Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or
developments in your jurisdiction?
In 2015, the Indian M&A market registered a slower
performance compared to 2014. This was due to various factors,
including a volatile rupee. Deal-making in the information
technology, energy, mining and utilities sectors was
comparatively higher. M&A activity was primarily driven by
cross-border inbound transactions, with investors from Japan
and the US taking the lead.
A number of deals displayed so-called earn-out structures.
The competition regulator showed an unprecedented level of
activity as it received notifications in respect of a number of
transactions. The securities market regulator introduced
significant regulatory changes aimed at making going- private
transactions easier. The government also worked hard to
dissipate concerns around retrospective taxation. Overall the
M&A market was consistent with the slow and steady growth
of India in 2015.
1.2 What is your outlook for public M&A in your
jurisdiction over the next 12 months?
2016 promises to be a more robust year for M&A,
supported by an active domestic market. The government's push
to develop India as a global manufacturing hub, the impending
introduction of a new bankruptcy regime and a more liberal
foreign direct investment (FDI) policy are expected to boost
M&A deal making in 2016.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public
M&A activity in your jurisdiction?
The Securities and Exchange Board of India (Sebi) regulates
M&A in listed securities in India;
- generally, the Ministry of Corporate Affairs (MCA)
regulates all companies through the Companies Act 2013.
However, significant corporate actions related to M&A are
still governed by Companies Act, 1956;
- the Reserve Bank of India (RBI) regulates cross-border
M&A through the Foreign Exchange Management Act 1999
(FEMA), the Foreign Investment Promotion Board (FIPB) and the
Department of Industrial Policy and Promotion (DIPP);
- the antitrust regulator, the Competition Commission of
India (CCI), depending on the nature, size and effect of
M&A transactions, has the authority to regulate public
M&A transactions in India;
- the Income Tax Department regulates any
transaction involving public M&A through the Income Tax
Act, 1961 (ITA) or the operation of Double Tax Avoidance
Agreements (DTAA) with foreign countries.
2.2 How, by whom, and by what measures, are takeover
regulations (or equivalent) enforced?
Sebi enforces compliance with the takeover regulations
through tender offer and disclosure requirements prescribed
under the Sebi (Substantial Acquisition of Shares and
Takeovers) Regulations 2011 (Takeover Regulations).
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile
Friendly acquisitions are usually structured either as share
purchase transactions or through court driven amalgamations. In
certain cases, acquisitions can also be structured through a
court process under the Sick Industrial Companies Act 1985 or
through an asset transfer process.
Indian public companies usually have substantial promoter
shareholding making it difficult to stage hostile takeovers.
Only a shareholder holding 25% or more shares or voting rights
of the target company can make a voluntary offer. However, if a
primary tender offer (including a voluntary offer) is made, any
person could make competing bids. In other words, a hostile
offer can only be structured through a competing offer mandated
under the Takeover Code by an existing shareholder.
3.2 What determines the choice of structure, including in
the case of a cross-border deal?
The structure depends primarily on the following factors:
(i) the activities of the target and foreign investment
restrictions governing the sector; (ii) requirements to obtain
licenses, if any; (iii) consent of the lenders; (iv) the CCI's
approval; (v) the preservation of tax benefits; and (vi)
requirements to launch a mandatory offer.
3.3 How quickly can a bidder complete an acquisition? How
long is the deal open to competing bids?
Typically, a bidder could complete the tender offer process
in 8-12 weeks. However, the timeline to complete an acquisition
depends on regulatory approvals, including the approval of the
A competing bid could be made within 15 days of the date of
the detailed public statement made by the acquirer who has made
the first tender offer, unless such offer is conditional as to
the minimum level of acceptances.
3.4 Are there restrictions on the price offered or its form
(cash or shares)?
There is no restriction on the price that can be offered to
a seller by an acquirer, except when the acquirer is
non-resident. In this case, the acquirer cannot pay less than
the fair market value.
A share swap is generally permitted. However, government
approval is required to pay consideration by shares by/to a
non-resident, if the target carries out certain regulated
3.5 What level of acceptance/ownership and other conditions
determine whether the acquisition proceeds and can
satisfactorily squeeze out or otherwise eliminate minority
The Takeover Regulations require an acquirer triggering the
mandatory tender offer provisions to make an offer for at least
26% of shares held by public shareholders. Even if none of the
shares is tendered in a public offer, the acquisitions can be
completed under the current law.
Currently, an acquirer who obtains the approval of 90% of
shareholders by value of shares of the target company held by
persons other than the acquirer or its nominees or subsidiaries
can buy out the dissenting minorities. However, given the
complex conditions that are part of the squeeze out provisions,
such a transaction is rare in India. As such, an alternative
strategy like selective reduction of capital is employed for
squeezing out minorities.
3.6 Do minority shareholders enjoy protections against the
payment of control premiums, other preferential pricing for
selected shareholders, and partial acquisitions, for example by
mandatory offer requirements, ownership disclosure obligations
and a best price/all holders rule?
Any person holding more than 25% of the voting rights in a
company must make an open offer for 26% of the total shares of
the target company. A person holding shares between 25 and 75%
can acquire more than five percent of the voting rights, unless
they make an open offer for such shares. No person can acquire
a number of shares that would take their shareholding to more
than 75% (ie. the promoter shareholding threshold for listed
The Takeover Regulations envisage disclosure obligations on
the acquirer in case of any change in his shareholding/voting
rights. Any person holding five percent or more of the shares
must disclose any acquisition/disposal representing two percent
or more of shares/voting rights. Continual disclosures must be
made by shareholders holding 25% or more voting rights, as of
the 31st day of March, every year, within seven days from the
end of financial year. Details of encumbered shares must also
The acquirer must pay to public shareholders the higher of
the negotiated price paid to the seller and other prices
calculated using a prescribed formula linked with the market
value of shares of the target. Any premium paid by the acquirer
to the seller must be added back to the price paid by the
public shareholders as well.
3.7 To what extent can buyers make conditional offers, for
example subject to financing, absence of material adverse
changes or truth of representations? Are bank guarantees or
certain funding of the purchase price required?
An acquirer can make a conditional offer based on the
minimum level of acceptances subject to the following:
(i) the acquisition document should contain a condition that
if the desired level of acceptances is not received, the
acquirer shall not proceed with the transaction; and
(ii) the acquirer and persons acting in concert shall not
acquire any shares of the target during the offer period.
In the case of such conditional offers, an acquirer is not
entitled to appoint any director representing them on the board
of directors of the target company.
Whole or part of the consideration payable to public
shareholders must be deposited in an escrow account and
payments are thereafter, made by the bank.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and
In any share transaction, the rate of tax on capital gains
depends on whether the gains are long-term (shares held for
more than 12 months) or short-term.
4.2 Are there special considerations in cross-border
Capital gains in cross-border deals are a concern,
especially in cases of indirect transfer (transfer of foreign
securities, which derives substantial value from underlying
Indian assets). Capital gains made by a foreign shareholder by
selling shares of an Indian company are subject to DTAA. In
appropriate cases, it is advisable to obtain an advance ruling
and include tax indemnity in the acquisition structure.
Section 5: ANTI-TAKEOVER DEFENCES
5.1 What are the most important forms of
anti-takeover defences and are there any restrictions on their
In India, hostile takeovers are rare (see 3.1). One of the
pre-emptive strategies the promoter undertakes to thwart a
hostile takeover is consolidating their shareholding by
continuous creeping acquisition under the Takeover
Pending a tender offer, the target cannot initiate major
corporate actions without obtaining majority shareholders'
approval. Further, during this period, the board of directors
of target must act in the ordinary course consistent with past
practice. As such, the scope of mounting a defence to a
competing offer is limited. The only viable measure appears to
be the issue of shares on conversion of existing convertible
5.2 How do targets use anti-takeover defences?
Takeover defences, if any, are usually taken by promoters or
majority shareholders of the target. The target does not
usually employ these defences.
5.3 Is a target required to provide due diligence
information to a potential bidder?
There is a requirement for the target to permit a due
diligence opportunity to a potential hostile bidder; however,
no such practice exists.
5.4 How do bidders overcome anti-takeover defences?
Anti-takeover defences could be overcome by instituting
court proceedings against the target or its directors or by
offering a higher price than the primary tender offer.
5.5 Are there many examples of successful hostile
Section 6: DEAL PROTECTIONS
6.1 What are the main ways for a friendly bidder and target
to protect a friendly deal from a hostile interloper?
The Takeover Regulations do not prohibit a person from
launching a competing offer, after the launch of the primary
6.2 To what extent are deal protections prevented, for
example by restrictions on impediments to competing bidders,
break fees or lock-up agreements?
Since a hostile offer does not need the agreement/support of
the target, deal protection measures for the primary tender
offer are not relevant.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your
Any acquisition of shares, voting rights or assets that
exceeds specific thresholds, acquisition of control, and
mergers or amalgamations (all are broadly categorised as
combinations) crossing certain thresholds require the approval
of the CCI.
However, antitrust thresholds are not typically applicable
in cases of intra-group mergers, mergers of two enterprises
where one exercises 50% shares/voting rights of another
enterprise such that such transaction does not result in
transfer from joint to sole control, etc.
7.2 When will transactions falling below those thresholds
Irrespective of the thresholds, any transaction that has
caused or is likely to have an appreciable adverse effect on
competition in India may be investigated by the CCI.
7.3 Is an antitrust notification filing mandatory or
An antitrust notification filing is mandatory in India, if a
combination exceeds the thresholds.
7.4 What are the deadlines for filing, and what are the
penalties for not filing?
A combination filing must be made within 30 days of approval
of a proposal of merger or amalgamation by the board of
directors or of execution of any agreement for acquisition or
acquiring control of enterprise, whichever is earlier.
A penalty of up to one percent of the total turnover or
assets, whichever is higher in the case of a combination, can
be levied on the person or enterprise responsible for the
7.5 How long are the anti-trust review periods?
Typically, within 30 days from the date on which notice is
given in respect of a combination, the CCI provides a prima
facie view on whether the combination would have an
appreciable adverse effect on competition in India. Unless the
CCI has passed an order approving or rejecting a combination, a
combination will be considered effective after 210 days from
the day on which notice was given.
7.6 At what level does your anti-trust authority have
jurisdiction to review and impose penalties for failure to
notify deals that do not have local competition effect?
The CCI can review deals taking place outside India, if the
threshold requirements under the Competition Act 2002 are met
regardless of whether they have a local competition effect.
7.7 What other regulatory or related obstacles do bidders
face, including national security or protected industry review,
foreign ownership restrictions, employment regulation and other
Typically, a foreign bidder is free to acquire shares and
assets unless the activities of the Indian target form part of
a licensed sector (for example, air transport services, defence
production, and insurance). In such cases, conditions of
license or approval in respect of ownership or management must
also be complied with. Share acquisitions usually do not
trigger employee compensation unless simultaneous
lay-off/retrenchment is planned.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in
Key legislation includes: the Indian Penal Code 1860; the
Prevention of Corruption Act 1988; and the Right to Information
8.2 What are the potential sanctions and how stringently
have they been enforced?
These sanctions (both pecuniary and penal) have been heavily
enforced recently. However, cases reported of such instances
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your
jurisdiction that might affect a public M&A
In 2015 and in the first quarter of 2016, there have been
significant changes in the regulatory regime affecting public
M&A activities. These changes pertain to companies laws,
securities laws and competition laws. Simultaneously, the
government has liberalised the exchange control regime which is
expected to ease cross-border M&As especially in the
Dipankar Bandyopadhyay is an experienced M&A
lawyer and head of the corporate practice at Verus.
Bandyopadhyay advises on public and private M&A,
private equity, venture capital and financing matters.
Bandyopadhyay has represented both acquirors and
sellers on several complex, cross-border, public
M&A transactions, a number of which have been
recognised as leading transactions in the jurisdiction.
Bandyopadhyay regularly advises on structuring of
M&A deals from the perspective of complex
regulatory environment in India. He has advised Idea
Cellular, TAQA, HSBC, AXA SA, India Carbon and Suzlon
on M&A matters in India.
Priyanka Devgan is an associate with Verus. Her
principal areas of practice are M&A and corporate
finance. She often advises clients on the regulatory
aspects of M&A transactions, including tender
offers, insider trading and competition law