Indian Merger Laws

This article is written by Riya Tyagi, of NAS College, Meerut.

WHAT IS MERGER?

A merger is a corporate restructuring transaction in which two or more companies combine into a single entity. The transaction may occur through absorption, where one company survives, or through consolidation, where a new entity is formed.

TYPES OF MERGERS

1. HORIZONTAL MERGER

Horizontal mergers refer to those types of mergers in which businesses from the same industry come together. The primary objective of a business is to pool resources and obtain a competitive edge over its competitors. These mergers may also create a monopoly in the market, reduce competition and create other anti- competitive activities.

2. VERTICAL MERGER

Vertical merger are those types of mergers in which distinct phrases of the production process unite is called vertical merger. Example: an automobile manufacturer merging with a steel supplier.

The main motive of these businesses is to reduce expenses, increase efficacy or simplify the process.

3. CONGLOMERATE MERGER

A conglomerate merger involves firms operating in completely unrelated business activities.

4. CONGENERIC MERGER (PRODUCT EXTENSION)

It simply occurs between companies in the same general industry that sell different but related, often sharing similar customer bases or distribution channels.

5. MARKET EXTENSION MERGER

A market extension merger occurs when companies selling similar products combine to expand into new geographic or customer markets.

6. REVERSE MERGER

A private company merges with a public company to bypass the lengthy IPO process.

ACQUISITION, COMBINATION & MERGER PROCEDURE

STEP 1- PRE TRANSACTION PLANNING

The first step in merger is that both businesses make research in-depth about the business impact of the transactions are positive, negative, financial or more aspect. so that the merger makes in future strength not weakness.

STEP 2- VALUATION

After examine all the aspects in depth then, there is need that both businesses evaluate the value of their businesses for pricing purpose with the help of the third party in true & fair manner, not to seduce the other party.

STEP 3- DUE DILIGENCE

If there is any ambiguity or risk is present in the transaction then, acquirer company need to examine the target company in depth about their contracts, financials, books of account, legal documents, etc.

STEP 4- NEGOTIATION

After completing all due diligence process, then both businesses should negotiate about pricing of acquirer the target company and also discuss all the terms and conditions related to it.

STEP 5- DOCUMENTATION

After all the discussion, both businesses should draft the agreement and reduce in writing all the clauses which are agree by both parties. So that there is no conflict arises in future.

All the terms and condition which are mentioned in agreement should be simple, clear and easy to understand so that, there is no any ambiguity present and all these terms are known by both parties.

STEP 6- REGULATORY PERMISSION

Both businesses should obtain approval from the competent authority. After taking approvals from the competent authority, the business operation is ready to commence its business. And both business entities should have access to the transaction success.

The merger process is too technical. So, there is a need for experts to oversee the process.

LEGAL FRAMEWORK

UNDER THE COMPETITION ACT, 2002

The provisions relating to mergers, acquisitions and amalgamations in India are primarily governed by the Competition Act, 2002. Under the Act, mergers and acquisitions are referred to as “combinations.” The objective of the law is to ensure that such transactions do not cause an Appreciable Adverse Effect on Competition (AAEC) in the Indian market.

The Competition Commission of India (CCI) is the statutory authority responsible for regulating combinations in India.

SECTION 5 – COMBINATIONS

Section 5 of the Competition Act defines a “combination.” A transaction qualifies as a combination when it crosses the prescribed asset, turnover, or deal value thresholds.

Combinations generally include:

Acquisition of shares, voting rights, assets, or control by one enterprise over another enterprise.
Acquisition of control where the acquirer already controls another enterprise engaged in similar or identical business activities.
Mergers or amalgamations between enterprises.

The Central Government, in consultation with the CCI, periodically revises the threshold limits through notifications.

DEAL VALUE THRESHOLD (DVT)

The Competition (Amendment) Act, 2023 introduced the Deal Value Threshold (DVT) mechanism.

Under this provision, a transaction must be notified to the CCI where:

the value of the transaction exceeds ₹5,000 crore; and
the target enterprise has substantial business operations in India.

The introduction of DVT was aimed at regulating high-value digital and technology acquisitions that may otherwise escape traditional asset or turnover thresholds.

MEANING OF “GROUP”

Under the Competition Act, a “group” exists where one enterprise is in a position to:

exercise 26% or more voting rights in another enterprise;
appoint more than 50% of the members of the board of directors of another enterprise; or
control the management or affairs of another enterprise.

MEANING OF “CONTROL”

The Competition (Amendment) Act, 2023 introduced a clearer definition of “control.”

Control means the ability to exercise material influence, directly or indirectly, over:

management,
affairs, or
strategic commercial decisions of an enterprise.

Control may be exercised individually or jointly.

SECTION 6 – REGULATION OF COMBINATIONS

Section 6 regulates combinations and prohibits combinations that are likely to cause an Appreciable Adverse Effect on Competition (AAEC) in India.

Important Provisions under Section 6

Section 6(1)

No enterprise or person shall enter into a combination that causes or is likely to cause AAEC within the relevant market in India. Such combinations are considered void.

Section 6(2)

Parties proposing to enter into a combination must give notice to the CCI in the prescribed form before consummating the transaction.

Notice is generally required after:

approval of the merger or amalgamation by the board of directors; or
execution of an acquisition agreement or other binding document.

Standstill Obligation

The parties cannot complete or give effect to the transaction until approval is granted by the CCI or the statutory waiting period expires.

This principle is commonly referred to as the “suspensory regime” or “gun-jumping prohibition.”

Green Channel Approval

Certain combinations that do not create horizontal, vertical, or complementary overlaps may qualify for automatic approval under the Green Channel mechanism introduced by the CCI.

SECTION 20 – INQUIRY INTO COMBINATIONS

Under Section 20, the CCI may inquire into whether a combination has caused or is likely to cause AAEC in India.

The inquiry may begin:

upon receipt of notice under Section 6(2); or
suo motu based on information or knowledge available to the Commission.

FACTORS CONSIDERED BY CCI UNDER SECTION 20(4)

While determining whether a combination causes AAEC, the CCI considers several factors, including:

market share of the parties;
level of concentration in the market;
barriers to entry;
likelihood of price increase;
extent of effective competition remaining in the market;
possibility of elimination of a significant competitor;
likelihood of foreclosure of competition; and
nature and extent of innovation.

These factors help the Commission assess the overall competitive impact of the transaction.

SECTION 29 – INVESTIGATION OF COMBINATIONS

Where the CCI forms a prima facie opinion that a combination is likely to cause AAEC, it may initiate a detailed investigation under Section 29.

The Commission may:

issue a show-cause notice to the parties;
call for reports from the Director General;
invite objections from the public or affected parties; and
require additional information from the enterprises involved.

The purpose of the investigation is to determine whether the transaction would substantially reduce competition in the relevant market.

SECTION 29A – MODIFICATIONS TO COMBINATIONS

After investigation, if the CCI concludes that the combination may cause AAEC, it may issue a statement of objections to the parties.

The parties may propose modifications to eliminate anti-competitive concerns.

The Commission may:

accept the proposed modifications;
suggest further modifications; or
reject the transaction if concerns remain unresolved.

This provision promotes balance between business restructuring and protection of market competition.

SECTION 31 – ORDERS OF THE COMMISSION

After completion of the inquiry, the CCI may:

approve the combination;
approve the combination subject to modifications; or
reject the combination.

If the Commission fails to pass an order within the statutory period prescribed under the Act, the combination is deemed to have been approved.

SECTION 43A – PENALTY FOR FAILURE TO GIVE NOTICE

Under Section 43A, if parties fail to notify a notifiable combination to the CCI, the Commission may impose a penalty.

The penalty may extend to:

1% of the total turnover,
assets, or
deal value of the transaction,

whichever is higher.

This provision aims to discourage “gun-jumping” and ensure compliance with merger control regulations.

OBJECTIVE OF MERGER CONTROL UNDER COMPETITION LAW

The merger control framework under the Competition Act seeks to maintain a balance between:

economic growth and business expansion; and
preservation of fair competition in the market.

The law does not prohibit mergers altogether; rather, it regulates transactions that may harm market competition, consumer welfare, or innovation in India.

UNDER THE COMPANIES ACT, 2013

The provisions relating to mergers, amalgamations, compromises, and arrangements are governed under the Companies Act, 2013, primarily under Sections 230 to 240.

The Act provides the procedural and legal framework for restructuring companies in India. It ensures that mergers and acquisitions are carried out in a transparent manner while protecting the interests of shareholders, creditors, employees, and other stakeholders.

The National Company Law Tribunal (NCLT) is the primary adjudicating authority responsible for approving schemes of merger and amalgamation.

SECTIONS 230–232: COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

Sections 230 to 232 lay down the procedure for mergers and amalgamations between companies.

A merger may take place between:

two or more companies;
holding and subsidiary companies; or
transferor and transferee companies.

The process generally takes place through a Scheme of Arrangement approved by the NCLT.

PROCEDURE FOR MERGER UNDER THE COMPANIES ACT, 2013

1. PREPARATION OF SCHEME OF MERGER

The companies involved prepare a Scheme of Merger or Amalgamation containing:

details of transfer of assets and liabilities;
share exchange ratio;
appointed date and effective date;
treatment of employees;
accounting treatment; and
rights of shareholders and creditors.

The scheme must clearly explain the commercial and legal effect of the merger.

2. APPROVAL BY BOARD OF DIRECTORS

The draft scheme must be approved by the Board of Directors of each company through a board resolution.

The board also authorizes filing of applications before the NCLT.

3. APPLICATION TO NCLT

After board approval, an application is filed before the NCLT seeking directions for:

convening meetings of shareholders and creditors; or
dispensing with such meetings where permitted.

The Tribunal may also issue directions regarding notices, advertisements, and disclosures.

4. NOTICE TO REGULATORY AUTHORITIES

Notice of the proposed scheme must be sent to various authorities, including:

Registrar of Companies (ROC);
Official Liquidator;
Income Tax Authorities;
Competition Commission of India (where applicable);
Securities and Exchange Board of India (for listed companies); and
other sectoral regulators, if necessary.

These authorities may submit objections or suggestions before the Tribunal.

5. APPROVAL OF SHAREHOLDERS AND CREDITORS

The scheme must be approved by:

a majority in number representing
three-fourths in value

of the shareholders or creditors present and voting in the meeting.

This requirement is mandatory unless specifically exempted by the Tribunal.

6. VALUATION AND FAIRNESS

The share exchange ratio and valuation of shares must be determined by registered valuers or independent experts.

The valuation must be fair, reasonable, and transparent to protect minority shareholders and creditors.

For listed companies, fairness opinions and additional disclosures may also be required under SEBI regulations.

7. NCLT APPROVAL

After considering:

the scheme,
reports of regulatory authorities,
objections of stakeholders, and
overall fairness of the transaction,

the NCLT may approve the merger.

Once approved, the Tribunal passes an order sanctioning the scheme.

8. FILING WITH REGISTRAR OF COMPANIES

A certified copy of the NCLT order must be filed with the Registrar of Companies within the prescribed period.

The merger becomes effective from the date mentioned in the scheme or the Tribunal’s order.

FAST TRACK MERGER

Section 233 of the Companies Act provides a Fast Track Merger mechanism for certain classes of companies, including:

small companies;
holding and wholly-owned subsidiary companies; and
prescribed start-up companies.

Under this process:

approval of the Central Government replaces NCLT approval in certain cases;
the procedure is simplified and quicker.

The objective is to reduce procedural burden for eligible companies.

CROSS-BORDER MERGERS

Section 234 of the Companies Act permits cross-border mergers between Indian companies and foreign companies, subject to:

approval of the Reserve Bank of India (RBI); and
compliance with applicable foreign exchange laws and rules.

Such mergers must comply with the Companies Act and relevant FEMA regulations.

PROTECTION OF MINORITY SHAREHOLDERS

The Companies Act seeks to safeguard minority shareholders by ensuring:

proper disclosures,
fair valuation,
opportunity to raise objections, and
judicial scrutiny by the NCLT.

The Tribunal may reject schemes that are unfair, oppressive, or against public interest.

OBJECTIVE OF THE COMPANIES ACT IN MERGER

The Companies Act, 2013 provides a structured legal mechanism for corporate restructuring while balancing:

business efficiency,
stakeholder protection, and
regulatory supervision.

Its objective is to ensure that mergers are conducted lawfully, transparently, and in a manner consistent with public and commercial interest.

ROLE OF SEBI IN MERGERS AND ACQUISITIONS

The Securities and Exchange Board of India (SEBI) is the principal regulatory authority responsible for regulating the securities market in India and protecting the interests of investors.

In cases involving listed companies, mergers and acquisitions are additionally governed by:

SEBI regulations,
Securities Contracts laws,
Listing Obligations and Disclosure Requirements (LODR), and
stock exchange requirements.

SEBI ensures that merger and acquisition transactions are carried out in a fair, transparent, and investor-friendly manner.

SEBI (LODR) REGULATIONS AND MERGERS

Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, listed companies are required to make timely and adequate disclosures regarding proposed mergers, amalgamations, and acquisitions.

The objective is to ensure transparency and prevent information asymmetry in the securities market.

IMPORTANT REQUIREMENTS UNDER SEBI REGULATIONS

1. DISCLOSURE OF MATERIAL INFORMATION

Listed companies must disclose all material information relating to the proposed transaction to:

stock exchanges,
shareholders, and
investors.

Such disclosures generally include:

nature of the transaction;
rationale and objectives of the merger;
valuation details;
share exchange ratio;
risks and expected benefits; and
impact on shareholders.

This ensures that investors are able to make informed decisions.

2. SUBMISSION OF DRAFT SCHEME TO STOCK EXCHANGES

Before filing the scheme before the NCLT, listed companies are required to submit the draft scheme of arrangement to the relevant stock exchanges.

The stock exchanges examine the scheme in consultation with SEBI and issue:

observation letters, or
no-objection letters.

Only after receiving such observations can the company proceed before the NCLT.

3. FAIRNESS AND VALUATION REQUIREMENTS

SEBI requires that the valuation process in mergers and acquisitions must be fair and transparent.

Listed entities are generally required to obtain:

valuation reports from registered valuers;
fairness opinions from independent merchant bankers; and
audit committee recommendations.

The share exchange ratio must be justified and supported by proper valuation principles.

4. PROTECTION OF MINORITY SHAREHOLDERS

One of the primary objectives of SEBI is protection of minority investors.

SEBI regulations ensure:

equal treatment of shareholders;
proper disclosures;
transparency in pricing and valuation; and
prevention of fraudulent or unfair practices.

Where necessary, minority shareholders may raise objections before the NCLT or regulatory authorities.

SEBI TAKEOVER REGULATIONS

Acquisitions involving substantial purchase of shares or control of listed companies are governed by the:
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 commonly known as the “Takeover Code.”

The regulations apply when an acquirer crosses prescribed shareholding or control thresholds in a listed company.

OPEN OFFER REQUIREMENT

Under the Takeover Regulations, an acquirer is generally required to make an open offer to public shareholders when:

the acquirer purchases 25% or more voting rights in a listed company; or
acquires control over the target company.

The purpose of the open offer is to protect public shareholders by giving them an exit opportunity.

ROLE OF STOCK EXCHANGES

Stock exchanges such as:

Bombay Stock Exchange (BSE), and
National Stock Exchange of India (NSE)

play an important role in reviewing merger schemes of listed companies.

They examine:

compliance with SEBI regulations;
disclosure requirements;
accounting treatment; and
investor protection measures.

OBJECTIVE OF SEBI IN MERGER REGULATION

The role of SEBI in mergers and acquisitions is to ensure:

transparency,
investor protection,
market integrity, and
fair corporate governance.

SEBI does not directly approve mergers like the NCLT or CCI, but its regulatory oversight is essential in transactions involving listed companies and public shareholders.

CONCLUSION

Mergers and acquisitions play an important role in corporate growth, market expansion, and business restructuring. They help companies improve efficiency, strengthen their market position, and achieve long-term economic objectives. However, unregulated combinations may adversely affect competition and the interests of shareholders, consumers, and investors.

In India, mergers and acquisitions are regulated through the Competition Act, 2002, the Companies Act, 2013, and regulations framed by the Securities and Exchange Board of India. Together, these laws ensure that mergers are conducted in a transparent and lawful manner while maintaining fair competition, protecting investors, and promoting economic growth.

REFERENCES

Total Views: 119

Digital Evidence Under BSA, 2023: A Comprehensive Analysis

August 8, 2026

Convictions for Crimes Against Women and Children in MP

August 7, 2026