Mergers & Acquisitions in India

The Vodafone-Idea merger (2018) transformed India’s telecom sector by creating one of the largest telecom operators in the country, and the HDFC Bank-HDFC Ltd merger (2023) which became the biggest banking merger in India, strengthening its position in the financial sector. These are some of the biggest business moves in the country which have come through M&A transactions.

In an ideal dynamic business world, Mergers and Acquisitions (M&A) have become essential tools for companies looking to expand, gain a competitive advantage, or survive in an increasingly complex marketplace. This blog explores the legal and regulatory framework governing M&A in India, discussing the key laws, regulatory bodies, major case studies, the M&A process, and the challenges involved. Let’s begin!

What are Mergers and Acquisitions?

Mergers and Acquisitions (M&A) are business transactions where companies combine, buy, or take control of another company. They are used by companies to expand operations, increase market share, and achieve financial efficiency.

• Merger: When two companies combine to form a single new entity. Example: HDFC Bank & HDFC Ltd Merger (2023)—HDFC Ltd merged into HDFC Bank, creating India’s largest private-sector lender.

• Acquisition: When one company buys another and takes control of its operations. Example: Tata Steel’s acquisition of Bhushan Steel—Tata Steel acquired the financially distressed Bhushan Steel through the Insolvency and Bankruptcy Code (IBC), 2016).

Why are Mergers and Acquisitions Important for Businesses?

1. Growth & Expansion: M&A helps companies enter new markets or increase their presence in existing ones.

Example: Walmart-Flipkart Deal (2018)—Walmart acquired 77% of Flipkart for $16 billion to establish a strong presence in India’s booming e-commerce industry.

2. Cost Efficiency: Merging companies can reduce duplicate costs, such as administrative expenses and marketing.

Example: Vodafone & Idea Merger (2018)—Both telecom companies merged to cut costs, optimize resources, and survive the aggressive competition posed by Reliance Jio.

3. Competitive Advantage: Acquiring a competitor helps a company increase market share and strengthen its position.

Example: L&T’s Hostile Takeover of Mindtree (2019)—L&T, an infrastructure giant, took over Mindtree, strengthening its presence in the IT sector.

4. Diversification: Companies acquire businesses in different industries to spread risk.

Example: Reliance acquiring multiple startups in e-commerce, telecom, and digital services—Reliance diversified beyond its core oil and petrochemical business.

Why Mergers and Acquisitions Law is Crucial for Legal Professionals?

M&A deals involve multiple legal, financial, and regulatory approvals. Legal professionals play a crucial role in:

• Contract Drafting: Ensuring clear agreements like Share Purchase Agreements (SPA) and Memorandums of Understanding (MoU).

• Regulatory Compliance: Adhering to SEBI, CCI, RBI, and IBC regulations.

• Dispute Resolution: Handling shareholder disputes and valuation conflicts.

With growing corporate consolidations, lawyers specializing in M&A have a promising career path in corporate law firms, investment banks, and multinational corporations.

Laws Governing Mergers and Acquisitions in India

M&A in India is regulated by multiple laws and authorities to ensure fair competition, financial stability, and investor protection.

Companies Act, 2013

The Companies Act, 2013 sets the legal framework for corporate restructuring.

Sections 230-232: Mergers & Amalgamations

• Companies must prepare a merger scheme and get approval from:

  • Board of Directors

  • Shareholders (75% approval required)

  • National Company Law Tribunal (NCLT)

• Once approved, the companies merge into one entity.

Section 233: Fast-Track Mergers

For small companies and wholly owned subsidiaries, approval from NCLT is not required. Instead, companies can get approval from:

• Registrar of Companies (ROC)

• Official Liquidator

📌 Case Study: HDFC Bank & HDFC Ltd Merger (2023)

HDFC Bank and HDFC Ltd announced their merger in 2022, which was finalized in 2023, creating India’s largest private bank with a market value of over ₹18 lakh crore.

The deal was structured as a share swap, where shareholders of HDFC Ltd received 42 shares of HDFC Bank for every 25 shares they held. Regulatory approvals were obtained from NCLT, SEBI, RBI, and CCI.

The merger gave HDFC Bank access to HDFC Ltd’s mortgage business, while HDFC Ltd gained access to low-cost banking funds.

Competition Act, 2002

The Competition Commission of India (CCI) ensures that M&A deals do not harm competition in the market.

Thresholds for CCI Approval

M&A deals require CCI clearance if they meet either of these conditions:

• Assets exceed ₹2,000 crore (domestic) or $1 billion (global)

• Turnover exceeds ₹6,000 crore (domestic) or $3 billion (global)

Penalties for Non-Compliance

• Companies failing to get CCI approval can be fined up to 1% of the total deal value.

📌 Case Study: Reliance-Future Group vs. Amazon

Reliance planned to acquire Future Retail for ₹24,713 crore, which would have significantly expanded its retail presence. However, Amazon had an existing investment agreement with Future Group, which granted it the right to block the sale of Future Retail to Reliance.

Amazon challenged the deal in CCI, Delhi High Court, and Supreme Court. The legal battle stalled Reliance’s acquisition, and Future Group’s financial troubles worsened.

The case highlighted the importance of contractual agreements in M&A transactions.

SEBI Regulations for Listed Companies

M&A involving publicly traded companies must comply with SEBI regulations.

SEBI (Takeover Code), 2011

• If an acquirer buys 25% or more shares, they must make a mandatory public offer to other shareholders.

📌 Case Study: L&T’s Hostile Takeover of Mindtree

L&T bypassed Mindtree’s management and directly acquired shares from the stock market. It initially acquired a 20.32% stake in Mindtree by buying shares from Café Coffee Day founder VG Siddhartha.

It later increased its holding to 60%, gaining full control of Mindtree. SEBI ensured that L&T followed fair bidding and disclosure norms.

Foreign Exchange Management Act (FEMA)

Regulates foreign investment in M&A transactions.

RBI Guidelines for Foreign Acquisitions

• Some sectors (defense, telecom) require government approval before foreign investment.

📌 Case Study: Walmart-Flipkart Deal

Walmart acquired 77% of Flipkart for $16 billion, making it one of the biggest foreign investments in India.

The deal required RBI approval under FEMA guidelines. It helped Walmart gain a strategic advantage in India’s e-commerce market.

Insolvency and Bankruptcy Code (IBC), 2016

M&A also happens when distressed companies are sold under IBC.

📌 Case Study: Tata Steel’s Acquisition of Bhushan Steel

Bhushan Steel, one of India’s largest steel producers, went bankrupt due to high debt and mismanagement.

Tata Steel won the bid under IBC and acquired Bhushan Steel for ₹35,200 crore. This saved thousands of jobs and revived the company’s operations.

The Mergers and Acquisitions Process

1. Pre-Merger Considerations

• Due Diligence: Checking financial, legal, and operational risks.

• Valuation: Calculating the company’s worth before acquisition.

2. Deal Structuring

• Asset Purchase: Buying company assets.

• Share Purchase: Buying company shares.

• Share Swap Agreements: Exchange of shares instead of cash.

3. Negotiation & Agreement

• Letter of Intent (LOI): Expresses interest in the deal.

• Share Purchase Agreement (SPA): Legally binding contract.

4. Regulatory Approvals & Filings

• NCLT, SEBI, CCI, and RBI approvals required.

• Shareholders and creditors must also approve the deal.

Challenges & Risks in Mergers and Acquisitions

1. Regulatory Delays - CCI & SEBI approvals take time, delaying deals.

Example: Reliance-Future Group Deal faced multiple legal challenges.

2. Cultural & Integration Challenges - Mergers create employee conflicts and organizational changes.

Example: Vodafone-Idea Merger faced post-merger employee and branding issues.

3. Valuation Disputes & Legal Solutions

Example: Flipkart-Snapdeal merger failed due to disagreements over valuation.

4. Hostile Takeovers & Defense Strategies

• Poison Pill: Target company issues new shares to dilute ownership.

• Golden Parachute: High severance for executives.

Example: L&T-Mindtree Hostile Takeover.

Future Trends in Mergers and Acquisitions Law

• Digital & Technology-Driven M&A - Reliance acquiring multiple tech startups to expand digital services.

• ESG in M&A - New SEBI ESG norms ensure sustainability in mergers.

• Role of AI & Big Data in M&A - AI is being used for contract analysis and legal due diligence.

Conclusion

Mergers and Acquisitions are powerful business tools that drive growth, innovation, and market expansion. However, navigating the legal and regulatory landscape is crucial to avoid risks and ensure compliance. Legal professionals specializing in M&A law are in high demand, as companies require expertise in contract drafting, regulatory approvals, and dispute resolution.

As corporate India continues to grow, M&A law will remain a critical field for legal professionals, investors, and businesses. Let me know your opinion in the comments below 👇