Mergers and acquisition in recent times due to globalization has gained
significant importance. It plays a major role on the activities of the
organization. Mergers and acquisition are considered as one of the best
strategies to confront the global competitive market. With globalization unless
the company is large in size and capital, it will very difficult to compete with
nations where the cost of production is lower due to economies of scale.
free competitive world, it is necessary to position oneself in such a manner to
compete with the best. For this the faster route is necessary. Mergers and
acquisition that are successful are highly proven to be beneficial for the
companies as well as the economy. Especially in developing country like India
mergers and acquisition play a major role for the growth of India economy. Such
legal frame work for corporate restricting must be easy, facilitative in nature,
nonrestrictive and free from regulatory hurdles.
One such hurdle in the way of
completing mergers and acquisition is long drawn-out court procedure required
for the approval of scheme of arrangement. In India the process of merger and
acquisition is court driven, lengthy and hence problematic. In India, the
Companies Act, 2013, and the Competition Act, 2002, govern mergers and
acquisitions involving Indian companies while the Competition Act, 2002 ensures
fair competition and prevents monopolistic practices in the market. The purpose
of this paper is to critically analyze the merger and acquisition landscapes in
India in the light of the Companies Act, 2013 and the Competition Act, 2002.
Objectives / Motives Behind Corporate Mergers And Acquisitions
- To achieve economies of scale
- To compete globally in free competitive market
- To use the liquidity available with the company for achieving growth through
- For overall improvement of industry
- Tax purpose
- Diversification, Increase in financial capacity act.,
What Is Merger And Acquisition?
When two or more individual businesses consolidate to form a new enterprise, it
is known as a merger. The merged entity usually takes on a new name, ownership,
and management that is composed of employees from both companies.
An acquisition entails one organization acquiring the business of another. The
acquirer must purchase at least 51% of the target company's stock in order to
gain absolute control over it. It usually occurs between two companies that are
not equal in stature: a financially stronger entity generally acquires a
smaller, relatively weaker one.
How Merger Is Different From Acquisition? Key Differences Between Mergers And
|Two or more individual companies join to form
a new business entity
|One company completely takes over the
operations of another.
|New shares are issued
|No new shares are issued
|The merged entity works under another or new
|The acquired entity operates under name of
|There is a harmony and dilution of powers
|The acquiring company has a power and
|Minimum no od companies involved
|To increase operational efficiency
|For faster growth
|Flipkart and E-bay India (2017)
|Zomato Uber eats (2020)
Merger And Its Types:
Horizontal MergersHorizontal mergers occurs when the two merging companies produce similar
products in the same industry. Example: Merger of Vodafone India and Idea
cellular limited, merger of two telecommunication companies.
Vertical MergerVertical mergers take place when two companies working at different stages in
the production of the same good, combine. Example: Zee Entertainment enterprises
ltd. And Dish Tv India ltd. Merger between a broadcast and distribution platform
Congeneric MergerCongeneric merger takes place when two merging firms are in same general
industry, but have no mutual customer or supplier relationship. Example: Thomas
cook India limited and sterling Holiday resorts (India) limited merger between
these two companies which were involved in the tourism business, but their
customer base are unrelated.
Legal Framework On Mergers And Acquisition In India Under Companies Act, 2013
The Companies Act, 2013, provides a legal framework for mergers and acquisitions
involving Indian companies.
The provisions governing mergers and acquisitions
under the Companies Act, 2013, are as follows:
- Section 230-232: These sections deal with the scheme of compromise, arrangement, and amalgamation. They provide a framework for mergers and acquisitions, including demergers, amalgamations, and arrangements between companies.
- Section 235: This section empowers the National Company Law Tribunal (NCLT) to order an investigation into the affairs of a company in the event of a merger or amalgamation.
- Section 236: This section provides for the submission of a report by the company's auditor to the NCLT regarding the proposed merger or amalgamation.
- Section 237: This section enables the Central Government to order an investigation into the affairs of the company before granting approval for the merger or amalgamation.
- Section 240-242: These sections deal with the powers of the NCLT to order the convening of meetings of shareholders and creditors, the notice of the meeting, and the procedure for the approval of the merger or amalgamation.
Legal framework on mergers and acquisition in India under competition Act,
2002The relevant sections of the Competition Act 2002 that deals with mergers are
Sections 5 and 6.
Conflict Between Companies Act 2013 And Competition Act 2002 With Respect To
Mergers And Acquisition:
- Section 5 of the Competition Act deals with combinations, which includes
mergers and acquisitions, and lays down the threshold limits for the parties
involved in the combination. It requires parties to notify the Competition
Commission of India (CCI) when the assets or turnover of the combination exceed
the prescribed limits.
- Section 6 of the Competition Act provides for the scrutiny of
combinations by the CCI to determine whether they are likely to have an appreciable adverse
effect on competition in the relevant market in India. The CCI has the power to
approve, reject or approve the combination with modifications. Together, these
sections regulate the process of mergers and acquisitions in India and ensure
that they do not harm competition in the relevant market.
The Companies Act 2013 and the Competition Act 2002 both play an important role
in regulating mergers and acquisitions in India. However, there have been
instances of conflict between the two acts, leading to legal uncertainty and
delay in the approval process.
Some Of The Key Areas Of Conflict Include:
- Thresholds for merger control:
The Companies Act 2013 and the Competition Act 2002 have different
thresholds for determining whether a merger or acquisition is subject to
competition law review. Under the Competition Act, a combination (which
includes mergers and acquisitions) is notifiable if it meets certain asset
and turnover thresholds. However, the Companies Act has a different set of
thresholds for mergers and acquisitions, which are based on the size of the
companies involved. This has led to confusion and uncertainty as to which
transactions are subject to competition law review.
- Timeframe for approval:
The Competition Act provides for a mandatory waiting period of 210 days for
the approval of combinations, which can be extended in certain
circumstances. However, the Companies Act does not have a specific timeframe
for the approval of mergers and acquisitions. This has led to delays in the
approval process, as companies have to wait for approvals from both the
Competition Commission of India (CCI) and the Registrar of Companies.
- Jurisdictional issues:
There have been instances where the CCI and the National Company Law
Tribunal (NCLT) have differed in their interpretation of the law with
respect to mergers and acquisitions. This has led to jurisdictional issues
and confusion, as companies are unsure which authority to approach for
- Role of minority shareholders:
The Companies Act 2013 provides for the protection of minority shareholders
in mergers and acquisitions, while the Competition Act does not explicitly
address this issue. This has led to conflicts between the two acts, as the
protection of minority shareholders may require changes to the terms of the
merger or acquisition, which may in turn affect competition in the market.
- One example of conflict between the two acts is the Tata-Docomo case,
where the NCLT and the CCI had differing opinions on the legality of the
termination of a joint venture agreement between Tata Teleservices and NTT
Docomo. Another example is the proposed merger between Uber and Ola, which
was challenged by the Competition Commission on the grounds that it would
create a monopoly in the ride-hailing market.
To address these conflicts there have been calls for greater coordination
between the CCI and the NCLT, as well as the need for clear guidelines on the
role of each authority in the approval process. There is also a need to
harmonise the threshold for merger control under both the Acts, to avoid
confusion and legal uncertainty.
It is important to note that the objective behind both the Acts is to ensure
fair competition and protect the interest of the stakeholders. hence compliance
with the both the Acts is necessary to avoid attracting unnecessary legal
uncertainties. It is important that government to take necessary steps to
address the conflicts between companies Act 2013 and competition Act, 2002 to
ensure smooth and efficient approval process for mergers and acquisition.
- Competition Act 2002: http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf
- Companies Act 2013: http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification2_2014.pdf
- Vodafone-Idea merger: https://www.business-standard.com/article/companies/vodafone-idea-merger-nclt-approves-deal-118082100847_1.html
- Flipkart-Walmart merger: https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/walmart-flipkart-deal-faces-ministry-hurdles-as-competition-commission-of-india-looks-to-continue-probe/articleshow/64505203.cms
- "Mergers, Acquisitions and Competition Law in India", Singhania & Partners, available at https://singhania.in/wp-content/uploads/2021/01/Mergers-Acquisitions-and-Competition-Law-in-India.pdf
- "Competition Law and M&A Transactions in India", Nishith Desai Associates, available at https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Competition_Law_and_MA_Transactions_in_India.pdf
Award Winning Article Is Written By: Ms.Ragini M
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