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Nov 234 min read

What Are The Legal Considerations For Mergers And Acquisitions?

It is important to know about the laws before entering into mergers and Acquisitions. The laws include the central statutes like the Company Act, Contract Act, Labor and Employment Act, Foreign Exchange, etc. It even includes sector-specific regulations and state amendments to central legislation.

The Legal Considerations for Mergers and Acquisitions


  • Companies Act: The 2013 Companies Act is the primary legislation governing the management and operation of the company. Under this Act, the merger is defined as the amalgamation of two or more companies into one and the acquisition is defined as a purchase of one company by another company. 

  • This Act provides the procedures for mergers and acquisitions including valuation of shares, approval of shareholders and regulatory authorities. Approval of shareholders is required before mergers and acquisitions. At least 75% of shareholders present and voting must vote for the proposal of mergers and acquisitions. The Act talks about approval from regulatory authorities like NCLT, CCI, etc. The approval is necessary for the evaluation of the impact of proposed mergers and acquisitions on the competition. The Act establishes share valuation procedures to determine share exchange ratios in mergers and acquisitions.

  • SEBI Regulations: SEBI is the regulatory body for the securities market in India. It protects the interest of investors in securities. SEBI promotes the development of the securities market by regulating the procedures of Mergers and Acquisitions. It requires the companies to disclose information about Mergers and Acquisitions to stock exchanges. The aim is to inform the investors so that they can make good decisions. It even provides for the procedure for obtaining approval of stock exchanges for Mergers and Acquisitions. The companies will submit the draft scheme of Mergers and Acquisitions to stock exchanges. The SEBI also requires the approval of shareholders for Mergers and Acquisitions. The meeting of shareholders should be arranged for taking approval. SEBI laws aim to ensure fair and transparent M&A transactions in the Indian securities market. This includes making essential information available to investors and obtaining clearance from stock exchanges and shareholders.

  • Competition Act: This Act regulates the competition in the market by restraining anti-competitive agreements, abuse of dominance, mergers, and acquisitions that have adverse impact on competition. Anti-competitive agreements include agreements between competitors to fix prices, limit production, etc.  Abusing the dominant position includes the imposition of unfair conditions on customers, refusing to deal with certain customers or suppliers, etc. The Competition Act governs mergers, acquisitions, and combinations that could reduce market competition. The CCI assesses whether proposed mergers or acquisitions could harm market competition.

  • Indian Income Tax Act, 1961: The amalgamation has been defined under this Act. It states the merger of two or more companies to form a new company. The company, that is merged, is called an amalgamating company and the new company that is formed, is called an amalgamated company. Capital gains are the gains that are received after the sale of capital assets. 

  • There are certain transactions that are exempted from capital gain tax. In addition, inherited property is exempted from income tax because no sale or transfer of ownership occurs. It also includes sales made as a gift or will. Tax will be charged only if the property is sold to someone else. This will result in a capital gain.

  • Foreign Exchange Management Act, 1999: Cross–border mergers are governed by this Act. It includes the mergers and amalgamation between Indian and foreign companies. Cross–border mergers are of two types: Inbound mergers mean a foreign company merges with an Indian company and all the assets and liabilities are transferred to the Indian company. Outbound Mergers mean an Indian company is merging with a foreign company and all assets and liabilities are transferred to the foreign company.

  • Insolvency And Bankruptcy Code, 2016: When one of the companies involved is insolvent, the IBC applies, and the resolution is followed. To begin the corporate insolvency resolution process, one must first file an application with the NCLT. Before IBC, we had the Sick Industrial Companies Act to detect sick units and revive them through mergers and acquisitions. The primary motivation for enacting this act was to free up previously locked-up investments so that resources might be employed in a more productive and efficient manner.

  • Labor Laws: M&A deals can have repercussions for employees. Compliance with labor rules, including staff transfers, layoffs, and other labor-related concerns, is important.

  • Contract Laws: The Mergers and Acquisitions contractual aspect is governed by this Act. It includes drafting of contracts, negotiation, and enforcement of agreements. The Contract Act governs these all things.

  • Environmental Laws: Transactions may impose environmental compliance requirements. Due diligence is required to ensure compliance with environmental laws and regulations.


It is vital to understand that M&A transactions are complicated and multifaceted, including a combination of different legal concerns. Companies that engage in M&A transactions often do extensive due diligence to ensure compliance with all applicable laws and regulations. Legal practitioners with knowledge of corporate and commercial law should be consulted for the most up-to-date and particular guidance on M&A rules in India.


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