Corporate M&A 2023

Last Updated April 20, 2023


Law and Practice


IndusLaw is a leading Indian law firm with more than 400 lawyers across offices in Bengaluru, Chennai, Delhi, Gurugram, Hyderabad and Mumbai. The firm advises a wide range of international and domestic clients on legal issues relating to their business, strategy, litigation and transaction goals. Multidisciplinary teams work across offices to provide seamless and focused advice, and to assist clients in making informed decisions and reaching effective outcomes. Clients hail from the e-commerce, education, energy, infrastructure, natural resources, financial services, healthcare, hospitality, manufacturing, real estate, social enterprises and technology sectors, among others. Recent M&A work includes advising PhonePe on the group restructuring, separation from Flipkart and domiciling the company to India. IndusLaw also advised ShareChat in the acquisition of short video application MX TakaTak from MX Media for USD700 million.

Indian companies attempted to address the difficulties they faced during the pandemic and restructured their business models through M&A and disinvestments. Despite the difficult and unpredictable circumstances experienced due to the pandemic, India witnessed quite a few large-ticket deals and continued to overperform in terms of deal value in 2022 compared to previous years, and even those before the spread of COVID-19. India witnessed a year of two distinct halves in terms of M&A deal activity in 2022, with the first half seeing extraordinary M&A deal activity, which declined significantly in the second half. A strong environment for M&A deals resulted from the combination of several factors. Corporate balance sheets were healthy, cash flows were at all-time highs and private equity players had plenty of dry powder funds for utilisation.

According to PwC, although the M&A deal volume in India saw a decline in 2022 compared to 2021, a total of USD107 billion in M&A deals was witnessed in 2022, which was significantly higher than the immediately preceding years, with strategic M&A deal value reaching all-time highs. The M&A deal values in India rose by 139% in 2022 compared to 2021, as observed by Bain & Company. However, according to PwC, 70% of the total deal activity and volume occurred in the first half of 2022, followed by a continual quarter-on-quarter decline. Similar to 2021, domestic deals continued to dominate the M&A market. The value of outbound M&A deals in 2022 reached USD4 billion, and consolidation-driven deals, as observed by PwC, were favoured.

With rising market confidence since 2021 and the declining severity of COVID-19 in India, the demand for M&A transactions in 2022 led to some of the largest-ever transactions in the banking, cement and aviation sectors, and a special focus was placed on sectors such as start-ups, e-commerce, information technology, manufacturing and banking and financial services. The investor community is positive about the recent decisions of the government of India (GOI), such as the schemes introduced under the National Solar Mission and the National Green Hydrogen Mission by the Ministry of New and Renewable Energy to expand the horizon for investment in renewables by creating new business avenues and encouraging conglomerates and conventional energy companies to invest in renewable energy.

Crucial themes that emerged in 2022 included a focus on consolidation deals by domestic companies and an increase in digital and technology M&A deals. Examples of such domestic consolidation deals include:

  • the acquisition of Ambuja Cement Ltd. and ACC Ltd. by the Adani Group for USD10.5 billion to become India’s second-largest cement manufacturer, which is also the largest-ever M&A transaction in India’s infrastructure and materials sector; and
  • the acquisition of the skincare player Curatio Healthcare (I) Private Limited by Torrent Pharmaceuticals Limited for INR20 billion.

In the Indian start-up space, 2022 began with market giants acquiring complementary start-ups to expand their product offerings, such as Ameyo’s acquisition by Exotel, Karza Technologies’ acquisition by Perfios and Blinkit’s acquisition by Zomato. Nonetheless, when the funding crunch started to squeeze start-ups with unsustainable unit economics, the fintech and edutech sectors witnessed a series of M&A deals with the aim of raising margins and lowering marketing and operating costs in order to extend the runway.

Rise in Domestic Deal Activity

The domestic M&A market saw record deal values in 2022, driven by companies seeking to consolidate their stand in the market, curtail competition and make forays into new disruptive segments. As observed by Grant Thornton, the aggregate domestic deal values were mainly driven by landmark deals such as the merger of HDFC Ltd. and HDFC Bank Ltd. (India’s largest ever merger announcement, with a deal value of USD40 billion), and the merger of Mindtree Ltd. and Larsen and Toubro Infotech Ltd. (the second largest deal of the year, with a deal value of USD17.7 billion).

Supply Chain Disruptions

India is rapidly becoming a preferred destination for multinational corporations seeking to broaden their supply chains. The GOI is also encouraging the shift to Indian markets by foreign players through initiatives like production-linked incentive schemes that aim to enhance India’s manufacturing capacity, increase exports and promote domestic production. This may eventually turn out to be supremely advantageous for India, and a shift to the Indian market is already being witnessed through deals in sectors pertaining to contract manufacturing, specialty chemicals and active pharmaceutical ingredients. For instance, in 2022, Advent International Corporation acquired a controlling interest in Avra Laboratories Private Ltd., and a consortium led by global investment firm PAG acquired a controlling interest in the pharmaceutical companies of the Optimus group.

China–India Relations

A ban on Chinese apps and websites was introduced in June 2020 and made permanent in January 2021 for national security reasons, and has led to acquirers scouting for sales of these banned platforms operating in India to non-Chinese entities. In February 2022, an additional 49 apps were blocked by the GOI after it was found that these apps were relaunched after being rebranded. Investor interest in acquiring stakes in Indian alternatives to such apps also increased. Furthermore, the restrictions imposed in relation to investments from bordering countries also led to certain existing investors from such jurisdictions exploring exit opportunities, which will eventually lead to a large exodus of Chinese investors from India.

Thrasio Model

The Thrasio model, whose principal business is to acquire brands, has gained increased popularity in India, and companies implementing this model have already acquired several small-scale businesses. Some of the premier companies that have adopted this model in India have raised significant funding at high valuations in the recent past, such as G.O.A.T Brand Labs, GlobalBees and Mensa Brands. The enthusiasm for the Thrasio model continued in 2022, as Mensa Brands acquired a total of eight start-ups, and G.O.A.T. Brand Labs acquired five. The increasing acceptance of this business model will boost M&A for small-scale companies and direct-to-consumer brands in several segments, including lifestyle, personal care, apparel, and home and décor.

Aggressive Acquisition of Start-ups

A trend that has persisted over the past few years is the acquisition of start-ups by fast-growing businesses seeking to scale rapidly, venture into new business segments, enter new jurisdictions, and provide omnichannel services to consumers. This activity is commonly witnessed in the consumer tech, fintech and edutech sectors. For instance, in 2022, Razorpay Software Private Limited acquired Poshvine, a payment-linked loyalty and engagement solution provider, to supplement its payments and banking business solutions.

Warranty and Indemnity Insurance and Cybersecurity Insurance

There is a growing trend in India of obtaining warranty and indemnity insurance in M&A deals, based on the risk appetite and cost-effectiveness of a deal across varied sectors. The Indian M&A deal market also witnessed a surge in the procurement of cybersecurity insurance in 2022, due to the rise in cyber-attacks and data breaches.

Certain traditional sectors saw M&A deal activity in the past 12 months, such as the transport and logistics sector, where the Essar group was acquired by ArcelorMittal Nippon Steel Ltd. for USD2.4 billion. However, there was also a focus on new sectors, which saw significant M&A deal activity, including:

  • the acquisition of MX TakaTak by ShareChat for USD700 million in the social media platform space (the biggest M&A in the Indian start-up ecosystem in 2022);
  • the acquisition of Blinkit by Zomato for USD568 million in the food delivery segment;
  • the acquisition of Sterling Biotech Ltd. by Perfect Day for INR6.4 billion in the biotech sector;
  • the acquisition of a controlling interest in NDTV by the Adani Group for INR6 billion in the media sector; and
  • the merger of INOX and PVR in the media and entertainment space.

2022 also witnessed existing business giants acquiring online businesses to supplement their offline presence and become omnipresent in the Indian market. For instance, the Aditya Birla Fashion and Retail group acquired a controlling interest in e-commerce fashion player Bewakoof for INR2 billion, and Reliance Retail acquired a controlling interest in women’s apparel brand Clovia for USD125 million.

Although the M&A deal volume in the pharmaceutical industry saw a considerable decline, the deal values spiked as a result of the acquisition of Viatris Inc. by Biocon Ltd. for USD3.3 billion. Furthermore, the aerospace and defence, automotive, professional services, and agricultural sectors also witnessed M&A activity in 2022, in contrast to the relatively dormant season for these sectors in 2021.

While COVID-19 had the inadvertent consequence of providing a fillip to Indian edutech businesses, the reopening of schools and coaching institutions coupled with the private equity funding freeze in 2022 resulted in a setback for the edutech sector as deals involving edutech start-ups reduced considerably in 2022.

Grant Thornton noted the following for 2022:

  • the M&A deal values and deal volume in the education sector fell by 88% and 18% respectively in the transport and logistics sector, and increased by 141% and 80%; and
  • the banking and financial services sector and the information technology and information technology-enabled services (IT & ITES) sector contributed 46% and 21% of the aggregate deal values, respectively. On the other hand, M&A deal volume in 2022 was driven by the start-up, IT & ITES and e-commerce sectors.

A significant number of M&A start-up transactions took place in the e-commerce sector in 2022, such as Aditya Birla's TMRW's acquisition of eight fashion start-ups, and transactions in the e-commerce rollup ecosystem led by the unicorns Mensa Brands and GlobalBees. More established businesses also participated in the roll-up “House of Brands” strategy, including Nykaa and the retail divisions of Reliance. The enterprise-tech sector witnessed the majority of M&A transactions, with a focus on expansion across geographies and value chain, thereby overtaking the e-commerce start-up sector with the largest M&A start-up deals in 2022. Out of every five start-up acquisitions in 2022, one was from either the enterprise-tech sector or the e-commerce sector.

Companies are usually acquired by purchasing existing shares from shareholders or by subscribing to new shares, for cash consideration/non-cash considerations, to be paid in part or in full on an immediate or a deferred basis. Share swaps and the issuance of employee stock options to eligible employees are prevalent as non-cash considerations, although, in the case of swaps, part consideration to be paid in cash is preferred for meeting tax liabilities. Court-approved mergers are preferred in limited cases involving immovable properties, regulated assets or tax considerations, since the process is time consuming.

Acquisition by way of a transfer of assets or of a “business as a going concern” is also common, with the latter being preferred for being tax efficient. Acquisitions carried out only through the transfer of intellectual property and recruiting resources from the target have also gained momentum.

M&A in India does not have a single primary regulator as it is governed by multiple pieces of legislation, depending on the mode of acquisition and the industry involved. The following acts typically apply across all M&A activity:

  • the Companies Act, 2013;
  • the Indian Contract Act, 1972;
  • the Income Tax Act, 1961; and
  • the Competition Act, 2002.

Regulations framed by the Securities and Exchange Board of India (SEBI), the Foreign Exchange Management Act, 1999 and the rules and regulations framed thereunder may also be applicable, depending on the form and/or residential status of the parties. As a consequence, several regulatory authorities play a role in M&A transactions, such as the Reserve Bank of India (RBI), SEBI, the Competition Commission of India (CCI), the Registrar of Companies (RoC) under the Ministry of Corporate Affairs, and even stock exchanges, which are required to approve the merger schemes of listed entities prior to them being presented to the relevant tribunals.

Sector-specific regulators such as the Telecom Regulatory Authority of India and the Insurance Regulatory and Development Authority of India, and the central and state ministries concerned, also come into the picture for the approvals and consents required for deals involving their respective industries.

Foreign investment into Indian entities is governed by foreign exchange laws regulating capital account transactions and is permitted through two routes: the automatic route and the approval route. Under this regime, sectors under the automatic route can attract foreign investment without government approval; sectors under the approval route require prior government approval. Foreign investment is entirely prohibited in certain sectors, such as lotteries and tobacco production.

Foreign investments in India largely have to comply with:

  • sectoral caps that define the extent of shareholding one can acquire in a company operating in a particular sector;
  • conditions prescribed for investing in a given sector, such as minimum capitalisation, sourcing conditions, etc;
  • pricing guidelines that set the base price for investments and subsequent transfers; and
  • reporting conditions that require foreign investments to be reported to the regulators.

Foreign Direct Investment (FDI) From Neighbouring Countries

Foreign exchange regulations in India were revised in 2020, making it mandatory to seek government approval for any direct or indirect investments where the investor or beneficial owner of such investment is based in a country that shares a land border with India. The primary objective behind this policy revision appears to be to curb any opportunistic takeovers of Indian companies, taking advantage of pandemic-related uncertainties. While “beneficial ownership” is not defined, in practice some AD Category-I banks in India apply the test of beneficial ownership based on whether a person holds 10% or more of the shares/capital/profits in the investing entity (some AD Category-I banks apply this test based on a holding of 25%) and/or the test of exercise of control (through shares, voting, board seats or influencing management and policy decisions).

Since April 2020, 423 proposals have been made seeking approval for investments by investors from countries sharing a land border with India. 98 of these proposals have since been approved in multiple sectors including automobile, chemicals, drugs and pharmaceuticals, and computer software and hardware.

In India, any transaction involving an acquisition (of shares, control, voting right or assets), merger or amalgamation that breaches certain asset or turnover thresholds prescribed under Section 5 (“Jurisdictional Thresholds”) of the Competition Act, 2002 is referred to as a “combination” and is regulated by the CCI.

Prior notification to and approval from the CCI is required for such combinations, subject to certain exemptions (mentioned below). The CCI may approve the combination unconditionally or, if it concludes that the combination could potentially cause an appreciable adverse effect on competition (AAEC), it may either refuse to provide approval or, in order to eliminate AAEC concerns, it may impose obligations on the parties, which could be behavioural in nature or structural remedies, such as requiring disinvestment from particular business lines.


An exemption from the notification requirement has been provided for the following combinations.

  • Combinations where the value of the consolidated assets of the target enterprise is less than INR3.5 billion in India or where the value of the consolidated turnover of the target enterprise is less than INR10 billion in India (“de minimis exemption”). The de minimis exemption was previously valid until 28 March 2022 and has now been extended until 28 March 2027. It provides for the speedy conclusion of transactions and has given an impetus to M&A activity in India.
  • Combinations entered into pursuant to investment agreements by public financial institutions, banks, SEBI-registered foreign institutional investors or SEBI-registered venture capital funds, pursuant to any covenant of a loan agreement or investment agreement. Such combinations are exempted from requiring prior notification, but they need to be notified to the CCI within seven calendar days of their completion.

The Indian law on merger control sets out the categories of combinations that are ordinarily not likely to cause AAEC concerns, and therefore do not need to be notified. However, this is a self-assessment test required to be carried out by the parties to the combination. Certain categories of exemptions provided under Schedule I of the CCI (Procedure in regard to the transaction of business relating to Combinations) Regulations, 2011 are of particular importance to financial sponsors or investors (who are not registered financial institutions as above), including:

  • the acquisition of less than 10% of total shares or voting rights (with no special rights);
  • the acquisition of additional shares or voting rights by an acquirer holding 25% but less than 50% (either before or after the consummation of the acquisition) of the shares or voting rights in the target entity, not resulting in the acquisition of sole/joint control in the target entity by the acquirer or its group;
  • the acquisition of additional shares or voting rights by an acquirer holding 50% of the shares or voting rights in the target entity where such acquisition does not result in a transfer from joint control to sole control by the acquirer; and
  • acquisitions within the same group where sole or joint control remains within the group.

Furthermore, the Competition (Amendment) Act, 2023 (“Amendment Act”), which proposes certain key amendments, including in relation to the regulation of combinations based on transaction value, reductions in the time limit for the approval of combinations by the CCI, and modifications of control for the classification of combinations, has received Presidential assent and was notified by the Ministry of Law and Justice on 11 April 2023. As per the notification, different dates may be prescribed for the notification of different provisions of the Amendment Act. Accordingly, the subsequent notifications are awaited.

Expedited Processing

To make doing business in India easier, in August 2019 the CCI introduced a fast-track approval of combinations through the Green Channel route, which is applicable to those combinations in which there are no vertical, horizontal or complementary overlaps between the target enterprise and acquirer group. Such a combination would be deemed to have been approved upon filing a Form I (ie, short-form notification) with the CCI, along with the prescribed declaration, and receiving an acknowledgment for such, subject to the CCI’s finding that the combination falls under the Green Channel scheme.

Under the green channel route, the CCI’s acknowledgement receipt acts as its approval order. This system would significantly reduce the time and cost of transactions. The Green Channel is expected to sustain and promote the speedy, transparent and accountable review of combination cases, strike a balance between facilitation and enforcement functions, create a culture of compliance and support economic growth. This is important to financial investors who acquire minority positions and have no control or overlaps between their group and the target enterprise.

The key pieces of labour legislation are:

  • the Industrial Disputes Act, 1947, which deals with trade unions and workers' disputes;
  • the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013;
  • the Employees Provident Fund Act, 1952, which is a government-mandated saving scheme with employer contribution;
  • the Maternity Benefit Act, 1961, which regulates the employment of women for a certain period before and after childbirth and provides for maternity and other benefits;
  • the State-specific Shops and Commercial Establishments Act, which regulates the conditions of work and employment of the employee;
  • the Employees’ State Insurance Act, 1948, which is intended to provide health insurance to workers; and
  • the Payment of Gratuity Act, 1972, which is a form of retirement benefit provided for employees who serve for a specified duration.

New Labour Codes

The GOI is currently in the process of framing rules for the following four new labour codes:

  • the Code on Social Security, 2020;
  • the Occupational Safety, Health and Working Conditions Code, 2020;
  • the Industrial Relations Code, 2020; and
  • the Code on Wages Act, 2019.

The new codes were scheduled to come into effect from 1 April 2021, but their implementation has been deferred for the time being. Their benefits of the new codes mostly pertain to improving the ease of doing business in India by providing more flexibility to employers in ensuring their compliance with labour laws.

In M&A, it is crucial to ensure that all statutory payments under the applicable labour legislation have been carefully assessed and made in full, to ensure that the liabilities thereunder do not pass on to the acquirer after the transaction, as the acquirer may not be able to contract out of such liabilities. Furthermore, pursuant to an acquisition, if an employee is terminated or there is a change in the terms of their employment to be less favourable, the acquirer will have to take into account the retrenchment payments that might be paid to such workers.

National security considerations in M&A in India are reviewed on a sectoral basis. Foreign investment into media and defence includes a national security review when being evaluated for FDI approval. Approval from the Ministry of Home Affairs is also required for the manufacturing of small arms and ammunitions. As described in 2.3 Restrictions on Foreign Investments, investors from a bordering nation will require approval to invest into Indian entities.

An applicant who is a citizen of or is registered/incorporated in Pakistan will require RBI approval to open a branch/liaison office in India. Furthermore, an applicant who is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau will require RBI approval to open a branch/liaison office in Jammu and Kashmir, Northeast region and the Andaman and Nicobar Islands.

Delisting of Equity Shares

The SEBI (Delisting of Equity Shares) Regulations, 2021 apply to the delisting of equity shares of listed companies from recognised stock exchanges. They also provide for the delisting of a listed subsidiary pursuant to a scheme of arrangement in accordance with Regulation 37.

Reforms in the Telecoms Sector

Reforms in the telecoms sector include the liberalisation of the FDI cap to a 100% automatic route, an increase in the tenure of spectrum and a revision in the calculation of adjusted gross revenue. These reforms resulted in TMT recording 210 M&A deals in 2021.

Fast-Track Mergers

Section 233 of the Companies Act and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“Fast-Track Merger Rules”) provide a procedure for fast-track mergers. The Fast-Track Merger Rules were amended to extend the applicability of the fast-track merger framework to start-up companies.

Foreign Portfolio Investor Regulations

SEBI recently amended the SEBI (Foreign Portfolio Investors) Regulations, 2019 to provide that a resident Indian, not being an individual, may also apply for a certificate of registration as a foreign portfolio investor (FPI), provided they fulfil the conditions in Regulation 4 (c).

Insolvency and Bankruptcy Code (IBC)

In light of the pandemic, the IBC was suspended from operation by the GOI until 24 March 2021, in order to assist businesses in dealing with the lingering difficulties caused by the pandemic and to avoid opportunistic acquisitions by creditors. Owing to the decline in COVID-19 cases, the suspension of the IBC was not extended by the GOI.

Furthermore, the RBI has recently allowed asset reconstruction companies (ARCs) to act as resolution applicants under the IBC. As a Resolution Applicant, an ARC can now undertake activities (including the acquisition of control of the corporate debtor) under the IBC that are not specifically allowed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the “SARFAESI Act”), subject to certain conditions being fulfilled, including the ARC having minimum net owned funds of INR1,000 crore.

Foreign Investment

The FDI caps for certain sectors have recently been liberalised, with the GOI now permitting FDI holdings of up to 100% in insurance intermediaries and 74% in insurance companies, both of which were previously heavily regulated. Furthermore, 100% FDI is permitted under the automatic route in the petroleum and natural gas sector, provided an in-principal approval for strategic disinvestment of a public sector undertaking (PSU) has been granted by the GOI. The definition of “indirect foreign investment” was revised to include an explanation that an investment made by an Indian entity that is owned and controlled by non-resident Indians, on a non-repatriation basis, will not be considered for the calculation of indirect foreign investment.

The additional requirement of approval for investment from countries that share a land border with India has had a far-reaching impact on M&A activity in India. Furthermore, the Ministry of Corporate Affairs has recently notified the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022, which provide that security clearance is required for an individual who is a national of a country that shares a land border with India to hold directorship position in an Indian company. Please refer to 2.3 Restrictions on Foreign Investments for more information.

Through the Press Note 1 of the 2022 Series, while allowing 20% FDI in the Life Insurance Corporation of India under the automatic route, the GOI also notified certain other changes to its Consolidated FDI Policy Circular, 2020, including allowing convertible notes issuable to non-residents by start-ups for a period of ten years instead of five and introducing non-resident employees’ eligibility to receive share-based employee benefits in body corporates established/constituted under any Central or States Acts (beyond employee stock options). While the former should boost non-valuation-based funding from non-residents in the start-up ecosystem, the latter will go a long way towards creating non-employee stock option share-based incentives for non-resident employees.

Statutory Recognition of Overseas Investment/FDI Structures

The GOI has introduced a new overseas investment regime, comprising the Foreign Exchange Management (Overseas Investment) Rules, 2022 (“OI Rules”), the Foreign Exchange Management (Overseas Investment) Regulations, 2022 and the Foreign Exchange Management (Overseas Investment) Directions, 2022. The overhaul of the framework governing overseas investments by Indian entities includes the facilitation (subject to certain limitations) of structures that were viewed unfavourably as “round tripping” under the previous overseas direct investment regime.

The new overseas direct investment regime has clearly established that investment in any foreign entity is restricted if such foreign entity has a step-down subsidiary (linked to “control” under the OI Rules) in India and such investment results in a structure having more than two layers of subsidiaries. This is a significant development as it permits a combination of overseas investment followed by a foreign direct investment back into India, subject to being restricted to two layers.

Applicability of Angel Tax to Investments by Foreign Investors

Section 56(2) (vii-b) the Income Tax, 1961 provides that, if companies issue shares to a “person being a resident” at a premium exceeding the face value of such shares, and if the aggregate consideration received from the resident exceeds the fair market value of said shares, then such excess amount received over the fair market value of the shares is taxable as “income from other sources”.

The Finance Bill, 2023 introduced a significant amendment to this section, omitting the words “being a resident”. Once this amendment takes effect from the assessment year 2024–25, any premium paid above the fair market value of unlisted company shares by an investor – Indian or foreign – will be subject to taxation. Furthermore, under the existing foreign exchange regime, the conversion price of convertible equity instruments subscribed by non-residents cannot be less than the fair market value of such shares. To counterbalance this requirement under the law, non-residents have traditionally subscribed to convertible equity instruments at a premium and paid subscription prices that are higher than the fair market value, to account for any future variation in the conversion price (for the enforcement of their economic rights such as anti-dilution rights). This amendment would pose challenges for the investee companies to give effect to, and for non-resident investors to avail of the valuation protection rights (such as anti-dilution by way of adjusting the conversion ratio and conversion price of such convertible security), without creating a tax exposure for the investee company.

Dispute Over the Assets of Future Retail Group (FRG)

The planned acquisition of FRG's assets by Reliance Industries led to a heavily contested dispute between powerhouses Amazon, Reliance and FRG. Amazon obtained an emergency arbitration order from the Singapore International Arbitration Centre, staying the asset sale from FRG to Reliance, claiming it was in violation of Amazon's commercial arrangements with FRG. While the National Company Law Tribunal (NCLT) allowed FRG to convene a meeting of its shareholders and creditors in relation to the proposed acquisition by Reliance, the deal fell apart as the secured creditors of FRG voted against the proposed acquisition.

In relation to CCI proceedings, the CCI invoked its residual powers for the first time, to re-examine and suspend its approval of Amazon’s acquisition of a 49% shareholding in Future Coupons Private Limited (FCPL), more than one year after the combination had taken effect. Amazon had acquired certain rights, such as a requirement for its prior written consent in relation to matters under FCPL’s shareholders’ agreement with Future Retail Limited (FRL) (“FRL Rights”). However, the CCI observed that Amazon had taken contradictory stands regarding the nature of the FRL Rights before the CCI and other judicial forums, and hence found Amazon guilty of misrepresentation and suppression of material facts. In addition to imposing a penalty, the CCI suspended its earlier approval of the combination, and directed Amazon to file a detailed notification in Form II afresh. Notably, this order sheds light on the importance of:

  • making full, correct and complete disclosures regarding the rationale/objective and all interconnected steps of a combination;
  • maintaining consistency in submissions before various forums; and
  • observing good house-keeping practices while drafting internal documents.

Amazon appealed this order before the National Company Law Appellate Tribunal (NCLAT), which, in agreement with the CCI, observed that Amazon intentionally did not disclose the “real ambit and purpose” of the combination. However, the NCLAT observed that the imposition of a maximum penalty of INR20 million for misrepresentation and suppression of material facts is slightly excessive, and reduced the penalty to INR10 million. The appeal against the NCLAT order is currently pending adjudication before the Supreme Court.

Dilution of Minority Share Acquisition Exemption

The CCI recently revised its approach towards the minority share acquisition exemption (“Item 1 Exemption”). Private equity investors could previously argue that their investments were in the ordinary course of business (OCB), but the CCI has significantly diluted the OCB limb of the Item 1 Exemption through imposing two separate gun-jumping penalty orders of INR2 million each against:

  • Trian Partners AM Holdco, Ltd. and Trian Fund Management, L.P. (collectively referred to as “Trian”), in relation to their acquisition of a 9.9% shareholding in Invesco Limited; and
  • PI Opportunities Fund – I and Pioneer Investment Fund (collectively referred to as “Premji Invest”), in relation to their acquisition of a 6.03% shareholding in FRL, for failing to notify the CCI prior to accepting board seat(s) in Invesco and FRL, respectively (Invesco and FRL are collectively referred to as “Target Companies”).

The CCI observed that, subsequent to their respective combinations, Trian and Premji Invest appointed director(s) in Invesco and FRL, respectively. The CCI concluded that Trian and Premji Invest therefore had the intention to participate in the affairs and management of their respective Target Companies, although Trian and Premji Invest did not have a contractual right to appoint directors to the board of their respective Target Companies. Thus, the combination in both cases cannot be said to be “solely as an investment”, nor could it be said to be in the OCB, since these are capital transactions and, accordingly, both combinations could not benefit from the Item I Exemption. Even in cases where the sole intention of an investment might be to benefit from the short-term price movement of securities, the CCI's decisions suggest that the OCB test would not be applicable if the acquirers are participating in the management of the investment with a view to causing an appreciation of value of their holdings.

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”) were amended in November 2022 (the “November Amendment”), resulting in one significant change.

Modification to Offer Price

The Takeover Code states multiple methodologies for the calculation of an offer price, one of which is the volume weighted average market price (VWAMP) for 60 trading days.

As per the November Amendment, a disinvestment through a change in control of public sector undertakings by the Central or State Government (PSU) would not be required to be calculated through VWAMP immediately prior to the date of public announcement. The amendment was made considering the unique nature of the transaction, with the process involved in a PSU disinvestment spanning a long period of time and requiring public announcements to be made at different stages.

These changes will help to provide investors with certainty over volatility in share price, and allow PSUs to operate on a level playing field with their private counterparts.

Committee on Review of Takeover Code

In November 2022, SEBI set up a 20-member committee comprising various individuals from the stock exchanges, the Confederation of Indian Industry, the Federation of Indian Chambers of Commerce & Industry, law firms, accounting firms, advisers, etc, with the following terms of reference:

  • to advise SEBI on issues related to the substantial acquisition of shares and takeovers, including measures to facilitate ease of doing business;
  • to review the extant provisions of the Takeover Code in light of past judicial pronouncements and various informal guidance issued by SEBI;
  • to advise SEBI on measures required, if any, in the legal framework for the simplification of the Takeover Code and to strengthen the extant Takeover Code by adopting appropriate global practice; and
  • to discuss any other matters, including the internal inputs of the department pertaining to the substantial acquisition of shares and takeovers.

The committee's review comes at a time when the Indian market has seen an advent of new-age companies without any “promoters”. The Takeover Code as it stands, along with any possible amendments in the future, will be crucial for boosting mergers and acquisitions in the country.

Stakebuilding is more relevant for listed public companies than for private companies. With regard to listed companies, it is possible to acquire up to a 25% stake without being required to make a mandatory tender offer to the other shareholders.

In addition, persons holding between 25% and 75% of the shares of a target company can acquire up to 4.99% in a financial year (1 April to 31 March of the immediately succeeding year) without being required to make a mandatory tender offer.

Successful implementation of an offer bid is usually difficult in the absence of an agreement with the promoter group, as most listed companies are owned and controlled by promoter groups in India, since the promoters typically control the board of directors of listed companies.

With regard to unlisted companies (private or public), shareholders can build a stake through primary and secondary investments subject to the conditions of the charter documents, and this is always preceded by extensive negotiations with the promoter group.

In the case of listed companies, the following material disclosures have to be made to the relevant stock exchanges and to the target company:

  • disclosure by persons acquiring 5% of shares or voting rights;
  • those persons holding 5% of shares or voting rights should disclose every purchase or sale of shares representing 2% or more of shares or voting rights;
  • promoters should disclose details of shares encumbered by them, or any invocation or release of such encumbrance, provided such disclosure shall not be applicable where such encumbrance is undertaken in a depository;
  • disclosure by a company of shareholders holding 1% or more of shares or voting rights; and
  • the names of persons acting in concert with one another should be disclosed separately.

Insider trading regulations require insiders to make disclosures to the company from time to time regarding their shareholding. Insiders are also required to make disclosures to the company, at the time of acquiring or selling such shares, which will then be disclosed to the stock exchanges by the company.

Reporting thresholds are prescribed by laws/regulations issued by SEBI that are applicable to all listed Indian companies. Furthermore, persons are not allowed to trade when in possession of unpublished price sensitive information (UPSI).

Indian exchange control regulations do not permit non-resident acquirers to acquire shares on the floor of a registered Indian stock exchange unless they are registered with SEBI as an FPI (see 3.1 Significant Court Decision or Legal Developments). This limitation acts as a significant barrier to stakebuilding.

Antitrust laws enforced by the CCI, and any industry-specific regulatory requirements (such as those relating to insurance companies or private banking companies), can act as hurdles to stakebuilding.

Dealings in derivatives are allowed. Foreign currency derivatives, credit derivatives and options contracts are allowed to be traded through stock exchanges or through the over-the-counter market, and are subject to the supervision of SEBI and the RBI.

There are no specific provisions in the Indian antitrust laws or securities laws in relation to derivatives. Dealings in derivatives are bound by general disclosures to be made at the time of the agreement to acquire shares/assets.

After making a public announcement of an open offer, an acquirer is required to publish a detailed public statement in the newspaper. Detailed public statements and the letters of offer that are dispatched to public shareholders require disclosures of the object, purpose and strategic intent of an acquisition, along with the acquirer’s future plans with respect to the target company.

Unlisted companies are not required to announce or disclose a deal, except under antitrust laws or in a court/tribunal-approved scheme of arrangement/merger/amalgamation, in which case such disclosures become mandatory to the tribunal and to members and creditors for the approval of such scheme.

In the case of listed companies, the mandate of disclosure rests on the principle of materiality and is governed by the listing and disclosure regulations of SEBI, as well as the regulations of the stock exchange where the securities of the company are listed. The company’s board is required to frame a policy for determination of materiality based on the criteria and guidelines prescribed by SEBI. Any corporate action pursuant to M&A that involves acquiring shares/voting rights/control is automatically considered material and is required to be disclosed without applying the test of materiality, as soon as reasonably possible (no later than 24 hours from the occurrence of the event).

In addition, the listed entity is required to disclose certain events to the stock exchange within 30 minutes of the closure of the board meeting held to consider such events, including any decisions pertaining to fundraising. Accordingly, and in conformity with the prescribed timelines, the parties disclose the deal upon signing the definitive agreements.

Any premature announcement of the transaction is not advised, especially where it involves listed entities, since doing so may lead to speculation and result in a violation of the regulations that prohibit market manipulation and the sharing of UPSI.

As discussed in 2.4 Antitrust Regulations, the antitrust laws in India also require mandatory prior notification to the CCI. In June 2017, the GOI removed the requirement to notify a combination to the CCI within 30 calendar days from the execution of the “trigger document”, for a period of five years. The trigger document in acquisitions is the definitive or binding agreement (including binding term sheet); in mergers, it is the board approval of the proposal relating to a merger or amalgamation. In March 2022, the GOI extended the relaxation for another five years. The parties can now notify a combination to the CCI at any time after the execution of the trigger document but before consummating any part of such a combination. Any such combination is then subject to a standstill provision and may be given effect only once the CCI has passed an appropriate order or once 210 days have passed from the date of such notification to the CCI. Accordingly, to ensure timely closing and shorter gestation periods, most acquirers approach the CCI on the day or shortly after the execution of the trigger document.

Any enterprise that proposes to enter into a transaction may request a consultation with the officials of the CCI, in writing, about the notification requirement for a transaction. Such consultation is informal and is not binding on the CCI. The parties can hold such a consultation with the CCI on a no-names basis if they wish to ensure the confidentiality of the transaction.

If the parties fail to notify a notifiable transaction prior to closing, or at all, the CCI has the power to impose a penalty of up to 1% of the combined asset value or turnover of the transaction, whichever is higher, on the acquirer.

As discussed in 4. Stakebuilding, market practice on the timing of disclosures is harmonious with the legal requirements, wherein companies disclose the deal upon entering into binding definitive agreements.

The acquirer generally insists on legal, business and financial due diligence on the target to ensure that the affairs of the target are compliant with the regulatory framework and that the target passes financial “health checks”. Depending on the nature and complexity of the transaction, and of the sector/business of the target, diligence may also be conducted on relevant technology or intellectual property using requisite experts. General diligence checks include reviews of capital, regulatory and statutory compliance, business contracts, disputes and litigation, financings, real estate, etc.

The pandemic has resulted in a higher number of virtual due diligence exercises being undertaken, increasingly relying on technology due to the lack of access to the physical documents of companies on account of the lockdown restrictions. There is now an increased focus on potential contractual liabilities and certain aspects of the target’s operations, such as cash flows and supply chain management, on account of pandemic-driven liquidity crunches and movement restrictions, along with a greater focus on data privacy, cybersecurity, and environmental, social and governance concerns.

Exclusivity is usually demanded during the negotiation of the term sheet and between the signing and closing of the transaction. Other than in deals where there are multiple bidders, the parties generally agree not to solicit other bids for an agreed time, to give the acquirer an opportunity to undertake due diligence.

Standstill obligations are usually demanded at the definitive agreement stage. Once definitive agreements are executed, parties to such agreements undertake not to:

  • take any action other than in the ordinary course of business;
  • effect any substantial change in the financials of the company;
  • do anything that would have a material adverse effect on the business of the company; or
  • act in derogation of the obligations undertaken under the definitive agreements.

For private companies, there are no restrictions on what a tender offer can contain. The tender offer is generally made by way of a memorandum of understanding or a term sheet, which contains the broad outline of the transaction as well as the commercial terms. The tender offer letter generally contains:

  • the details of the offer (whether it will be by way of stock purchase, asset purchase, business transfer or any other means);
  • the purchase price;
  • requests for due diligence;
  • the approvals required, if any, to consummate the transaction; and
  • other covenants pertaining to confidentiality, non-disclosure, etc.

While the tender offer is an indicative document signifying intention to enter into the transaction, these terms are carried forward in the definitive agreements and elaborated upon.

With regard to listed companies, a takeover bid may take ten to 12 weeks from the date of public announcement (excluding any time spent on negotiations).

For listed companies, a mandatory offer will be triggered upon the acquisition of:

  • 25% or more of the voting rights;
  • control, either directly or indirectly; or
  • additional shares or voting rights, in a financial year, in excess of 5% by shareholders holding between 25% and 75% of the shares of a target company in a financial year (1 April to 31 March of the immediately succeeding year).

Typically, cash is the consideration used for the acquisition of shares in public listed companies, even though the Takeover Code permits payment by way of listed securities issued by the acquirer or concert parties (ie, debt and equity or convertible securities that will convert into listed Indian securities). Listed company transactions in India are fixed price transactions, since the tender offer is required to be made to the public shareholders at the highest contracted acquisition price (ie, any adjustments will not apply to the tender offer).

Commonly used forms of consideration include cash, stock and options, or combinations thereof. The selection of the form of consideration also depends on various aspects, such as the mode of financing and the incidence of taxation.

In addition, through its November Amendment, SEBI has also allowed the acquirer to provide an unconditional and irrevocable bank guarantee for the entire consideration payable under the open offer, which will be an alternative to the existing requirement of depositing cash, subject to the approval of the RBI. However, such guarantee will need to be issued by a scheduled commercial bank that has an “AAA” rating from a credit rating agency registered with SEBI on any of its long-term debt instruments.

Due to the uncertainty surrounding company valuations, parties are opting for post-closing price adjustments to safeguard the deal value. The adjustments to purchase price can take the following forms:

  • deferring a portion of the consideration on the basis of a future contingency, subject to the applicable laws;
  • earn-outs based on meeting certain milestone events;
  • holdback and escrow mechanisms to account for a potential indemnity event, subject to the applicable laws; or
  • networking capital adjustments.

Other ways to address value gaps include using a lock-box mechanism.

Common conditions for a takeover offer include a minimum level of acceptance. However, the acquirer is bound to disclose all such conditions for a takeover offer in the detailed public statement and letter of offer.

An open offer should be for at least 26% of the target company, which ensures that the acquirer acquires a simple majority in the company if all the shareholders who are made an offer accept the offer (25% (for the underlying transaction that triggered the tender offer) + 26% (mandatory tender offer size)). However, in the case of a voluntary offer, the acquirer would be required to acquire at least the number of shares that would entitle them to exercise an additional 10% of the voting rights in the target company.

A shareholding in excess of 50% would enable a shareholder to pass ordinary shareholder resolutions, which can approve corporate actions such as a capitalisation of profit or an alteration of authorised capital. Shareholding in excess of 75% allows a shareholder to pass a special resolution, which is the highest threshold in corporate governance that needs to be cleared to undertake key corporate actions such as sales of assets, mergers or making investments.

Indian companies are permitted to include higher thresholds in their charter documents for all or certain matters, or veto rights for significant shareholders.

Firm financial arrangements have to be made for fulfilling the payment obligations of an open offer. These financial arrangements have to be verified and approved by the SEBI-registered merchant banker who is running the tender offer process, and certified by a practising chartered accountant.

In addition, the acquirer has to open an escrow account and deposit an amount equal to 25% of the consideration of the first INR5 billion and an additional 10% of the balance consideration. Deposits can be in the form of cash, bank guarantees or frequently traded securities.

In India, deal security measures such as break-up fees are often used in acquisitions but rarely used in investment transactions. They are not typical in M&A transactions involving listed companies.

In the case of acquisitions as well as investments, parties agree to non-solicit and standstill provisions as a way of providing deal security.

Furthermore, the pandemic has rendered the M&A space more buyer-friendly due to undervaluation, and has increased the need for company funding; as a result, target companies are more desirous of deal certainty. Acquirers are addressing the pandemic risk by making it contractually feasible for them to walk away from a deal in the interim period. This is primarily done by including heavier warranties and indemnities in relation to the financial and operational effects of the pandemic on the target.

However, material adverse effect provisions exclude pandemic-related effects on the grounds that this is a known condition.

Acquirers seek the appointment of nominee directors, typically in proportion to their shareholding in the target company.

In addition, acquirers seek veto rights in respect of certain actions involving the target company. However, in the case of listed companies, an acquirer has to take measures to ensure that the governance rights do not qualify as giving the acquirer “control” over the target, as that will trigger an obligation to make an open offer.

Shareholders can vote by proxy by depositing the duly signed proxy form with the company. However, a proxy does not have the right to speak at a meeting and is not entitled to vote, except in a poll.

The most commonly used squeeze-out method in India is the reduction of share capital, which involves a repurchase by the company of shares held by certain shareholders and a consequent cancellation of those shares. Such a scheme of reduction requires approval from the NCLT and at least 75% of the shareholders of the company. Judicial review by the NCLT is limited to ensuring the fairness of the scheme; the NCLT does not normally opine on the commercials of the deal.

There are no express restrictions on an acquirer obtaining irrevocable commitments to tender or vote by the principal shareholders of unlisted target companies.

Such commitments are not typical with respect to listed Indian companies as the regulators do not view them favourably on the basis that they can potentially skew shareholder democracy and influence voting outcomes.

Under the Takeover Regulations, the public announcement of an open offer must be made by an acquirer seeking to acquire 25% or more voting rights in a target company on the date of agreeing to acquire shares, voting rights or control over the target company, which is the date when binding acquisition agreements are executed. A public announcement has to be made by sharing information in the prescribed format with the relevant stock exchanges, with a copy being sent to the target company and SEBI within one working day of the public announcement.

Disclosures such as the object of the issuance, the number of issued shares, subscription by promoters/directors, the shareholding pattern and identification of the proposed allottee are required to be made to the shareholders as well as the RoC. Furthermore, SEBI and the relevant stock exchange are required to be informed in the case of an issuance by a listed entity and the offer document is required to have all material disclosures to enable the applicants to take an informed investment decision.

If the transaction requires CCI approval, then relevant disclosures have to be made, such as details of the nature of business undertaken by entities, their market shares and financials.

The details of any issuance also need to be filed with the RoC and the RBI (in the case of non-residents).

Bidders are not required to submit detailed financial statements, but limited audited financial information, such as total revenue, net income, EPS and net worth (prepared in accordance with GAAP) and profit and loss accounts and balance sheets of the acquirer and concert parties for the past three years are required to be disclosed in the letter of offer and the detailed public statement, which are required to be produced by the acquirer in accordance with the Takeover Code. If such statements are not audited, then they will have to be subject to a limited review by the statutory auditors. Any such audited statements subject to limited review cannot be more than six months old.

The key terms of the transaction documents, such as any conditions outside the acquirer’s control, any proposed change of control and other salient features, need to be included in the detailed public statement and letter of offer, which are prepared following standard formats prescribed by SEBI.

Transaction documents are open for inspection during the tendering period in respect of the tender offer.

Furthermore, if a proposed acquisition triggers the requirement to make a merger filing, then a copy of the relevant transaction documents has to be shared with the CCI as part of the filing. If the acquisition involves a sale of shares between residents and non-residents, relevant extracts of the transfer agreement need to be filed with the RBI.

For unlisted companies, there are no specified duties prescribed for an acquisition/business combination: the Takeover Regulations provide for the board of directors of the target company to ensure the running of the business in its ordinary course, and that there is no alienation of material assets or change in capital structure, etc, when a takeover offer is open. The general accepted principle under company law and in Indian jurisprudence is that a director has a fiduciary duty to act in good faith for the benefit of its members as a whole and in the best interest of the company. The law mandates directors to act in good faith in the best interest of the company, its employees and shareholders and the wider community, and also to consider protection of the environment.

The Indian Takeover Regulations require a committee of independent directors to provide written, reasoned recommendations on the open offer to shareholders of the target company, and the target company is required to publish such recommendations.

Companies that have a large stakeholder base (including holders of any securities) or a turnover/net worth above the prescribed threshold are obliged to constitute certain special committees of the board, but none are specific to business combinations.

Separately, Indian law mandates that directors disclose their interests in other entities annually and update such disclosures in a timely manner. Furthermore, directors are required to ensure that their interests do not conflict with those of the company, and any interested director is not allowed to participate in meetings or vote on matters in which they have an interest.

There is no specific mechanism requiring a board of directors to form a judgement in relation to a merger/acquisition or takeover in the case of unlisted companies. In a takeover scenario pertaining to listed companies, the committee of independent directors is required to make recommendations only.

Under Indian law, the board is ultimately answerable to the shareholders and a sale or merger needs to be approved by the shareholders of the company. However, the boards of directors of merging companies are required to provide a report explaining the effect of a scheme of merger on each class of shareholders and other stakeholders.

Given its limited powers, the board of directors of a company in India will not be able to implement any of the commonly used takeover avoidance mechanisms without the consent of the shareholders.

Independent outside advice is typically obtained in the form of valuation certificates from independent auditors, opinions from legal counsel on compliance with applicable laws and due issuance of shares, and tax advice on complex structures.

In the case of listed companies, the committee of independent directors is allowed to seek external professional advice at the expense of the target company, and can also use SEBI-registered merchant bankers for advice.

As mentioned in 8.2 Special or Ad Hoc Committees, directors are required to disclose their interests in other entities annually and to update such disclosures in a timely manner. Furthermore, directors are required to ensure that their interests do not conflict with those of the company, and any interested director is not allowed to participate in meetings or vote on matters in which they have an interest.

SEBI has issued stringent disclosure rules for shareholder advisory firms (also known as proxy advisers), to address any concerns around conflicts of interest, and has prescribed the framing of internal policies, limitations on trading and disclosures on conflicts of interest.

The Indian Takeover Regulations do not recognise the term “hostile offer”; a hostile bid is understood to be an unsolicited bid without any agreement with persons in control of the target company. Hostile tender offers are not common, due to complications in their implementation compared to negotiated transactions. However, they have occurred in the recent past, with the most notable being the Adani Group’s open offer to acquire 26% of NDTV after VCPL (a lender of NDTV’s promoter holding company) in concert with Adani Group companies exercised their right to acquire 99.5% control in the promoter holding company, which in turn held 29.18% of NDTV, without the promoters’ consent.

In hostile tender offer scenarios, the ability of directors to use defensive measure is constrained by requirements of the Takeover Regulations, whichmandate that, once a tender offer has been triggered, the business of the target company should be conducted in its ordinary course consistent with past practices; see8.1 Principal Directors’ Duties. Furthermore, all the material decisions (ie, sale of material assets, borrowings and buy-backs) are subject to shareholders’ approval, which makes it difficult for directors to implement any defensive mechanisms by themselves.

Hostile tender offers are not common, so it is difficult to identify any common defensive measures. Based on previous instances of hostile offers, Indian companies have adopted techniques such as seeking “white knights” (ie, the aid of a friendly investor to buy a controlling stake in the target company, including by way of a competing offer) and issuing additional shares to dilute the interest of the bidder.

The Takeover Regulations do not identify specific duties of a director while implementing defensive mechanisms, although Indian company law does impose general obligations on directors to perform their duties with reasonable care and diligence, to exercise independent judgement, and to act in the best interests of the company, its employees and shareholders.

The board of directors are not required to approve a tender offer under the Takeover Code, since the regulations view the tender offer as a transaction involving the acquirer and the shareholders of the company. Although the independent directors of the target company are required under the Takeover Code to pass on their recommendations in respect of the open offer to all shareholders of the target company, they cannot reject a tender offer. As stated in 9.2 Directors’ Use of Defensive Measures, directors are not in a position to thwart any acquisition bid, as all material decisions are subject to shareholders’ approval.

At the deal-making stage, litigation is less common in India. Term-sheets are typically non-binding, so parties walk away if there is no consensus on the final deal terms. Binding definitive documents are usually signed when there is a large degree of deal certainty, and parties often prefer a simultaneous sign and close method, unless there are regulatory approvals involved. With the slower pace of courts in India and punitive, exemplary or indirect damages being off the table, it often makes little commercial sense to litigate unless there is a blatant dishonour of binding obligations.

However, the story is different post-deal. There are several instances where acquirers have found out about irregularities and misrepresentations regarding the target after the acquisition. It is very common to have arbitration clauses in deal documents, and the parties present the disputes before selected arbitration fora rather than litigate before courts.

As noted in 10.1 Frequency of Litigation, disputes usually arise when the deal is concluded and there is a subsequent discovery of financial, governance or other irregularities that constitute a breach of representations. Disputes also arise from allegations of minority oppression or mismanagement of the company where minority shareholders are not in agreement with the sale proposal.

The early weeks of the pandemic saw several deals at various stages being called off or put on hold. Transactions that were too far along were examined for force majeure applicability.

The dispute between FRG, Reliance Industries group and Amazon is discussed in detail in 3.1 Significant Court Decisions or Legal Developments. Despite securing multiple regulatory approvals, the deal between Reliance Industries group and FRG ultimately fell through.

Another legal battle in the M&A space has emerged in the wake of Kalaari Capital’s exit from Milkbasket through a share sale to MN Televentures. MN Televentures had instituted a case before the NCLT for Milkbasket’s refusal to register the transfer from Kalaari Capital. It was feared that, pending the legal dispute, none of the investors would be inclined to invest capital into the company. However, the Reliance group eventually acquired a 96.49% stake in Milkbasket.

These legal disputes should prompt promoters and companies to carefully review deal terms, and to examine how much they are willing to concede. The parties should also be careful about the positioning and views of the statutory authorities and their impact on the M&A deal. It is essential for investors to understand the importance of making full, correct and complete disclosures before regulators and maintaining consistency in submissions before various fora.

Shareholder activism in India is slowly growing into an effective tool. In the last few years, institutional investors have begun to tighten the noose and play a more active role in the management of companies and in improving corporate governance and ESG. Most cases of activism arise when the majority shareholders move forward with a deal that is unfairly prejudiced against the minority shareholders. The Companies Act provides for the institution of class action suits against any mismanagement or misconduct in the affairs of a company. Furthermore, if the affairs of a company are being conducted in a manner that is prejudicial to the public interest or the interest of any member or depositor of the company, or if any person or group of persons are affected by any misleading statement or the inclusion or omission of any matter in the prospectus, then proceedings may be instituted according to the provisions of the Companies Act.

In the matter of Invesco Developing Markets Fund v Zee Entertainment Enterprises Limited, Invesco (a minority shareholder) had requisitioned a meeting of shareholders to consider certain matters, including the removal of non-independent directors. The board of Zee refused to call the meeting, stating that the object of the meeting was invalid. A division bench of the Bombay High Court ruled that the statutory rights of minority shareholders to requisition a meeting of shareholders ought to be respected and that the board cannot sit in judgement of whether the meeting is valid as long as the procedural requirements and thresholds are met. This gives confidence to minority shareholders seeking to exercise their rights.

Other recent examples of shareholder activism include institutional investors calling out and holding management accountable for alleged financial irregularities and/or questionable governance practices in BharatPe, Zilingo and GoMechanic.

The views of activist shareholders towards M&A depend on whether there has been prejudicial treatment of minority shareholders and on the corporate governance structure of the company. When shareholder activism is met with a stalemate with management/founders, M&A is typically an option on the table to save the enterprise in question.

Shareholder activism has increased over the years following the pandemic, but it is hard to draw a direct correlation between the two, as the increase could well be attributable to the expanded uncertainties surrounding the financial health of several industries affected by the pandemic.

Shareholder activism in India is still gaining traction in the corporate world and is not at the same level as seen in some other developed countries. Due to issues surrounding the implementation of legislation and sanctions, in most cases the full force of shareholder activism is yet to be seen. In the context of M&A, companies may have cause for concern if an announced deal places their minority shareholders in a detrimental position. Aggrieved shareholders are empowered under the Companies Act, subject to certain thresholds, to approach the NCLT to move against decisions of the company.


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Trends and Developments


Trilegal was founded in 2000 and has grown rapidly to become one of India’s leading law firms. It is a top-tier full-service law firm with more than 600 lawyers, led by 86 partners. The team has the right combination of local insight and expertise to deliver cost-effective, deal-oriented and high-quality legal advice. The firm's core strengths are its commitment and the client-centric approach of its lawyers, who seek to come up with innovative solutions for clients. They have a deeply analytical understanding of Indian law and experience of the market, enabling the firm to effectively calibrate/assess legal risk and provide practical advice.

Corporate M&A in India: an Overview

2022–23 was a mixed bag in terms of M&A activity and corporate deal making in India. While the overall deal numbers declined from the previous year, a slew of big-ticket M&A made sure that the deal volumes soared to record highs. In a year where geopolitical tensions, inflationary pressures and recession fears weighed heavily on market sentiment, highlights included the mergers of HDFC Limited and HDFC Bank Limited, Air India and Vistara, and L&T Infotech and Mindtree, as well as Adani’s acquisition of Holcim. In addition to these, deal activity across a range of sectors was ensured by deals such as ArcelorMittal’s acquisition of port assets and a power plant from the Essar Group, and Axis Bank’s acquisition of Citibank’s India consumer business.

On the other hand, Indian public markets remained volatile over the year and gave relatively muted returns compared to the outsized FY 2021–22, but they still continued to outperform global equity indices. Coupled with this, major announcements have thrust India into the global spotlight, such as the biggest ever order of aircraft by Air India from Airbus and Boeing (470, with an option for 370 additional planes), and the USD20 billion investment commitment from Foxconn-Vedanta to set up a semiconductor project in Gujarat. Positive externalities from these deals are expected to arise over the coming years, with several other countries also benefiting from the employment and manufacturing offshoots. As central banks globally ease up on aggressive interest rate hikes, these developments are likely to positively drive corporate deal making in the coming year.

Globally, deal activity is expected to slow down in the coming year, with fewer big-ticket M&A deals. That being said, a number of private equity players have been sitting on their Indian portfolio companies for several years. As India emerges out of a new capex cycle, a concerted push from such private equity investors to generate exits may not allow India deal activity to slow down in any significant manner.

Key legal and regulatory developments

The much-awaited draft of the Digital Personal Data Protection Bill, 2022 was released for public consultation in November 2022. It does not impose a hard localisation restriction on personal data and permits cross-border transfers to a list of territories, which will be notified later. In the Union Budget 2023, the government also introduced a proposal to set up digital data embassies in the GIFT-IFSC City, offering “diplomatic immunity” from local regulations for national as well as commercial digital data. Overall, the draft is substantially pared down when compared with previous iterations, and does not apply to the processing of non-personal data.

Coupled with this, the proposed overhaul of the Information Technology Act, 2000 through the Digital India Bill promises to revamp the way digital architecture functions in the country. The draft is yet to be publicly released for consultation, but broad strokes on the bill indicate that it will be an overarching piece of legislation regulating social media companies, over-the-top (OTT) platforms, metaverse, blockchain, etc. Given the significant share of IT companies in India’s economic growth, both these pieces of legislation are expected to play a key role in reshaping the related legal and regulatory framework in the coming months.

The Competition Commission of India (CCI) has kept a close watch on the technology space, with active intervention through imposing penalties and behavioural remedies on various tech companies. These trends are expected to continue in the coming months, with the Parliamentary Standing Committee on Finance's report on “Anti-Competitive Practices by Big Tech Companies” in December 2022 set to have an impact on the sector.

The Competition (Amendment) Act, 2023 is another key development that will significantly impact M&A deals in the pipeline for the coming year. The introduction of a “deal value threshold” is a major change sought to be brought about by the amendment, under which any transaction with a deal value of more than INR2,000 crore (approximately USD242 million) would require approval from the CCI if the target entity has substantial business operations in India.

The introduction of “global turnover derived from all products and services” as the basis for the calculation of penalties for anti-competitive conduct is another key proposed change, which may depart from previous judicial precedents and significantly increase the potential penalty exposure in such situations. With the amendment act being brought into force from 11 April 2023 onwards, these developments may have far-reaching implications for the M&A landscape in the coming months.

The draft Insurance Laws (Amendment) Bill, 2022 is a key focus area for the government. It includes a proposal to dispense with the minimum capitalisation requirements currently prescribed under the Insurance Act, 1938, of INR100 crore for life, health and general insurance businesses and INR200 crore for reinsurance businesses. Instead, the draft proposes to give flexibility to the Insurance Regulatory and Development Authority of India (IRDAI) to prescribe different capitalisation requirements for different classes of insurance companies. This may help new-age and tech-focused insurance companies to apply for licences and deepen the existing market.

The amendments also proposed to introduce a “composite” licence for the registration of undertaking various classes/sub-classes of insurance business (other than reinsurance business) of any category or type of insurer. This move may permit insurers to undertake diverse businesses such as life/health insurance through a single entity, although finer points here are yet to be clarified, such as the solvency margins and capital requirements applicable to such entities.

The Foreign Exchange Management (Overseas Investment) Rules, 2022 notified by the Ministry of Finance and the accompanying regulations issued by the Reserve Bank of India (RBI) have streamlined and simplified the overall overseas investments (OI) regime. Various OI transactions that previously required prior approval have now been brought under the automatic route – for instance, no prior approval is now required for the deferred payment of consideration and the issuance of corporate guarantees to or on behalf of a second or subsequent level step-down subsidiary.

The investible universe for Indian entities has also been expanded, and Indian entities that are not engaged in financial services are now permitted to invest in foreign entities that are directly or indirectly engaged in financial services activities (other than banking and insurance), subject to certain conditions being met. While several issues in the OI framework are yet to be clarified, these efforts are a commendable step towards creating a regime that is more credible and grounded in today's reality.

The Insolvency and Bankruptcy Code, 2016 continues to be a cornerstone in efforts towards improving ease of doing business in the country. The government has kept a close watch on how the legislation has performed, and has frequently intervened through timely amendments to address bottlenecks and resolve issues faced by market players. Recently proposed amendments by the Ministry of Corporate Affairs are aimed at improving outcomes in insolvency situations, such as:

  • limiting the erstwhile promoter’s interference in the process;
  • curbing vexatious litigation during the process by granting greater powers to the regulator and tribunals; and
  • introducing asset-wise resolutions.

Similarly, various clarifications on the following contentious issues, for example, will be key in streamlining the insolvency process:

  • the treatment of security interests created by statute;
  • the computation of voting shares of financial creditors;
  • the distribution of proceeds to stakeholders under a resolution plan; and
  • limiting judicial interference in the admission of insolvency applications in cases of financial default.

Investors are expected to keep a close eye on these developments in the coming year.

Sectors to watch for M&A activity

Banking, fintech and financial services

The banking and financial services industry is set to face major upheaval in the coming year, as the long-awaited strategic disinvestment of IDBI Bank is expected to conclude in 2023. Market news indicates that multiple bids have been received for the proposed stake sale, which holds a key role in the government’s disinvestment targets for the upcoming financial year. Together with this, the corporate insolvency resolution processes of SREI Infrastructure Finance, SREI Equipment Finance and Reliance Capital – which were initiated and are monitored by the RBI – are also expected to be completed soon.

These two insolvencies represent large incipient stress in the non-banking industry, a large part of which has been found to be fraught with fraudulent transactions – which are now sought to be clawed back. These aspects, along with the long-drawn competitive process through “challenge mechanisms” introduced in these insolvencies, present key future learnings for the industry and may also set the tone for future insolvency situations generally.

One of the key beneficiaries of the pandemic-induced lockdowns was the mutual fund industry. Backed by a strong retail inflow and assets under management growing multi-fold in the last few years, the sector is expected to continue its growth trajectory. New offerings by fund houses as well as M&A activity in the sector over the last few years – such as L&T’s sale of its mutual fund business to HSBC Bank, Navi’s acquisition of Essel Mutual Fund and White Oak’s acquisition of Yes Mutual Fund – are expected to keep this industry in focus.

The RBI’s move to grant in-principle approvals to 32 entities to operate as online payment aggregators is a major development for the development of the fintech ecosystem in the country. The RBI is also still considering 18 other applications, indicating that a healthy competitive fintech landscape is flourishing in the country.

Renewables and new energy

The renewable energy sector is one space that has captured the imaginations of Indian and foreign investors alike. The government has made a concerted push to adopt renewable energy in all key areas, ranging from modes of power generation to mobility and manufacturing, in a strong bid to reach its ambitious target of net zero carbon emissions by 2070.

The launch of the National Green Hydrogen Mission and Green Hydrogen Policy is a key step in these efforts, under which the government has approved an initial outlay of INR19,744 crore for the production of at least 5 million tonnes of green hydrogen per annum by 2030. This is proposed to be accompanied by the addition of approximately 125 GW of associated renewable energy capacity, translating to more than INR800,000 crores in investments.

The Energy Conservation (Amendment) Bill, 2022 is key enabling legislation that proposes to introduce a carbon credit trading scheme, while also mandating several specified industries to meet a proportion of their energy needs from non-fossil sources, in a bid to speed up the transition to renewables.

These factors have already attracted a large aggregate investment commitment of over INR1 trillion from various Indian conglomerates, such as the Reliance, Tata, Adani and Vedanta groups. These corporate houses have committed large amounts in a range of avenues, such as greenfield and brownfield solar and wind projects, green hydrogen and solar cell manufacturing. Such developments promise to ensure that the renewable energy space remains ripe for M&A activity in the coming year.


As many conglomerates look to diversify their manufacturing base and reduce their dependencies on select jurisdictions, India is well poised to capitalise on this opportunity. The UP Global Investors Summit in February 2023 was reflective of this fact, as a major portion of investment proposals and memorandums of understanding (MoUs) were in the manufacturing sector, across a range of sub-industries. Various reforms over recent years aimed at improving the ease of doing business, such as the government’s dedicated single-window investment clearance system, are seen as catalysing the impetus for manufacturing in the country. Dedicated freight corridors, multi-modal port connectivity and industrial parks coming up across states will be a key factor in ensuring the necessary infrastructure framework required for the manufacturing sector.

The recent discovery of large lithium reserves in Jammu & Kashmir has also raised expectations of a new lithium extraction and refining industry shaping up in the coming decade. Lithium is a key component in semiconductors, electric batteries and solar panels, so this development may impact a wide range of industries, from renewable energy to the manufacturing of digital devices.

Digital infrastructure, IT and IT-enabled services

The IT sector has witnessed significant market volatility over the last three years, with public and private valuations having recalibrated greatly after previously achieving historic highs. This has also translated into significant downsizing in companies across geographies, with companies rationalising their bench strengths in a bid to reassess long-term expectations. Coupled with this, new and emerging lessons from the pandemic years – such as moonlighting, especially within the Indian context – will ensure that employment and personnel management issues will be a focus area for the sector going forward.

Despite these headwinds, increased adoption of digital technologies, systems and IT-enabled services will ensure that the sector remains a key focus area for investors and deal makers. Data centres are fast emerging as a key focus area for most multinational IT companies, many of which have committed to a rapid expansion of their data centre portfolio; the national capacity is poised to cross the 1 GW mark in the coming year. Cybersecurity is another major emerging area in the IT-enabled services space that may feature M&A activity. Market players and investors will seek to capitalise on emerging opportunitiesas corporates increasingly prioritise cybersecurity solutions and seek platform-level protections of their digital and physical assets.


The Indian hospitality sectors has bounced back strongly from the pandemic, and has even surpassed pre-pandemic numbers in many areas. As India hosts the G20 presidency, the many positive externalities from delegates visiting from all across the globe is expected to supercharge the hospitality industry. The government’s sanctioning of more than 70 projects, worth USD678.39 million, under the Swadesh Darshan Scheme for the growth of tourism infrastructure will further capitalise on this sentiment. As Tier I cities start to achieve maturity, Tier II and III cities are the next big opportunity for most luxury and mid-market hospitality chains, with many having already laid out major capital expenditure and M&A plans for the next few years.

Real estate

Rapid urbanisation, increasing population, rising per capita incomes and migratory trends will ensure that the real estate sector registers strong growth in the months ahead. Commercial and residential real estate growth is expected to vary across geographies, with factors such as luxury preferences and consumption patterns driving these differences, instead of sticking to broad macro-economic trends. An uptick in rentals is also expected to spur retail investments in real estate, especially in Tier I and II cities, as a credible alternative to stock market investments. Commercial and office spaces will continue to evolve through a preference for workplace flexibility, as large corporates and start-ups choose between co-working, managed workspaces and enterprise-based solution models tailored to their specifications.

Technology, media and telecommunications (TMT)

The expedited rollout of 5G technologies is expected to highlight all major trends in the TMT sector in the coming year. The extension of the PLI scheme for telecoms and networking products, with a total outlay of over INR4,000 crores, including for a number of medium and small manufacturing enterprises (MSMEs), is a testament to the government’s focus on the sector. The Indian and US governments signing an MoU to co-ordinate investment in semiconductor manufacturing is another step in this direction, which may catalyse into opportunities for joint ventures and technology partnerships in the coming months.

Future prospects

With India assuming the G20 presidency in 2023 and maintaining its diplomatic balancing act throughout the Ukraine–Russia conflict, its soft power is assuming prominence in a world fraught with geopolitical tensions. As China continues to grapple with the after-effects of extended lockdowns, a near-crisis in the real estate financing markets and numerous crackdowns on established corporate houses, India is fast emerging as a destination for stable and predictable returns. Going forward, these developments will continue to strengthen the India Inc story as one of sustained growth and highlight India as an attractive destination for foreign investments. A continued focus on the ease of doing business as the bedrock of economic growth will ensure that M&A activity remains robust in 2023, despite any short-term headwinds.


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Law and Practice


IndusLaw is a leading Indian law firm with more than 400 lawyers across offices in Bengaluru, Chennai, Delhi, Gurugram, Hyderabad and Mumbai. The firm advises a wide range of international and domestic clients on legal issues relating to their business, strategy, litigation and transaction goals. Multidisciplinary teams work across offices to provide seamless and focused advice, and to assist clients in making informed decisions and reaching effective outcomes. Clients hail from the e-commerce, education, energy, infrastructure, natural resources, financial services, healthcare, hospitality, manufacturing, real estate, social enterprises and technology sectors, among others. Recent M&A work includes advising PhonePe on the group restructuring, separation from Flipkart and domiciling the company to India. IndusLaw also advised ShareChat in the acquisition of short video application MX TakaTak from MX Media for USD700 million.

Trends and Developments


Trilegal was founded in 2000 and has grown rapidly to become one of India’s leading law firms. It is a top-tier full-service law firm with more than 600 lawyers, led by 86 partners. The team has the right combination of local insight and expertise to deliver cost-effective, deal-oriented and high-quality legal advice. The firm's core strengths are its commitment and the client-centric approach of its lawyers, who seek to come up with innovative solutions for clients. They have a deeply analytical understanding of Indian law and experience of the market, enabling the firm to effectively calibrate/assess legal risk and provide practical advice.

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