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India Negotiated M&A Guide
Corporate and M&A Law Committee

Contact
H. Jayesh Juris Corp Mumbai, India h_jayesh@jclex.com

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CHAPTER I INTRODUCTION Historically, the foreign investment policy of the Indian government (during the period from 1950 to 1990) consisted of stringent foreign exchange controls and regulations (including in the form of industrial licensing, quota system, capital controls), a bar on free trade and control of the flow of funds to a very large extent. As early as 1984, India saw the failure of a takeover attempt of Escorts Limited and DCM by Swaraj Paul’s Caparo Group, owing to the promoters using political clout against the uninvited acquirer. However, 1991 witnessed a significant transformation and shift in the government policy with the introduction of the New Industrial Policy, 1991 which paved the way for economic liberalization in India. The government relaxed various controls and regulations allowing trade and commerce to flourish, resulting in a robust and progressive economy. It was then that India saw the emergence of new sectors such as information technology, telecom, and the rapid growth of service sectors like hospitality, banking, retail and entertainment. All of which led to the growth of the Indian financial system. Deregulation of industries coupled with participation from foreign investors marked the beginning of the era of large scale mergers and acquisitions (M&A) in India. Recent notable deals such as Vodafone-Hutchison Essar, Tata-Corus and Hindalco-Novelis have put India in the centre stage of global M&A activity. Outbound investments by Indian companies have grown manifold in diverse sectors ranging from oil & gas, steel, energy to telecommunications and pharmaceuticals. While this Guide is not intended at enumerating figures on the M&A front, it would not be incorrect to say that India Inc. has, in fact, arrived. The primary regulators governing M&A activity in India are the Securities and Exchange Board of India (“SEBI”), the Reserve Bank of India (“RBI”) the Foreign Investment Promotion Board (“FIPB”) and the Competition Commission of India (“CCI”). Although, it would be a rather herculean task to list all the laws dealing with M&A, the following is an indicative list of the legislation primarily governing M&A: (a) Companies Act, 1956 (“Companies Act”): The Companies Act is the statute primarily governing all matters relating to companies incorporated in India. Among other things, the Companies Act specifically provides for the manner in which mergers, demergers, amalgamations and/or arrangements may take place pursuant to an Indian court sanctioned scheme. (b) Foreign Exchange Management Act, 1999 (“FEMA”): FEMA and the various rules, regulations, circulars, etc. issued under FEMA consolidate the law relating to foreign exchange with the objective of facilitating external trade and payments and promoting the orderly development and maintenance of the foreign exchange market in India. The provisions of FEMA specify the current and capital account transactions which may be carried on with general or specific permission of the RBI and/or the FIPB. The two most relevant regulations under FEMA from an M&A perspective are: (i) Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (“FDI Regulations”): The FDI Regulations and the press notes issued thereunder govern investments by persons resident outside India in shares, debentures (convertible and non convertible), security receipts and warrants of companies incorporated in India; in effect regulating inbound investments/acquisitions. In most sectors, 100% foreign direct investment is permitted (with or without conditions) without the prior approval of FIPB. In certain sectors it is permitted only to the extent prescribed, subject to conditions set out in the sectoral

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policy, without the prior approval of FIPB. Hostile...
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