Regaining momentum: Outlook for Indian M&A in UK, Europe


While geopolitical events are slowing deal activity, the country remains an attractive and growing economy with strong long-term prospects

The year 2018 witnessed a steady flow of significant, strategic deals and PE investments, with deal flow boosted by initiatives such as “Make in India”, “Startup India” and “Digital India”, continued liberalization of the foreign direct investment (FDI) regime, and the systemic overhaul of indirect tax laws, corporate laws, insolvency and bankruptcy laws and real estate laws to name a few.

After setting the bar high in terms of deal activity in 2018, the first half of 2019 saw India go through one of the world’s largest general elections, which resulted in the incumbent prime minister, Narendra Modi, gaining a clear majority and mandate to continue for another term, giving a significant boost to investor confidence across India and internationally.

Key legal updates

Ravi Shah
Partner at Cyril Amarchand Mangaldas in Ahmedabad
T: +91 79 4903 9900

Deal activity in India has seen interest from various quarters internationally. Domestic M&A has also gained impetus and companies are looking to increase their size, scalability and business models through consolidation.

The Indian legal and regulatory landscape has also undergone significant changes, from the overhaul of the companies law with the introduction of the Companies Act, 2013 (CA 2013), the introduction of Central Goods and Service Tax Act, 2017, and various associated laws that subsumed almost all indirect taxes at the federal and state level, and the introduction of the Insolvency and Bankruptcy Code, 2016 (IBC), to deal with corporate insolvencies and bankruptcies.

Companies Act

The CA 2013 is the primary legislation that governs companies and M&A in India, and regulates the issuance and transfer of securities.

Rishabh Shroff
Partner at Cyril Amarchand Mangaldas in Mumbai
T: +91 22 2496 4455

Interestingly, under the Companies Law, the merger of a foreign company into an Indian company was possible, but the reverse was not permissible. With the notification of section 234 of the CA 2013, an Indian company is also permitted, with the prior approval of the Reserve Bank of India (RBI) and compliance with CA 2013, to merge into a foreign company, similar to inbound cross-border mergers.

Pursuant to the notification of the Companies Amalgamation Rules providing for such cross-border mergers, on 20 March 2018, the RBI also notified the Foreign Exchange Management (Cross-Border Merger) Regulations, 2018 to regulate “cross-border mergers between Indian companies and foreign companies”, including both inbound mergers and outbound mergers. In the case of an inbound or outbound merger, such transactions should also be undertaken in compliance with the Foreign Exchange Management Act, 1999 (FEMA).

Foreign Exchange Management Act

The inflow and outflow of foreign exchange, and investment into/from India is regulated by the FEMA. In October 2019, in supersession of the earlier regulations, the Ministry of Finance issued the FEMA Non-debt Instrument Rules (NDI Rules), which apply in cases of investments (acquisitions/transfers) involving a non-resident entity. With this, the RBI has sought to further simplify and streamline the regulations and to facilitate the ease of doing business in India.

To further the objective of providing ease of doing business and promoting the principle of “maximum governance and minimum government”, the administration abolished the erstwhile Foreign Investment Promotion Board and replaced it with the Foreign Investment Facilitation Portal to streamline the process for vetting and seeking approval of FDI proposals that require government approval.

Barring a few sectors in which FDI is prohibited (gambling, real estate, tobacco and manufacturing of cigars and cigarettes, railway operations, atomic energy, etc.) the government has undertaken measures to open up various sectors for foreign investment in India under the automatic route (i.e., no prior government approval) and investment is permitted in most sectors subject to sectoral caps in some cases (i.e., maximum permissible foreign investment limits) and attendant conditions.

To increase FDI in India, investment limits have been further relaxed in various sectors. For instance, effective from 2 September 2019, the government permits 100% foreign equity investment for intermediaries or insurance intermediaries. Single brand product retail trading, which earlier required government approval beyond an investment of 49%, can now receive 100% foreign investment under the automatic approval route. The Ministry of Commerce and Industry has also recently issued a press note dated 18 September 2019, to amend the extant FDI policy in various sectors.

Competition Act

Competition law in India is governed by the Competition Act, 2002, and its rules and regulations. The Competition Act primarily seeks to regulate anti-competitive agreements, abuse of dominance and combinations. Combinations (i.e., acquisitions or merger/amalgamations meeting the prescribed thresholds) are regulated by the Competition Commission of India (CCI), by providing for mandatory notification of such combinations to the CCI, and by restricting the consummation of combinations without CCI approval.

Keeping in line with the government’s policy to improve ease of doing business in India, the CCI recently introduced the concept of a “green channel” approval route for certain types of transactions, pursuant to its notification on 13 August 2019. This route allows eligible parties to file a simplified version of Form I and receive deemed approval of the transaction immediately upon notifying the CCI.

Other key considerations

The Securities and Exchange Board of India (SEBI), which is the nodal authority regulating publicly listed entities in India, issues/notifies various rules, regulations and circulars that are also relevant in the context of M&A deals involving listed Indian entities.

For instance, in the case of a merger of a listed company, a no-objection/observation letter has to be obtained from the SEBI or stock exchanges in India prior to undertaking the merger process set out under the CA 2013.

Some of the key SEBI regulations relevant in the context of deal activity include: the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which restrict and regulate the acquisition of shares, voting rights and control in listed companies; the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which provide for a comprehensive framework governing various types of listed securities in India; the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, which regulate different types of offerings by a public listed company; and the SEBI (Prohibition of Insider Trading) Regulations, 2015, which prohibit dealing in securities when in possession of unpublished price-sensitive information, ensuring a fair and transparent public capital market.

Matters of taxation in connection with mergers, acquisitions and disposals are primarily governed by the provisions of the Income Tax Act, 1961, as well as the indirect tax laws governed primarily by the GST.

With a view to promote growth and investment, and provide a boost to the “Make in India” initiative, the government recently introduced the Taxation Laws (Amendment) Ordinance, 2019, offering a significant boost to the economy by slashing corporate tax rates for domestic companies to 22%, providing the option to pay income tax at the rate of 15% to any new domestic company incorporated on or after 1 October 2019, making fresh investment in manufacturing, and non-applicability of the enhanced surcharge levied by the Finance (No. 2) Act, 2019 to capital gains arising on the sale of any security, including derivatives, in the hands of foreign portfolio investors.

M&A outlook

As can be seen from these various legal developments, the underlying theme is to streamline the regulatory regime and improve the ease of doing business in India. This is evident from the World Bank’s ease of doing business rankings 2020, where India has jumped almost 67 rankings in the past three years to now rank 63rd among 190 nations.

With this, India becomes the top-ranked country in South Asia for the first time, and third among the BRICS (Brazil, Russia, India, China and South Africa) nations, on account of multiple economic reforms undertaken by the government. India, along with countries such as Saudi Arabia and China, also secured a mention in “economies with the most notable improvement” in the World Bank’s Doing Business 2020 report.

One of the key drivers for improved rankings was the IBC regime, which provides for resolving corporate insolvencies. The IBC was enacted with the objective of consolidating and amending laws relating to reorganization and the insolvency resolution process. Continual efforts are being made by the government to further strengthen the insolvency regime.

The Insolvency and Bankruptcy Code (Amendment) Act, 2019, which recently came into force from 16 August 2019, has introduced amendments that seek to ensure the timely completion of the debt resolution process and provide more clarity on the rights of stakeholders.

Developments in the legal and regulatory regime, coupled with a stable government focused on development, will continue to drive M&A in India, with increased deal activity expected in energy, telecoms, banking, pharmaceuticals, infrastructure and media. M&A involving stressed assets will also be a continuing theme in the coming year.


Cyril Amarchand Mangaldas
Mumbai Office
Peninsula Chambers,
Peninsula corporate park, gk marg,
Lower parel, mumbai, 400 013, india
Tel: +91 22 2496 4455
Fax: +91 22 2496 3666