborious and court-driven, needing approval from the High Court, which frequently causes delays. The Companies Act of 1956 streamlined M&A regulations, although it was still complicated, including several clauses and the involvement of the Central Government through regional directors or official liquidators.[18]
The Ministry of Corporate Affairs[19] acknowledged the need for a more efficient procedure and recommended legislative recognition for contractual mergers, as is done in other nations, to streamline the procedure and just need majority shareholder consent. This viewpoint was further developed in Burgeon Law’s research from April 2024[20], which emphasized how the Competition Act of 2002 and the Companies Act of 2013 serve as the cornerstones of India’s existing M&A regulatory structure. While the Competition Act forbids anti-competitive company combinations, the Companies Act provides the institutional framework for corporate rebuilding and merger. The legal environment around M&A activity is further improved by additional sector-specific legislation, SEBI recommendations, and guidelines for foreign investment.
The corporate climate has been greatly impacted by these changing legislative frameworks. At first, the drawn-out and complicated court-driven procedure hampered efficiency, but new changes have attempted to streamline M&A operations, encourage fair competition, and improving India’s overall business environment.
METHOD
Parameter 1: EVOLVING LEGAL FRAMEWORKS AND REGULATORY BODIES
From the era of kings conquering new territories to the complex corporate transactions of today, the process of mergers and acquisitions, or M&A, has a long history. This journey is a reflection of how the socio-political environment is evolving and how regulatory organizations and legal frameworks are developing to guarantee fair and effective M&A procedures.
Historical Overview: Pre-British and British Era:
In ancient times, kings who wanted to expand the area of their kingdoms conquered new territory, which led to mergers and acquisitions. There were no rules or regulations governing these unofficial activities. Similar to modern corporate mergers and acquisitions, but without official rules, kings would either capture new regions or combine their own through collaborations.
There was a major shift in the dynamics throughout the British era. With their dominance over India, the British progressively combined and took over other princely realms, strengthening their authority on the Indian subcontinent. Structured governance started to emerge at this time, but official M&A laws and regulatory agencies were still non-existent.
Post-Independence Era: The Birth of Legal Provisions:
Following India’s independence, it became clear that organized legal structures were necessary. One of the first important legislative frameworks as a seed on M&A was the Companies Act of 1956. More specific M&A regulations were, however, adopted by the Monopolies and Restrictive Trade Practices (MRTP) Act of 1969. The MRTP Act, in spite of its goals, produced onerous regulations that hindered competition and made it hard for businesses to run efficiently.
Liberalization and the Modern Era:
For India, the economic reforms of the 1990s represented a sea change. The Indian economy was opened up by liberalization, globalization, and privatization; thus, a strong legislative framework was required for M&A in order to maintain fair competition and safeguard stakeholder interests.
In an effort to foster competition and stop monopolistic activities, the MRTP Act was superseded with the Competition Act of 2002. This was a big development that made the atmosphere more balanced and favourable for M&A activity.
The M&A legal frameworks have developed by 2008, with clear regulations and norms. These restrictions were reinforced further by the Companies Act of 2013, which gave M&A transactions explicit laws and legal protections.
Recent Developments: The Companies Act of 2019: The Companies Act of 2019 is the cornerstone of India’s present M&A rules, having brought about significant modifications. It improved the regulatory environment, closing past gaps and guaranteeing a more efficient and open mergers and acquisitions procedure.
Regulatory Bodies: Ensuring Compliance and Fair Competition: In India, a number of regulatory agencies are essential to the supervision of M&A activity:
- Securities and Exchange Board of India (SEBI):
- SEBI regulates the securities market and ensures transparency and fairness in M&A transactions involving publicly traded companies.
- Competition Commission of India (CCI):
- CCI aims to prevent anti-competitive practices and ensures that M&A activities do not lead to monopolies, maintaining healthy market competition.
- Ministry of Corporate Affairs (MCA):
- MCA oversees corporate affairs and ensures compliance with legal frameworks governing M&A activities.
- National Company Law Tribunal (NCLT):
- NCLT is a statutory body that adjudicates issues related to corporate law, including M&A disputes and approvals.
Parameter 2: ILLUSTRATING THE INFLUENCE OF LEGAL FRAMEWORKS ON BUSINESSES
Pre-British Era: Indian commercial operations were controlled by regional trading traditions, norms, and laws. There were no established rules or guidelines pertaining to M&As. Traditionally, businesses were either guild- or family-run. Due to the lack of official M&A legislation, company growth was more organic and dependent on trade deals or family relationships.
British Era: Rather than being driven by market forces, M&A activity was constrained and frequently affected by colonial policy. The environment was dominated by large British firms, with a few Indian businesses rising in industries such as jute and textiles. The British prioritized resource exploitation in India.
Post-Independence Era: Following its independence, India established a mixed economy with strong government control over several important sectors. The goal of the 1969 Monopolies and Restrictive Trade Practices Act (MRTP) was to prohibit monopolistic activities.
Nationalization of a number of industries hampered the expansion of the private sector and M&A activity. For the prevention of concentrated economic power, the MRTP Act placed stringent restrictions on mergers and acquisitions. As a result, there was very little M&A activity, with companies expanding mostly through joint ventures with overseas companies or organic growth.
Modern Era: With deregulation, privatization, and the increased accessibility of the economy to international capital, economic liberalization in 1991 signified a dramatic change. The Competition Act of 2002, which superseded the MRTP Act of 1969, is one of the important legislations influencing M&As. M&A activity increased significantly as a result of liberalization as companies looked to acquire technologies, expand into new markets, and scale quickly. Indian businesses expanded internationally and participated in cross-border M&A.
A detailed graphical analysis of Merger and Acquisition deals impacted by M&A Laws during the Modern Era: –
2016; Insolvency and Bankruptcy Code (IBC): With its time-bound method for resolving insolvency, this rule was a landmark reform that had a considerable influence on corporate M&A by making exit plans simpler and increasing investor confidence.
2017; saw the introduction of IBC: A number of high-profile cases marked the beginning of IBC’s influence. Deals may have originally slowed down as businesses and investors adapted to the new rules as a result.
Implementation of the Goods and Services Tax (GST): In July 2017, the GST was put into effect, streamlining tax arrangements but initially creating some uncertainty in the market.
2018; Levelling Off Following GST and IBC: As the market adapted to the new regulations, M&A activity increased as businesses became more confident in the more straightforward regulatory framework.
FEMA modifications: In order to better match with IBC, the Foreign Exchange Management Act (FEMA) underwent revisions that made it easier for international investors to take part in Indian M&A transactions.
2019; Additional IBC Amendments: The IBC was further amended to enhance the bankruptcy resolution procedure and increase the appeal of M&A transactions involving troubled assets.
Amendments to the Companies Act: To further reduce compliance requirements and promote more seamless M&A transactions, the Companies Act of 2013 was revised.
2020; COVID-19 Pandemic: There was a notable decline in the number of transactions as a result of the global pandemic’s devastating effects on economic activity, including M&A transactions.
Relaxation of FDI Norms: In an effort to combat the economic downturn, the Indian government loosened restrictions on foreign direct investment (FDI) across a number of industries, which contributed to a modest rebound by year’s end.
2021; Economic Recovery: A notable uptick in M&A activity was brought about by government stimulus programs and the post-pandemic recovery.
Sustaining Reforms: The climate for M&As became more favourable with the ongoing amendments made to the IBC and other legislation.
2022; Regulatory Stability: High levels of M&A activity were sustained by the regulatory environment that remained steady due to the effects of recent changes.
PLI plan: The Production Linked Incentive (PLI) plan, which attracted more investments and had a favourable influence on M&A, was designed to stimulate manufacturing in India.
2023; Global Economic Uncertainty: A decline in transactions was caused by global economic variables such as inflation and geopolitical unrest.
Proceeded Focus on Compliance: More cautious M&A activity may have resulted from a greater emphasis on corporate governance and compliance.
[source: M&A Statistics ]
Early IBC Implementation (2016–2017): There was a learning curve during this first stage of IBC, which was reflected in a decline in deals in 2017.
Post-IBC and GST Stabilization (2018–2019): The upturn in these significant reforms’ result aligns with the years 2018 and 2019.
Pandemic Impact (2020): The interruption caused by the COVID-19 pandemic is responsible for the notable decline in 2020.
Following the Pandemic (2021–2022): Peak activity in 2021 and sustained high activity in 2022 are consistent with a continuous regulatory support system and an economic recovery.
Global Uncertainty (2023): Market caution and uncertainty about the state of the world economy can be linked to the 2023 decline.
SUGGESTIONS
A few significant adjustments might fortify India’s merger and acquisition (M&A) regulations by fostering a more effective and equitable regulatory framework. The regulatory procedures must be streamlined by eliminating overlaps and confusion across agencies such as the Reserve Bank of India, Securities and Exchange Board of India, and Competition Commission of India. This might be accomplished by creating a single framework or improving interagency collaboration. Delays would be greatly reduced if rigorous deadlines were enforced and a fast-track procedure for certain mergers was introduced to ensure timely approvals. Clear rules and international regulatory harmonization agreements would simplify cross-border M&A transactions. Other crucial actions include standardizing valuation procedures, guaranteeing strong data privacy and security protocols, and facilitating post-merger integration through thorough preparation. By focusing on these areas, India can improve the environment for mergers and acquisitions, support business expansion, and maintain economic stability by tackling these issues.
CONCLUSION
India’s path from unofficial territorial invasions to a contemporary, regulated environment that fosters fair competition and safeguards stakeholder interests is reflected in the development of M&A regulations in the nation. The cooperative endeavours of regulatory entities like as SEBI, CCI, MCA, and NCLT guarantee the transparent and efficient execution of M&A transactions, hence cultivating a market that is both equitable and competitive.
These legislative frameworks and regulatory agencies will be vital in influencing the future of M&A activity in India as the country’s economy grows, ensuring that it advances the interests of all parties involved while protecting economic growth. It will be essential to keep these rules updated and amended in order to handle new issues and preserve a fair and dynamic economic climate.
M&A activity has increased significantly since liberalization, mostly as a result of governmental changes intended to promote an open and competitive corporate climate. The promotion of sustainable economic growth and India’s integration into the global economy have benefited greatly from these reforms. The IBC, GST, and loosening of FDI restrictions are just a few examples of the legislative changes and global economic conditions that have an influence on M&A activity in India. When backed by strong regulatory frameworks and economic recovery measures, the market’s durability is obvious, notwithstanding the dramatic decline in 2020 reflecting the susceptibility of M&A activity to global shocks.
YASHASVI GUPTA
Scholar, B.B.A. LL B (Hons )6th Semester, Institute of Legal Studies,
Shri Ramswaroop Memorial University, Lucknow-Deva Road, U.P.
[1] The Monopolies and Restrictive Trade Practices Act, 1969. No. 54, Acts of Parliament, 1969 (India)
[2] The Companies Act, 2013. No. 18, Acts of Parliament, 2013 (India)
[3] The Competition Act, 2002. No. 12, Acts of Parliament, 2002 (India)
[4] DAVID L. SCOTT, WALL STREET WORDS: AN A-TO-Z GUIDE TO INVESTMENT TERMS FOR TODAY’S INVESTOR (3rd ed. 2003).
[5] DONALD M. DEPAMPHILIS, MERGERS, ACQUISITIONS AND OTHER RESTRUCTURING ACTIVITIES (9th ed. 2018).
[6] The Companies Act, 1956. No. 1, Acts of Parliament, 1956 (India)
[7] The Companies Act, 2013, § 408, No. 18, Acts of Parliament, 2013 (India).
[8] MINISTRY OF CORPORATE AFFAIRS, https://www.mca.gov.in/content/mca/global/en/data-and-reports/reports/other-reports/report-company-law/mergers-and-acquisitions.html (last visited June 12, 2024).
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[12] The Competition Act, 2002, § 2(e), No. 12, Acts of Parliament, 2002 (India)
[13] CENTRE FOR MONITORING INDIAN ECONOMY, https://www.cmie.com/ (last visited June 12, 2024).
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[18] MINISTRY OF CORPORATE AFFAIRS, https://www.mca.gov.in/content/mca/global/en/data-and-reports/reports/other-reports/report-company-law/mergers-and-acquisitions.html (last visited June 13, 2024).
[19] MINISTRY OF CORPORATE AFFAIRS, https://www.mca.gov.in/content/mca/global/en/data-and-reports/reports/other-reports/report-company-law/mergers-and-acquisitions.html (last visited June 13, 2024).
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