India is the fastest growing major economy, and its GDP growth during 2016 and 2017 should exceed 7 per cent. The government’s continued push for reforms and low oil prices should help achieve this.

In 2015, overall M&A deal volume grew marginally, to 1,630 deals at an aggregate value of US$46.5 billion over 1,177 deals with an aggregate value of US$49 billion in 2014. In 2015, 314 transactions were domestic, and while none were ‘billion dollar deals’, this was the highest number of domestic transactions since 2007, with consolidation and divestment to reduce debt being the primary objectives. The value of cross-border deals rose 16 per cent year on year to more than US$19.5 billion. Outbound M&A was approximately US$6 billion from 125 deals – an 8 per cent increase in transaction volumes from 2014. M&A in 2016 has got off to a positive start, with M&A activity reaching US$8.2 billion from 245 deals.

Energy and natural resources, IT and information technology enabled services, and pharma, healthcare and biotech witnessed maximum traction in M&A in 2015 (see Section V, infra, for details). In Q1 of 2016, UltraTech Cement’s acquisition of the cement business from Jaiprakash Associates for US$2.4 billion has been the largest M&A deal.


The principal statutes governing M&A in India are the Indian Contract Act, 1872 (Contract Act), the Companies Act, 2013 (2013 Act), the Companies Act, 1956 (1956 Act), the Competition Act, 2002 (Competition Act), the Foreign Exchange Management Act, 1999 (FEMA) and subsidiary legislation.

Listed entities must additionally comply with, inter alia, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code), the SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations), and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

i The Contract Act

The Contract Act sets the paradigm for definitive agreements. Importantly, non-compete stipulations are relatively limited, and damages will not be awarded in excess of the loss suffered. Concomitantly, liquidated damages are treated as a cap on damages that may be awarded depending on the extent of loss proved, and punitive damages are not awarded.

ii The Companies Act

The 2013 Act governs most matters of company law, but the 1956 Act applies to mergers, restructuring and winding up.

Helpfully, in 2015 private limited companies were exempt from several onerous provisions of the 2013 Act. Further liberalisation is expected with the Companies (Amendment) Bill, 2016 currently pending in parliament.

Authority and capacity

The board of an Indian company must approve any acquisition or divestment of shares setting out details of the transaction. If the consideration (including for business or asset transfers) exceeds the greater of 60 per cent of the acquirer company’s paid-up capital, free reserves and securities premium account, or 100 per cent of its free reserves and securities premium account, at least 75 per cent of the shareholders must also approve.

Pre-emptive rights, restrictions on transfers, and puts and calls

The 2013 Act mandates free transferability of shares of a public company, but recognises private arrangements between its shareholders as valid contracts. Implicitly, pre-emptive rights and restrictions on transfer are enforceable inter se shareholders.

Types of companies

Public, private, one person and ‘small companies’ are permitted. The last two are geared towards promoting domestic entrepreneurship and potential angel or venture capital investment.

Schemes of merger and demerger

Section 391 of the 1956 Act permits schemes of compromise or arrangement between a company and all or a class of its creditors or members. Schemes can effect a restructuring, merger, demerger, hive-off or other reorganisation.

Every scheme must be approved by the board of each company concerned, at least 75 per cent of the shareholders of each company and at least 75 per cent of the creditors, and subsequently sanctioned by the relevant high court.

Schemes involving listed companies require SEBI and Stock Exchange prior approval at two stages: one month before the application to the court for sanction and, again, after court sanction.

Resident directors and independent directors

Under the 2013 Act, every Indian company must have at least one director who was resident in India for at least 182 days in the previous calendar year and, additionally, every public company, whether listed or unlisted, must have at least two independent directors if its paid-up capital exceeds 100 million rupees or its turnover exceeds 1 billion rupees or its debt exceeds 500 million rupees.

Insider trading

Insider trading is an offence punishable with, inter alia, imprisonment for up to five years in respect of shares of both listed and unlisted companies. The Companies (Amendment) Bill, 2016, however, proposes to omit this provision of the 2013 Act.

Forward dealing

The 2013 Act further precludes directors and key management personnel from forward dealing (i.e., the right to deliver, or call for delivery of, a specified number of securities at a specified price within a specified time) in securities of a company, its holding, subsidiary and associate companies. As, in the Indian context, most options and pre-emptive rights have such persons as counterparties, the issues ostensibly resolved by the recognition of the validity of options and pre-emptive rights by the 2013 Act, the Reserve Bank of India (RBI) and SEBI continue – albeit in a different manner. The Companies (Amendment) Bill, 2016, however, proposes to omit this provision of the 2013 Act.

Related-party transactions

The 2013 Act defines a ‘related party’ as including a holding, subsidiary and associate companies and entities in which directors are interested. All contracts with related parties that are not at arm’s length must be approved by the board in meeting or, where the consideration exceeds specified thresholds, by a shareholders’ resolution.

iii The Competition Act
Regulation of combinations

The Competition Act prohibits persons or enterprises from entering into a combination that has or will likely have an appreciable adverse effect on competition within the relevant market in India.

Separately, the Competition Commission of India (Competition Commission) must be notified of a proposed combination where the assets or turnover of the entities proposing to enter into a combination exceed prescribed thresholds within 30 days of the boards of the enterprises involved in approving the merger or amalgamation; or of an agreement or any other document of acquisition of control being executed. The Competition Commission publishes a summary of every notice received for stakeholders to review and submit their comments.

The Competition Commission approves a combination based on, inter alia, the actual and potential levels of competition in the market, barriers to entry, market share, perceived benefits and the perceived adverse impact of the combination.

Mergers or amalgamations

The thresholds above which notice of a merger must be filed are as follows:

Enterprises considered for valuation

Thresholds in India

Aggregate global threshold

Enterprise remaining after the merger or created as a result of the amalgamation

Asset value: more than 20 billion rupees

Asset value: more than US$1 billion, including at least 10 billion rupees in India

Turnover: more than 60 billion rupees

Turnover: more than US$3 billion, including at least 30 billion rupees in India

The group* to which the enterprise remaining after the merger or created as a result of the amalgamation will belong

Asset value: more than 80 billion rupees

Asset value: US$4 billion, including at least 10 billion rupees in India

Turnover: more than 240 billion rupees

Turnover: more than US$12 billion, including at least 30 billion rupees in India

* A ‘group’ means two or more enterprises that are directly or indirectly in a position to exercise at least 50 per cent of the voting right in another enterprise, to appoint 50 per cent or more members on the board of directors, or control the management or affairs of the other enterprise


The thresholds above which notice of an acquisition of shares or a business must be filed are as follows:

Enterprises considered for valuation

Threshold in India

Aggregate global threshold

Target aggregated with acquirer

Asset value: more than 20 billion rupees

Asset value: more than US$1 billion, including at least 10 billion rupees in India

Turnover: more than 60 billion rupees

Turnover: more than US$3 billion, including at least 30 billion rupees in India

Target aggregated with the group to which it will belong

Asset value: more than 80 billion rupees

Asset value: US$4 billion, including at least 10 billion rupees in India

Turnover: more than 240 billion rupees

Turnover: more than US$12 billion, including at least 30 billion rupees in India

An acquirer that already directly or indirectly controls another enterprise engaged in a business similar or identical to the target must notify the Competition Commission if the following thresholds are exceeded:

Enterprises considered for valuation

Threshold in India

Aggregate global threshold

Target aggregated with the enterprise controlled by the acquirer and engaged in the similar or identical business as the target

Asset value: more than 20 billion rupees

Asset value: more than US$1 billion, including at least 10 billion rupees in India

Turnover: more than 60 billion rupees

Turnover: more than US$3 billion, including at least 30 billion rupees in India

Target aggregated with the group to which it will belong

Asset value: more than 80 billion rupees

Asset value: US$4 billion, including at least 10 billion rupees in India

Turnover: more than 240 billion rupees

Turnover: more than US$12 billion, including at least 30 billion rupees in India

Combinations exempt from regulation

The following combinations, inter alia, are exempt from the requirement of notifying the Competition Commission:

  • a acquiring, solely as an investment or in the ordinary course of business, less than 25 per cent of shares or voting rights and not control. Acquiring less than 10 per cent of the total shares or voting rights of an enterprise will be ‘solely’ an investment if the acquirer is not a member of the board, has no right to nominate any director on the board, has only such rights as are exercisable by an ordinary shareholder, and does not intend to participate in the affairs and management of the target;
  • b acquiring less than 5 per cent in a financial year where the acquirer already holds between 25 and 50 per cent of the shares or voting rights;
  • c any acquisition where the acquirer already holds 50 per cent or more shares or voting rights;
  • d acquisitions of assets by an acquirer’s business or acquired solely as an investment or in the ordinary course of business, except where the acquisition represents substantial business operations or the acquisition leads to acquisition of control;
  • e an amended or renewed tender offer where prior notice has been given to the Competition Commission;
  • f an acquisition pursuant to a bonus issue or capital restructuring or buyback of shares or subscription to rights issue not leading to acquisition of control;
  • g except for acquisitions of enterprises held jointly with enterprises not belonging to the same group, an intragroup restructuring involving an acquisition of control over a group company;
  • h merger or amalgamation of two enterprises where one has more than 50 per cent of the shares or voting rights of the other, or where 50 per cent of the shares or voting rights in each such enterprise is held by enterprises within the same group; and
  • i until March 2021, an acquisition where the target enterprise has an asset value less than 3.5 billion rupees or turnover less than 10 billion rupees. This does not apply to schemes of merger or amalgamation.

The exemptions at (b), (c) and (h) are not available if the transaction results in acquisition of sole or joint control.

iv Exchange control regulations

The Indian rupee is not freely convertible, and the FEMA and its subsidiary rules and regulations restrict transactions between Indian residents and other persons.

Foreign direct investment (FDI), both primary subscription and secondary acquisition, is permitted in most sectors without prior approval and subject to compliance with conditions separate from licensing or domestic compliance of general application, including those relating to sectoral caps2 and pricing. All FDI must be reported through the online e-biz portal of the government.

FDI is subject to pricing guidelines. The pricing guidelines require the purchase price of shares to be at least the fair value (in the case of an Indian selling shares) or not more than the fair value (in the case of an Indian acquiring shares) determined by any internationally accepted pricing methodology. The valuation must be contemporaneous with the transaction.

v The Takeover Code

The Takeover Code is a comprehensive code that applies to changes of control of listed companies. The applicability of the Takeover Code, however, does not extend to change of control of companies listed without making a public issue on the institutional trading platform3 of a recognised stock exchange. ‘Control’ includes the right to appoint a majority of the directors, or to control the management or policy decisions of a company, and applies to the acquisition of shares or voting rights.

Public offers
Mandatory offers and creeping acquisition

The Takeover Code mandates a public offer on acquiring 25 per cent or more of the shares of a listed company and, where a shareholder already holds such shares, on acquiring more than 5 per cent of the shares of that company in any 12-month period each ending on 31 March.

A public offer must be for at least 26 per cent of the voting rights or shares of the target company (excluding the shares held by the acquirer) subject to maintaining the mandatory minimum public float of 25 per cent.

Voluntary offers

A shareholder holding more than 25 per cent of the shares or voting rights of a listed company may make a voluntary public offer to acquire at least 10 per cent of the shares of that company provided that the mandatory minimum public float of 25 per cent remains unaffected.

Conditional offers

A public offer may be conditional on a minimum level of acceptance and on obtaining any regulatory or other approvals required by law.

Consideration and performance surety

An acquirer may offer cash, shares of another listed company or listed debt securities, or any combination of these, as consideration for the shares tendered in response to the public offer.

The formula to calculate the minimum offer price is geared to the historical performance of the shares of the listed company. However, where the negotiated acquisition price is higher than the historical trading price, the negotiated price must be the minimum price of the public offer.

Every person making a public offer must deposit monies in an escrow account as performance surety. Indian banks may provide guarantees as such surety if such guarantees are covered by counter guarantees of a bank of international repute.

Disclosures of shareholding

Every person acquiring 5 per cent or more of the shares or of voting rights of a listed company must disclose the aggregate shareholding or voting rights within two working days of the acquisition.

Every person holding 5 per cent or more of the shares or voting rights of a listed company must disclose every subsequent acquisition or divestment of 2 per cent or more of the shares or voting rights of the company.

Separate annual disclosures must be made on 31 March each year.

Delisting of target company

A target company may be delisted in compliance with the delisting regulations.

The promoters may offer to purchase shares held by the public and delisting may be permitted if, following the offer, the promoters hold 90 per cent of the company and at least 25 per cent of the public shareholders have participated in the offer.

vi Insider Trading Regulations

The Insider Trading Regulations oblige shareholders, promoters, employees and directors of listed companies to disclose any transaction or series of transactions involving shares of a listed company having a trading value of 1 million rupees or more.

Insiders may also formulate irrevocable trading plans that are to be publicly disclosed and mandatorily implemented.

vii LODR Regulations and Listing Agreement

The LODR Regulations of September 2015 apply to listed entities that have listed ‘specified’ securities on an Indian stock exchange, and that mandate event-specific disclosure and separate, periodic disclosure of, inter alia, changes in shareholding, proposals to change capital structure, information that may have a bearing on operation or performance of the company, M&A activity, as well as transactions with group companies.

The Listing Agreement is now a vanilla document mandating compliance with the LODR Regulations.


i The 2013 Act

Once the 2013 Act is notified in full, and the 1956 Act no longer in force, the M&A process in India will change significantly.

Merger into a foreign company

The 2013 Act permits the merger of an Indian company into a foreign company if the foreign company is incorporated in a jurisdiction that has been notified by the central government and if the RBI has expressly approved the merger. This will be a significant development for Indian M&A.

Under the 2013 Act, mergers in certain cases will no longer require sanction of the tribunal or court.4

Creditors’ objections

The 2013 Act provides that a scheme can be challenged only by shareholders having at least 10 per cent of the shareholding by value or by creditors representing 5 per cent of the outstanding debt of such company. This should shorten timelines and preclude frivolous objections.

Fast-track company registration

It is now possible to file a single form to incorporate a company and obtain essential registrations with the Indian Revenue. This should significantly reduce the timelines involved in registering a company in India and improve India’s position on the ‘Ease of Doing Business Index’.

Secretarial standards

The ‘secretarial standards’ promulgated by the Institute of Company Secretaries of India (ICSI) are mandatory for all Indian companies. Recently, the ICSI has issued guidance notes on ‘secretarial standards’ and has sought public comments on these.

ii The Takeover Code
Test for acquisition of ‘control’

SEBI’s recent discussion paper suggests two approaches to assess control: (1) control of acquisition from a participative and protective rights point of view; or (2) prescription of a threshold with respect to voting rights and the appointment of majority of the directors to the board. SEBI has sought public comments, and has stated its preference for (2).

iii FDI policy and foreign investment
Automatic route for share swaps and FDI in LLPs

Foreign investors can now acquire shares of an Indian company in consideration of shares of another company under the automatic route. LLPs engaged in sectors without caps on FDI may be wholly owned by foreign investors, and can also make further, downstream investments in Indian companies engaged in such sectors.

FDI in e-commerce

The government has finally issued guidelines on FDI in companies involved in e-commerce, classifying e-commerce into three categories: the marketplace model, under which 100 per cent FDI is permitted; the inventory model, under which FDI is prohibited; and the sale of services through e-commerce, where 100 per cent FDI is permitted. Conditions stipulated include a prohibition on influencing the sale price of goods or services to maintain a ‘level playing field’.

Deferred consideration and indemnity

Foreign investors may now pay the entire consideration for an acquisition or subscription up front or defer, including through escrow, up to 25 per cent of the total consideration for up to 18 months. Similarly, indemnity obligations to a foreign investor of up to 25 per cent of the consideration are rendered under the automatic route.

iv Merger of private sector banks

The RBI has issued guidelines governing the amalgamation of two banking companies or of a non-banking financial company (NBFC) with a banking company, and has resolved the uncertainty as to how applications seeking RBI approval for such transactions will be processed.

v The Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code, 2016 is the first Indian legislation that contemplates a time-bound resolution of insolvency. Considering the disclosed and incipient financial stress in the Indian economy, there are significant hopes that this will permit for sustainable revival of companies that are currently in the red.

vi Start-Up India Initiative

The Start-Up India Initiative promotes entrepreneurship and innovation by helping startups secure funding. A ‘start-up’ is an entity that is headquartered in India, less than five years old and has an annual turnover of less than US$3.7 million.

The government will establish a government fund of funds with an initial corpus of 25 billion rupees and a total corpus of 100 billion Indian rupees to be invested over four years in start-ups. Several tax and other incentives for start-ups are also contemplated. In spirit, this is similar to the incentives offered to SMEs in the 1970s and will, we hope, be more successful in achieving its objectives.

vii Key judgments
Stamp duty on inter-state mergers

The Bombay High Court has reiterated that a scheme proposing a merger is not a document chargeable to stamp duty – it is the order passed by the court that sanctions such scheme that is chargeable with stamp duty. Accordingly, the Indian Revenue Department considers two orders sanctioning the same scheme of merger as two separate instruments, thereby requiring stamp duty to be paid on both the orders.5

Where the registered offices of the companies proposing to merge are in the same state, a composite order will therefore result in stamp duty efficiencies.


Foreign investors continue to be key players in Indian M&A, even though the number of inbound deals has decreased by 20 per cent (131 deals in 2015 compared to 164 in 2014). However, the overall value of inbound transactions went up by 24 per cent to US$14 billion in 2015.

A country-wise summary of foreign involvement in Indian M&A is outlined in the table below:



2013–2014 (April–March)

2014–2015 (April–March)

2015–2016 (April–March)

Cumulative inflows (April 2000–March 2016)

Percentage of total US$ inflows
















United Kingdom





















United States




























United Arab Emirates






Total FDI inflows from all countries






i Significant transactions

The largest M&A transaction of 2015 was the merger of Vedanta Ltd with its subsidiary, Cairn India Ltd, for US$2.3 billion, following Vendanta Ltd’s acquisition of majority control of Cairn India Ltd from its UK parent, Cairn Energy Plc, for US$8.67 billion in 2011.

ONGC Videsh Ltd/CSJC Vankorneft, Vankor

India took a step towards energy security with state-owned ONGC Videsh Ltd acquiring a 15 per cent stake in a unit of Russia’s CSJC Vankorneft, the world’s largest publicly traded oil company, for approximately US$1.3 billion.

ii ‘Hot’ industries

The energy and natural resources sector continued to witness significant activity. The aggregate investments in this sector have crossed US$17 billion since 2013. M&A transaction value in this sector peaked in 2015 with US$5.6 billion spread across over 265 deals. Notable deals were Vedanta/Cairn, ONGC/Vankor and the sale of Eagle Ford Shale (United States) by Reliance Industries.

Technology firms attracted an unprecedented level of activity in 2015 with 80 deals compared to just 45 in 2014 with the value increasing to US$5.1 billion as against US$5 billion in 2014. Government initiatives such as ‘Digital India’ have also boosted investor confidence in Indian technology sector.

The e-commerce sector finally seems to be slowing down, with investors following a ‘wait and watch’ approach, especially given the heavy losses e-commerce companies suffer due to the deep discounts they offer consumers. The government’s prohibition on FDI in inventory model e-commerce is also telling.

iii Key trends

Over the past five years, India has witnessed several large scams that bear out India’s abysmal ranking on the Transparency International Corruption Perceptions Index. Acquirers, especially foreign investors, have increased their scrutiny of potential Indian partners and target companies before progressing transactions.

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the rules framed thereunder aim to levy tax on any undisclosed foreign income assets held abroad by an Indian resident. Undisclosed foreign assets can include but are not limited to bank accounts, immoveable property, jewellery, bullion, shares, partnerships, archaeological collections and works of art.


i Indian banks

Save as described earlier,6 Indian banks are precluded from funding M&A.

ii NBFCs

NBFCs provide acquisition finance, but are subject to exposure norms that apply to business sectors, a single borrower and affiliated companies. Therefore, the available finance is limited and expensive.

While a foreign investor may encumber shares of the relevant Indian company to secure credit facilities raised outside India, prior RBI approval is required if the proceeds of such credit facilities are to be used for further acquisition, and such approval is not forthcoming.

iii Leveraged buyouts (LBOs)

LBOs are limited in Indian M&A, as the 2013 Act prohibits a public company from providing financial assistance to any person for the purposes of acquiring the shares of that public company. While this stricture does not apply to private companies, LBOs are rare, although slowly gaining ground.

iv Structured investments and structured payouts

Given the difficulties in raising finance from more ‘traditional’ sources, structured equity and quasi-equity investments are the preferred routes to raise acquisition finance. Consideration may be paid over time on the basis of earn-outs or other specific deliverables being achieved, but as Indian law requires delivery against payment, transactions must be carefully structured.


Contracts of employment cannot be specifically enforced under Indian law. Therefore, where an employer company suffers a change in control there is a de facto requirement to obtain employee consent.

Employees’ consent must be handled sensitively, but as long the terms and conditions of their employment are not adversely affected by the transaction, such consent will likely be forthcoming. In larger industrial establishments, the prior consent of the relevant state government may be required, and this too is generally forthcoming.

Note that employees have a right to object to a scheme of merger or demerger under the 1956 Act and their objections will be heard but, unless there is an adverse effect on their employment, it will be unlikely that such objections would be upheld.

Indian employment law is being reformed, and certain states such as Rajasthan Madhya Pradesh and Maharashtra have taken the lead.

As contracts of employment are not enforceable by the specific performance of Indian law, key personnel may be offered a retention bonus or other incentive as appropriate.


M&A in India are subject to income tax, stamp duty and, in the case of asset sales (not structured as a sale of the undertaking as a ‘going concern’), sales tax or VAT.

Indian law subjects any gains accruing on the transfer of a capital asset to tax. Capital gains arising from both share transfers (not listed on a stock exchange) and asset transfers is taxed as long-term capital gain if the shares or assets are held for more than 36 months prior to the transaction’s completion. In the case of transfer of listed shares, short-term capital gain tax arises if the shares are held for less than 12 months; if held for more than 12 months, capital gain tax does not arise. A transfer of listed shares on the market, whether long term or short term, is subject to securities transaction tax.

Taxable income

Short-term capital gains1

Long-term capital gains1

Obligation to deduct tax at source2

Resident assessee




Resident assessee




Short-term capital gains

Long-term capital gains

Unlisted shares

Gain on transfer







Listed shares on market

Gain on transfer







Listed shares off market

Gain on transfer







Asset transfer

Difference between (sale consideration minus cost of acquisition/ indexed cost of acquisition)







Business transfer (undertaking as

a ‘going concern’)

Difference between (sale
consideration minus net
worth of undertaking transferred)







1 This will change where the asset is a business asset and is subject to depreciation. The cost would also be increased by indexation benefit as available

2 No withholding of tax for resident assessees

3 For individuals, at progressive slab rates

4 Where tax payable in respect of long-term capital gains on listed securities exceeds 10% of the amount of capital gains before giving indexation benefit, such excess has to be ignored

5 In the case of a slump sale, the mode of computation of capital gains will be subject to the mode of computation prescribed as per Section 50B of the Income tax Act, 1961

The above rates may be subject to surcharge at the following rates:


Total income


Education tax

0–10 million rupees



Above 10 million rupees




Total income


Education tax

Domestic company

0–10 million rupees



10–100 million rupees



Above 100 million rupees



Foreign company

0–10 million rupees



10–100 million rupees



Above 100 million rupees



i Tax efficiencies

For foreign investors, immediate tax efficiency is achieved if the applicable double taxation avoidance agreement permits a lower rate of taxation.

No stamp duty applies to transfers of dematerialised shares, and a common condition precedent to completion is that the vendor dematerialises the shares.

A business transfer structured as a transfer of an undertaking as a going concern with no specific consideration allotted to each asset being transferred (a ‘slump sale’) is more tax-efficient than an asset transfer simpliciter, as it allows for business losses to be carried forward and, as long as the undertaking has been held for more than three years prior to transaction completion, gains are subject to long-term capital gains tax notwithstanding that individual assets may have been more recently acquired. A ‘slump sale’ is also exempt from sales tax and VAT.

A court-sanctioned scheme is also tax-efficient if, inter alia, shareholders holding at least 75 per cent by value of the original entity become shareholders in the resulting entity.

ii Developments

After years of uncertainty, attempts are being made to make the tax regime in India more transparent and investor friendly. While intention is articulated frequently, progress on the ground is, arguably, slow.

Amendments to the India–Mauritius double taxation avoidance agreement (DTAA)

India and Mauritius have signed a protocol amending the DTAA.

The amendments ring fence investments made before 31 March 2017 (which will enjoy the extant, un-amended stipulations of the DTAA), while gains made on all investments made after 1 April 2017 will be subject to capital gains tax in India. Investments made after 1 April 2017 but transferred prior to 31 March 2019 will be subject to a reduced rate of capital gains tax if they comply with the ‘limitation of benefits’ provision of the amended DTAA. Investments made after 1 April 2017 and transferred after 31 March 2019 will be subject to the full rate of Indian capital gains tax.

The amendments apply from 1 April 2017, and it is likely that the India–Singapore DTAA will also be amended ad idem with effect from that date.

Reduced rate of corporate tax

New manufacturing companies (incorporated after 1 March 2016) will be given an option of being taxed at 25 per cent (as opposed to 30 per cent) plus surcharge and cess provided profit-linked or investment-linked deductions are not claimed and investment allowance and accelerated depreciation are not availed of by such companies. The corporate income tax rate for financial year 2016–2017 of relatively small enterprises will be lowered to 29 per cent plus surcharge and cess.

Tax benefits for start-ups

For ‘start-ups’ set up between April 2016 and March 2019, a 100 per cent deduction of profits is proposed for three out of five years. However, a minimum alternate tax will apply in such cases. Further, capital gains, if any, will be exempted if invested by individuals in notified start-ups in which they hold majority shares.

Tax on dividends

In addition to dividend distribution tax paid by companies, a new tax at a rate of 10 per cent of the gross amount of dividends will be payable by recipients that are individuals, Hindu undivided families and firms receiving dividends in excess of 1 million rupees per annum. However, any distribution made out of income of special purpose vehicles to real estate investment trusts and infrastructure investment trusts having specified shareholdings will not be subject to this new tax.


Some significant orders of the Competition Commission from the past year are outlined below.

i Belated notices

In Baxalta Incorporated,7 notice of a global agreement was duly filed, but the Competition Commission imposed a penalty of 10 million rupees on the acquirer for failing to suspend completion of the transaction until the earlier of the Competition Commission’s approval or the lapse of the statutory period of 210 days without a Competition Commission response. Baxalta, the acquirer, argued that while steps towards internal restructuring were taken at a global level, the Indian leg of the transaction, was to be effected in India. Further, a separate local implementation agreement was proposed to be executed between the parties, and technically the local agreement should be the trigger for merger notification in India. The Competition Commission held that failing to notify a global level agreement makes it possible for the combination to be effected at a global level even before the Commission has assessed the same.

ii Approval with modifications

After Holcim/Lafarge8 and Sun Pharma/Ranbaxy,9 the Competition Commission passed its third ‘approval with modification’ order requiring the divestment of assets with regard to PVR Limited 10 and, more importantly, reduced the non-compete obligations period imposed on the seller from five years to three years.

iii Amendments

Amendments over the past year require the Competition Commission to provide parties an opportunity to be heard before refusing to approve a combination. The amendments also simplify the procedure for filing a combination notice.


India looks to FDI as a significant driver of economic development, and the legislative support for making doing business easier and the end of the Licence Raj are expected to facilitate further investments.

M&A activity should increase throughout rest of 2016 and in 2017, and inorganic growth is likely to rise exponentially. Domestic players are expected to continue the process of consolidation and restructuring that they began in 2015, with the manufacturing and infrastructure sectors leading the league tables, given their heavy leverage and the fact that the government and the RBI are looking to reduce stress in the banking system. Sectors such as the pharmaceuticals, technology and financial services will remain active.

Overall, we look forward to interesting times, with incipient stress being overcome by latent opportunities being realised.


1 Justin Bharucha is a founding partner at Bharucha & Partners. The author would like to thank Siddharth Manchanda, senior associate, for his assistance in the preparation of this chapter.

2 Illustratively, FDI in defence is permitted only up to 49 per cent.

3 An institutional trading platform is a trading platform in a small and medium-sized enterprise (SME) exchange for listing and trading of securities of SMEs, including start-ups.

4 Illustratively, the merger between two or more small companies and the merger of a holding company and its wholly owned subsidiary.

5 See Chief Controlling Revenue Authority, Maharashtra State v. Reliance Industries Limited (Writ Petition No.1293 of 2007).

6 An Indian bank may provide a guarantee as a performance surety if such guarantee is covered by a counter guarantee of a bank of international repute.

7 See In re Baxalta Incorporated, Combination Registration No. C-2015/07/297.

8 See Holcim Limited and Lafarge Limited, Combination Registration No. C-2014/07/190).

9 See Sun Pharmaceuticals Industries Limited and Ranbaxy Laboratories Limited, Combination Registration No. C-2014/05/170.

10 See PVR Limited, Combination Registration No. C-2015/07/288.