Key drivers of corporate growth in India, mergers and acquisitions (M&A) help businesses to combine market share, diversify portfolios, and attain operational synergies by means of which they may consolidate market share. To guarantee openness, safeguard shareholder rights, and preserve market integrity, these deals are closely watched, nonetheless. With the Securities and Exchange Board of India (SEBI) and the Companies Act, 2013 as main pillars of control, securities laws are crucial in controlling M&A activity. The legal framework, compliance rules, issues, and most current changes in securities laws for M&A in India are examined on this blog.

Key Regulatory Bodies and Laws

1.1 Regulatory Authorities

  • SEBI (Securities and Exchange Board of India): Oversees public M&A transactions, enforces disclosure norms, and safeguards investor interests.
  • Ministry of Corporate Affairs (MCA): Administers the Companies Act, 2013, governing corporate restructuring.
  • Stock Exchanges (NSE/BSE): Monitor compliance with listing agreements and trading regulations.

1.2 Core Legal Frameworks

  • Companies Act, 2013:
    • Sections 230–232: Govern schemes of arrangement, mergers, and demergers.
    • Mandates shareholder and creditor approvals, fairness opinions, and NCLT (National Company Law Tribunal) sanction.
  • SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”):
    • Regulates open offers, acquisition thresholds, and disclosure requirements.
  • SEBI Listing Obligations and Disclosure Requirements (LODR), 2015:
    • Ensures timely disclosures of material events, including M&A proposals.
  • Competition Act, 2002:
    • Requires CCI approval for combinations exceeding specified thresholds.
Critical Compliance Requirements in M&A

2.1 Disclosure Obligations

  • Material Disclosures: Listed companies must inform stock exchanges of M&A proposals within 24 hours of board approval.
  • Continual Updates: Progress reports on regulatory approvals, shareholder meetings, and deal modifications.

2.2 Open Offer Triggers (SEBI Takeover Code)

An acquirer must make a mandatory open offer to public shareholders if:

  • Direct/Indirect Acquisition: Crosses 25% of voting rights in a listed company.
  • Creeping Acquisition: Exceeds 5% shareholding in a financial year (post-initial 25%).
  • Control Acquisition: Purchases shares resulting in a change of management control.

Open Offer Size: Minimum 26% of the target’s voting capital.

2.3 Shareholder Approvals

  • Scheme of Arrangement: Requires 75% approval from shareholders and creditors.
  • Related-Party Transactions: Additional scrutiny under Companies Act and SEBI LODR.

2.4 Insider Trading Prohibitions

  • Pre-Deal Confidentiality: Parties must adhere to SEBI (Prohibition of Insider Trading) Regulations, 2015.
  • Trading Window Closure: Listed companies must restrict trading by insiders during sensitive periods.
Step-by-Step Process for M&A Compliance
  1. Due Diligence: Assess legal, financial, and regulatory risks (e.g., pending litigations, SEBI non-compliance).
  2. Board Approval: Obtain in-principle approval from the board of directors.
  3. Regulatory Filings:
    • Submit draft scheme to NCLT and stock exchanges.
    • Notify SEBI and CCI if thresholds are met.
  4. Shareholder/Creditor Meetings: Conduct votes and secure approvals.
  5. Open Offer Process (if applicable):
    • Appoint a merchant banker.
    • File a letter of offer with SEBI and dispatch it to shareholders.
  6. NCLT Sanction: Final approval for the scheme.
  7. Post-Deal Compliance: Update shareholding patterns, revise listings, and file post-transaction reports.
Challenges in M&A Transactions

4.1 Regulatory Complexity

  • Multi-Agency Approvals: Coordinating with SEBI, NCLT, CCI, and stock exchanges.
  • Timeline Delays: NCLT approvals often take 6–12 months due to case backlogs.

4.2 Valuation Disputes

  • Fairness Opinions: Independent valuers must certify swap ratios in mergers.
  • Minority Shareholder Activism: Increasing scrutiny via class-action suits (e.g., Tata-Mistry case).

4.3 Cross-Border Transactions

  • FEMA Compliance: Adherence to RBI guidelines on foreign investments.
  • Tax Implications: Indirect transfer provisions under Income Tax Act.

4.4 Case Study: HDFC Ltd.-HDFC Bank Merger (2023)

  • Regulatory Hurdles: Required approvals from RBI, SEBI, NCLT, and CCI.
  • Open Offer Exemption: SEBI granted leeway due to the merger’s bancassurance structure.
Recent Developments and Trends

5.1 SEBI’s 2023 Reforms

  • Enhanced Disclosure Norms: Mandatory disclosure of “deemed acquisitions” (e.g., convertible instruments).
  • Simplified Delisting Process: Faster exits for acquirers post-open offer.

5.2 Digital Push

  • E-Voting Mandate: Shareholder meetings must offer electronic voting for transparency.
  • SEBI’s SCORES Portal: Streamlines investor grievance redressal.

5.3 ESG Considerations

  • Sustainability Disclosures: SEBI mandates ESG reporting for top 1,000 listed firms, impacting M&A due diligence.
Penalties for Non-Compliance
  • SEBI Actions: Fines up to ₹25 crore or three times the profit made (whichever is higher).
  • NCLT Interventions: Rejection of schemes or unwinding of transactions.
  • Criminal Liability: Directors may face prosecution under Companies Act for fraud.
Questions to Understand your Ability

Q1.) Under SEBI’s Takeover Code, when must an acquirer make a mandatory open offer to public shareholders?
A) When acquiring 10% of shares in a listed company
B) When crossing 25% of voting rights in a listed company
C) When purchasing shares worth ₹100 crore
D) When merging two unlisted entities

Q2.) Which regulatory body is responsible for approving schemes of arrangement, mergers, and demergers under the Companies Act, 2013?
A) SEBI
B) RBI
C) NCLT
D) CCI

Q3.) What is the minimum shareholder approval required for a Scheme of Arrangement in an M&A deal?
A) 50%
B) 60%
C) 75%
D) 90%

Q4.) What penalty can SEBI impose for non-compliance with securities regulations in M&A?
A) ₹10 lakh fine
B) ₹25 crore or three times the profit made (whichever is higher)
C) Suspension of trading for one month
D) A warning letter

Q5.) In the HDFC Ltd.-HDFC Bank merger (2023), why was an open offer exemption granted?
A) The merger involved two foreign entities
B) The transaction was below the SEBI threshold
C) The merger’s structure aligned with bancassurance regulations
D) The companies had no public shareholders

Conclusion

Securities regulations are supposed to balance investor protection with corporate ambition in Indian M&A transactions. As deal volumes in sectors such IT, health, and renewables rise, companies have to give regulatory compliance, robust due diligence, and stakeholder communication top priority top priority. Companies which approach legal adherence pro-actively not only lower risks but also enhance their profile in India’s fast-paced market as SEBI and MCA prioritize transparency and digital governance more and more.

FAQ's

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A listed company must inform stock exchanges within 24 hours of board approval and provide continual updates on regulatory approvals and deal modifications.

An open offer is triggered when an acquirer:

  • Acquires 25% or more voting rights in a listed company.
  • Gains 5% additional shares in a financial year (if already holding 25%).
  • Gains management control through share purchases.

The merger requires 75% shareholder and creditor approval, fairness opinions, and NCLT sanction before implementation.

SEBI’s Insider Trading Regulations mandate pre-deal confidentiality and require companies to close the trading window for insiders during sensitive periods.

Regulatory complexity, multi-agency approvals (SEBI, NCLT, CCI, RBI), valuation disputes, and delays due to NCLT case backlogs are major challenges.

SEBI introduced enhanced disclosure norms for convertible instruments, a simplified delisting process, and mandatory ESG reporting for large listed firms.

SEBI can impose fines of up to ₹25 crore or three times the profit made, NCLT can reject schemes, and directors may face criminal prosecution for fraud.