Consentia on Multidisciplinary Research



According to the Oxford Dictionary, the expression merger means ‘Combining of two commercial companies into one’. A merger is just one type of acquisition. One company can acquire another in several other ways including purchasing some or all of the company’s assets or buying up its outstanding share of stock.

Merger is amalgamation of two or more business enterprises for better and efficient functioning. Entities merge for different business and commercial reasons, few of those could be, to achieve economies of scale and scope, to expand business capacity, to be operative in different markets, to produce at lowest marginal cost and various others. Though mergers being normal and regular practice in the market; there could be many reasons why Governments, market players, shareholders and individuals might object to mergers. Governments may object mergers because it may be against the industrial or foreign policy, or a transaction which could lead to production of illegal quality or quantity of a particular product. Market players might object to a merger transaction, at it could lead to monopoly or could create barriers to entry and similar anti-competitive practices. Shareholders might oppose to mergers which result in reduction of share value or share effectiveness or transaction.[1]

Similarly, individuals could oppose to a transaction which might result in higher market prices, decrease in quantity or quality of goods and other analogous practices. Hence, a merger transaction could result in adversely affecting competition and therefore merger control is required. Merger control is based on the preventive theory[2] and generally operates ex ante, i.e. to prevent a transaction adversely affecting competition, before it is put into practice. Also, practically, cost of de-merging entities after the merger transaction is very heavy and not an easy operation for competition and other regulatory authorities.

International trade and commercial activities have been increasing in recent past, as singular nation states do not possess all requirements for efficient and cheap production of commercial products.

This has resulted in increase in cross-border merger transactions between nations, and has become almost imperative for nation states to have merger laws which are in concord with the international trade community.



This paper is an attempt to examine the merger laws and regulation in India and United Kingdom (‘UK’).


This project will explore the answers to certain questions with specific reference to the period being studied, including:

  • What are the existing laws and regulations on merger control in these jurisdictions?
  • What are the substantive procedures for determining fate of mergers in these jurisdictions?
  • What is the legal framework in regards to mergers in India and UK?


This paper is limited to the issues surrounding the existing legal framework and the extent of involvement of authorities. Due to constraints word limit, it was not possible to extensively go into the procedural requirements while inspecting mergers, but rather has dealt with these subjects only to the extent that they are required to explain the arguments put forth.


This paper has largely been written in an analytical style.


The primary sources of this paper are statutes, regulations and guidelines, in the course of writing this paper, and have also referred to a few relevant commentaries and observations of jurists and experts in order to elucidate his arguments.


The assets of both are pooled, while the old owners continue together as new owners. The ultimate goal is always increased profitability and stability for both firms, which can be gained through a merger in different ways.[3]

  • Market Share: When two firms in the same industry merge, they gain a larger share of the market, which means they decrease their competition and so can raise prices. The government regulates mergers in order to prevent a monopoly, which is when one company owns the entire market for a single product. Such a company can set almost any price it wants on its product. Competition, on the other hand, drives companies to lower prices and improve services in order to gain customers, but it can reduce their profitability as well.
  • Cost Reductions: Just like you can get a lower price per item by buying in bulk, a single large business operates with lower average costs than multiple small businesses. This concept is called economies of scale. The larger the scale of the operation, the more economic it becomes, when factored in terms of per product or employee. Two similar companies may merge for that specific reason, so that by working together, they can both reduce their expenses.[4]
  • Security: For smaller companies, a merger with an industry giant represents security against failure. A large corporation has the financial resources to ride out market storms or handle expensive lawsuits, whereas a small business might go bankrupt on its own. While the large firm gains new ideas and talent, the small one gains a ready-made support structure and the prestige of a well-known and highly respected industry brand name. Two moderate-sized firms might consider that their combined resources represent greater security to both of them.
  • Talent Sharing: Two firms might have different areas of expertise or strength that can complement each other. One company, for instance, might be particularly good at administration and cost cutting, while the other might be better at marketing or creating new ideas. Combining the two has the potential to create a business with both strengths that will be much more profitable than either of them alone. A firm with an exciting new product but no ability to market it is doomed, while one with great marketing strategy but no product is likewise doomed. Put them together, and you can have both product and marketing.[5]
  • Ensure a safe, sound and stable financial system.
  • Enhance the confidence of and fairness to investors, by eliminating bad business practices and ensuring healthy competition between financial institutions.
  • Ensure an efficient and effective financial system

From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging:

  • Horizontal merger – Two companies that are in direct competition and share the same product lines and markets.
  • Vertical merger – A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.
  • Market-extension merger – Two companies that sell the same products in different markets.
  • Product-extension merger – Two companies selling different but related products in the same market.
  • Conglomeration – Two companies that have no common business areas.

There are two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors:

  • Purchase Mergers – As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable.

    Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company. We will discuss this further in part four of this tutorial.[6]

  • Consolidation Mergers – With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.


The term ‘merger’ is not defined under the Companies Act, 1956 (the “Companies Act”), the Income Tax Act, 1961 (the “ITA”) or any other Indian law. Simply put, a merger is a combination of two or more distinct entities into one; the desired effect being not just the accumulation of assets and liabilities of the distinct entities, but to achieve several other benefits such as, economies of scale, acquisition of cutting edge technologies, obtaining access into sectors / markets with established players etc. Generally, in a merger, the merging entities would cease to be in existence and would merge into a single surviving entity.

India in the recent years has showed tremendous growth in the Merger deals. It has been actively playing in all industrial sectors. It is widely spreading far across the stretches of all industrial verticals and on all business platforms.[7] The increasing volume is witnessed in various sectors like that of finance, pharmaceuticals, telecom, FMCG, industrial development, automotives and metals.


  1. COMPANIES ACT, 1956: Section 390 to 395 of Companies Act, 1956 deal with arrangements, amalgamations, mergers and the procedure to be followed for getting the arrangement, compromise or the scheme of amalgamation approved. Though, section 391 deals with the issue of compromise or arrangement which is different from the issue of amalgamation as deal with under section 394, as section 394 too refers to the procedure under section 391 etc., all the section are to be seen together while understanding the procedure of getting the scheme of amalgamation approved.
  2. COMPANY LAW, 2013:  Company law in India is undergoing a complete overhaul and a new law was finally passed in 2013. However, only 98 sections of the new Companies Act, 2013 (“2013 Act“) have been brought into force and the provisions relating to mergers covered in Sections 230 to 240 are yet to be notified. Until then, this court driven process will continue to be governed by Section 391-396A of the Companies Act, 1956 and the Companies (Court) Rules, 1959 (collectively referred to as “1956 Act“).
  • THE COMPETITION ACT, 2002: Following provisions of the Competition Act, 2002 deals with mergers of the company:-
    (1) Section 5 of the Competition Act, 2002 deals with “Combinations” which defines combination by reference to assets and turnover
    (a) exclusively in India and
    (b) in India and outside India.

 (2) Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.
All types of intra-group combinations, mergers, demergers, reorganizations and other similar transactions should be specifically exempted from the notification procedure and appropriate clauses should be incorporated in sub-regulation 5(2) of the Regulations. These transactions do not have any competitive impact on the market for assessment under the Competition Act, Section6.

  1. FOREIGN EXCHANGE MANAGEMENT ACT, 1999: The foreign exchange laws relating to issuance and allotment of shares to foreign entities are contained in The Foreign Exchange Management Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May, 2000. These regulations provide general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India or recording in its books any transfer of security from or to such person.[8] RBI has issued detailed guidelines on foreign investment in India vide “Foreign Direct Investment Scheme”.
  2. SEBI TAKE-OVER CODE, 1994: SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15% up to 55%, provided the acquirer does not acquire more than 5% of shares or voting rights of the target company in any financial year. [Regulation 11(1) of the SEBI Takeover Regulations] However, acquisition of shares or voting rights beyond 26% would apparently attract the notification procedure under the Act. It should be clarified that notification to CCI will not be required for consolidation of shares or voting rights permitted under the SEBI Takeover Regulations. Similarly the acquirer who has already acquired control of a company (say a listed company), after adhering to all requirements of SEBI Takeover Regulations and also the Act, should be exempted from the Act for further acquisition of shares or voting rights in the same company.
  3. THE INDIAN INCOME TAX ACT (ITA), 1961: Merger has not been defined under the ITA but has been covered under the term ‘amalgamation’ as defined in section 2(1B) of the Act. To encourage restructuring, merger and demerger has been given a special treatment in the Income-tax Act since the beginning. The Finance Act, 1999 clarified many issues relating to Business Reorganizations thereby facilitating and making business restructuring tax neutral.[9] As per Finance Minister this has been done to accelerate internal liberalization. Certain provisions applicable to mergers/demergers are as under: Definition of Amalgamation/Merger — Section 2(1B). Amalgamation means merger of either one or more companies with another company or merger of two or more companies to form one company in such a manner that:
    (1) All the properties and liabilities of the transferor company/companies become the properties and liabilities of Transferee Company.
    (2) Shareholders holding not less than 75% of the value of shares in the transferor company (other than shares which are held by, or by a nominee for, the transferee company or its subsidiaries) become shareholders of the transferee company.[10]

The following provisions would be applicable to merger only if the conditions laid down in section 2(1B) relating to merger are fulfilled:
(1) Taxability in the hands of Transferee Company — Section 47(vi) & section 47
(a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the transferee company on merger is not regarded as transfer and hence gains arising from the same are not chargeable to tax in the hands of the shareholders of the transferee company[Section47(vii)].
(b) In case of merger, cost of acquisition of shares of the transferee company, which were acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor company. [Section 49(2)].


  1. The procedure to be followed while getting the scheme of merger and the important points, are as follows:-
    (1) Any company, creditors of the company, class of them, members or the class of members can file an application under section 391 seeking sanction of any scheme of compromise or arrangement. While filing an application either under section 391 or section 394, the applicant is supposed to disclose all material particulars in accordance with the provisions of the Act[11].

(2) Upon satisfying that the scheme is prima facie workable and fair, the Tribunal order for the meeting of the members, class of members, creditors or the class of creditors. Rather, passing an order calling for meeting, if the requirements of holding meetings with class of shareholders or the members, are specifically dealt with in the order calling meeting, then, there won’t be any subsequent litigation. The scope of conduct of meeting with such class of members or the shareholders is wider in case of merger than where a scheme of compromise or arrangement is sought for under section 391.

(3) The scheme must get approved by the majority of the stake holders’ viz., the members, class of members, creditors or such class of creditors. The scope of conduct of meeting with the members, class of members, creditors or such class of creditors will be restrictive some what in an application seeking compromise or arrangement.

(4) There should be due notice disclosing all material particulars and annexing the copy of the scheme as the case may be while calling the meeting.

(5) In a case where amalgamation of two companies is sought for, before approving the scheme of amalgamation, a report is to be received form the registrar of companies that the approval of scheme will not prejudice the interests of the shareholders.

(6) The Central Government is also required to file its report in an application seeking approval of compromise, arrangement or the amalgamation as the case may be under section 394A.

(7) After complying with all the requirements, if the scheme is approved, then, the certified copy of the order is to be filed with the concerned authorities.

  1. Mandatory permission by the courts: Any scheme for mergers has to be sanctioned by the courts of the country. The Company Act provides that the high court of the respective states where the transferor and the transferee companies have their respective registered offices have the necessary jurisdiction to direct the winding up or regulate the merger of the companies registered in or outside India.


When buying a company or business in the UK there is very limited statutory protection for the buyer on the nature or extent of the assets and liabilities being acquired. The buyer is responsible for learning about the assets and liabilities it is acquiring. This means that even a small company can have potentially unlimited liabilities that would remain with the company and transfer to the buyer (on a share purchase).[12]

One of the most significant of these is the principle of ‘Caveat emptor’[13], which translates from Latin as “let the buyer beware”. It is central to UK law on commercial contracts, including mergers and acquisitions.

 Section 93(6) of the Companies Act 2006 (UK) defines the term ‘merger’ as follows:

‘There is a proposed merger with another company if one of the companies concerned proposes to acquire all the assets and liabilities of the other in exchange for the issue of its shares or other securities to shareholders of the other (whether or not accompanied by a cash payment).’

The target company will be “brought under common control or ownership” in the following circumstances:

  • when one party acquires a controlling interest in the other party (“legal control”); or
  • when one party acquires the ability to control the commercial policy of the other (“de facto control”); or
  • when one  party  acquires  the  ability  to  materially  influence  the  commercial  policy  of  the  other  (“material influence”).   The  CMA’s  predecessor  (the  Office  of  Fair  Trading)  indicated  that  an  acquisition  of  15  per cent of the shares of the target company is liable to be examined to see whether the holder may be able to influence the policy of the company concerned; or
  • where a party which already has material influence or de facto control acquires a higher level of control.

The  EA  also  provides  that  control  may  be  acquired  by  “associated  persons”  which  act  together  to  acquire  joint control.  This might apply, for example, where two businesses are bidding jointly to take control of a third.[14]

The EA 2002 applies to completed or anticipated mergers where:[15]

  • two or more “enterprises” cease to be distinct (i.e. are brought under common control or ownership); and
  • either one or both of the following criteria is satisfied:
  • the UK turnover associated with the enterprise which is being acquired exceeds £70m (the “turnover test”); or
  • as a  result  of  the  merger  a  share  of  25  per  cent  or  more  in  the  supply  or  consumption  of  goods  or services  of  a  particular  description  in  the  UK  (or  in  a  substantial  part  of  the  UK)  is  created  or enhanced (the “share of supply test”).


Under the Enterprise Act 2002 (the Enterprise Act), the OFT could review mergers to investigate whether there was a realistic prospect that they would lead to a substantial lessening of competition (SLC), unless it obtained undertakings from the merging parties to address its concerns or the market was of insufficient importance.[16]

In order to qualify for investigation by the OFT, a merger needed to meet all three of the following criteria:

  1. two or more enterprises must cease to be distinct;
  2. the merger must not have taken place already, or must have taken place not more than four months ago; and
  3. one of the following must be true:
    • the business being taken over has a turnover in the UK of at least £70 million; or
    • the combined businesses supply (or acquire) at least 25 per cent of a particular product or service in the UK (or in a substantial part of the UK), and the merger results in an increase in the share of supply or consumption.

In exceptional cases where public interest issues are raised, the Secretary of State could also refer mergers to the CC.

Where an inquiry was referred to the CC for in-depth investigation, the CC had wide-ranging powers to remedy any competition concerns, including preventing a merger from going ahead. It could also require a company to sell off part of its business or take other steps to improve competition.


The Competition Commission[17] was a public body responsible for investigating mergers, markets and other enquiries related to regulated industries under competition law in the United Kingdom. It was a competition regulator under the Department for Business, Innovation and Skills (BIS).[18] It was tasked with ensuring healthy competition between companies in the UK for the ultimate benefit of consumers and the economy.[19]

The Enterprise Act 2002 gave the Competition Commission[20] wider powers and greater independence than the MMC had previously, so that it could make decisions on inquiries rather than giving recommendations to Government, and was also responsible for taking appropriate actions and measures (known as remedies) following inquiries which had identified competition problems.

The Government was still able to intervene on mergers that involve a specified public interest criterion such as media plurality, national security and financial stability.

On 1 April 2014 the Competition Commission was replaced by the Competition and Markets Authority (CMA), which also took over several responsibilities of the Office of Fair Trading.

The Competition Commission: The CC is an independent non-governmental body consisting of members and a staff secretariat with expertise in competition matters. The CC investigates mergers referred to it by the OFT (and occasionally by the Secretary of State) to determine whether there is a merger situation that qualifies for investigation and, if so, whether that merger situation has resulted, or may be expected to result, in a substantial lessening of competition. [21]

The CC determines the outcome of merger cases referred to it by the OFT, and reports to the Secretary of State on those mergers referred to it by the Secretary of State under the public interest regime[22]. It has no authority to investigate any merger unless it has been asked to do so by the OFT or the Secretary of State under the relevant statutory power.


With the FDI policies becoming more liberalized, Mergers, Acquisitions and alliance talks are heating up in India and are growing with an ever increasing cadence. They are no more limited to one particular type of business. The list of past and anticipated mergers covers every size and variety of business — mergers are on the increase over the whole marketplace, providing platforms for the small companies being acquired by bigger ones. The basic reason behind mergers and acquisitions is that organizations merge and form a single entity to achieve economies of scale, widen their reach, acquire strategic skills, and gain competitive advantage. In simple terminology, mergers are considered as an important tool by companies for purpose of expanding their operation and increasing their profits, which in façade depends on the kind of companies being merged. Indian markets have witnessed burgeoning trend in mergers which may be due to business consolidation by large industrial houses, consolidation of business by multinationals operating in India, increasing competition against imports and acquisition activities. Therefore, it is ripe time for business houses and corporates to watch the Indian market, and grab the opportunity.

SUCCESS: Mergers & Acquisitions have become a common strategy to consolidate business. The basic aim is to reduce cost, reap the benefits of economies of scale and at the same time expand market share. For many people, mergers simply mean sharing resources and costs to increase bottomlines. However, it is not as simple as it sounds. According to statistical reports, more than 64% of the times the mergers fail to accomplish the promised results. They suffer from a decline in the shareholders’ wealth and conflicts in management. Therefore, a success of any merger initiative primarily depends upon the objective behind the need for a merger.

FAILURE: Following globalization, many small organizations hastily got into mergers to stand against highly-competitive, large scale multinational corporations. They took mergers as a protective strategy to save their business from being perished in the newly created dynamic environment. Unfortunately, in many cases, it did not work due to lack of proper planning and implementation of the planned merger.[23] Moreover, the high costs of business consolidation (professional fees of bankers, lawyers, advisors, paperwork, etc.) could not be covered by the combined revenue of the merged organization leading to its failure.

Another reason for an unsuccessful merger is the lack of efficient management to unite different organizational cultures. The most challenging task is to bring together people and make them work as a team. Establishing a new organizational structure that fits all the employees is also difficult. Hence, many fearing retrenchment resign leading to a complete break-down at the operational level.

[1] D. P. Mittal, Competition Law & Practice, Taxman’s Publication, 2nd ed., 2008.

[2] S. M. Dugar, Commentary on the MRTP Law, Competition Law and Consumer Protection Law, LexisNexis Butterworth Wadhwa Nagpur, 4th ed.,2006, Reprint 2009, Volume 1

[3] Market Foreclosure, and Economic Welfare, Southern Economic Journal, Vol. 52, No. 4 (Apr., 1986), pp. 948-961 available at Competition Law Today, Vinod Dhall (ed.) Oxford University Press, 1st edition, 2007.

[4] Jonna Goyder,, EC’s Competition Law, Oxford University Press, 5th ed., 2009.

[5] Organization for Economic Co-operation and Development, Substantive Criteria used for Merger Assessment, October 2002, 293 available at

[6] Market Foreclosure, and Economic Welfare, Southern Economic Journal, Vol. 52, No. 4 (Apr., 1986), pp. 948-961 available at Competition Law Today, Vinod Dhall (ed.) Oxford University Press, 1st edition, 2007.

[7] S. M. Dugar, Commentary on the MRTP Law, Competition Law and Consumer Protection Law, LexisNexis Butterworth Wadhwa Nagpur, 4th ed.,2006, Reprint 2009, Volume 1.

[8] See Rule 19(2)(b) of Securities Contracts (Regulations) Rules, 1957

[9] The Income Tax Act contains provision that mergers of companies where the transferee is an Indian company will not be subject to tax if certain conditions, namely, all assets and liabilities of the transferor become the assets and liabilities of the transferee, and at least three-fourth (in value) of the shareholders of the transferor become shareholders of the transferee, are fulfilled. If the two conditions are fulfilled, then the merger is a qualified one for the purpose of the Act and there will be no tax implications in the hands of the transferor and its shareholders

[10] See SEBI circular nos. CIR/CFD/DIL/5/2013 dated February 4, 2013 and CIR/CFD/DIL/8/2013 dated March 15, 2014.

[11] Companies Act, 1956.


[13] ‘Caveat Emptor’ does not mean that a seller can deliberately conceal liabilities or misrepresent the state of the company. In these circumstances a buyer that has been induced by the misrepresentation to buy the business can take action against the seller for misrepresentation.

[14] – .Uz09-PmSw2A

[15] Morven Hadden, ‘EC Merger Control Regime’ in Gary Eaborn, Takeovers: Law and Practice, Lexis Nexis Butterworths, 2005.

[16] Competition Law Today, Vinod Dhall (ed.) Oxford University Press, 1st edition, 2007.

[17] The Competition Commission replaced the Monopolies and Mergers Commission on 1 April 1999. It was created by the Competition Act 1998, although the majority of its powers were governed by the Enterprise Act 2002.

[18] Global Competition Review (‘GCR’), Merger Control, 8th ed., 2004, 293



[21] – .Uz09-PmSw2A


[23] Morven Hadden, ‘EC Merger Control Regime’ in Gary Eaborn, Takeovers: Law and Practice, Lexis Nexis Butterworths, 2005.


1 thought on “MERGERS IN INDIA AND UK”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s