Explain law related to merger and acquisition in view of the multinational companies operating in India
15/September/2025 22:23
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You’re asking about Mergers & Acquisitions (M&A) in the context of Multinational Companies (MNCs) operating in India, along with the laws that apply. Let’s go step by step:
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Meaning of Merger and Acquisition (M&A)
Merger
A merger is the combination of two or more companies into one entity, where one company absorbs the other(s) or a completely new entity is formed.
Example: HDFC Ltd merging into HDFC Bank (2023).
Acquisition
An acquisition occurs when one company purchases controlling interest (shares/assets) in another, thereby gaining management control.
Example: Walmart acquiring Flipkart (2018).
In simple terms:
Merger = Two companies combine as partners.
Acquisition = One company takes control of another.
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Mergers & Acquisitions in India with Multinational Companies
MNCs often enter India or expand their presence through M&A because:
1. India offers a large consumer base.
2. Regulatory liberalization allows foreign participation.
3. Opportunity to access technology, talent, and resources.
4. Growing digital and retail markets attract foreign investments.
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Key Laws Governing M&A for MNCs in India
1. Companies Act, 2013 (Sections 230–234)
Governs domestic and cross-border mergers.
Section 234 specifically deals with cross-border mergers (Indian + foreign companies).
Requires NCLT (National Company Law Tribunal) approval.
2. FEMA (Foreign Exchange Management Act), 1999
RBI regulates foreign investment inflows/outflows.
Cross-border mergers (Inbound: Foreign company → Indian company; Outbound: Indian company → Foreign company) require RBI approval.
3. SEBI Regulations (for listed companies)
SEBI Takeover Code, 2011: Open offer required if acquisition exceeds 25% voting rights.
Protects minority shareholders.
4. Competition Act, 2002
Approval required from Competition Commission of India (CCI) if M&A crosses financial thresholds (asset/turnover).
Prevents creation of monopolies.
5. Income Tax Act, 1961
Provides tax neutrality for approved schemes of mergers/demergers (e.g., carry-forward of losses).
6. IBC (Insolvency & Bankruptcy Code, 2016)
MNCs can acquire distressed Indian companies via insolvency resolution (e.g., ArcelorMittal acquiring Essar Steel).
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Examples of M&A Involving MNCs in India
1. Walmart (USA) – Flipkart (India), 2018
Walmart acquired 77% stake in Flipkart for $16 billion.
Objective: Entry into India’s booming e-commerce sector.
Laws applied: FEMA (FDI approval), Competition Act (CCI approval), Companies Act.
2. Vodafone (UK) – Hutchison Essar (India), 2007
Vodafone acquired majority stake in Hutchison Essar.
Gave Vodafone a massive footprint in Indian telecom.
Laws applied: FEMA, Competition Act, SEBI rules.
3. ArcelorMittal (Luxembourg) – Essar Steel (India), 2019
Acquired through IBC insolvency process.
Objective: Strengthen presence in India’s steel market.
4. Facebook (Meta, USA) – Reliance Jio Platforms, 2020
Acquired 9.99% stake in Jio for ₹43,574 crore.
Aim: Digital ecosystem integration (WhatsApp Pay + JioMart).
Laws applied: FEMA, Competition Act.
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Why MNCs Prefer M&A in India
Faster market entry compared to setting up a new subsidiary.
Access to established distribution networks and local goodwill.
Tax benefits in approved schemes.
Strategic alliances with local players to adapt to Indian market conditions.
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Challenges in MNC M&A in India
1. Regulatory hurdles (multiple approvals: RBI, SEBI, NCLT, CCI).
2. Cultural integration issues (work culture mismatch).
3. Tax disputes (e.g., Vodafone tax controversy).
4. Political & policy risks in certain sectors (telecom, retail).
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✅ Summary
Mergers & Acquisitions help MNCs expand in India’s fast-growing economy.
They are governed mainly by Companies Act, FEMA, SEBI, Competition Act, and IBC.
Famous cases like Walmart–Flipkart, Vodafone–Hutch, and ArcelorMittal–Essar Steel highlight how MNCs use M&A to gain strategic advantage.
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