40

CHAPTER 3

LAWS GOVERNING MERGER AND

ACQUISITION AND RIGHTS OF EMPLOYEES

OF COMPANIES IN INDIA

3.1 Introduction

India seems to expand its horizons into entering foreign markets and merging with

foreign companies entering India. Singh61

found an overwhelming increase in Merger

and acquisition cases in India. This has been recorded as an important example of

India‘s progress and determining a place in the international market. He records

―dynamic attitude of Indian entrepreneurs, buoyancy in economy, favourable

government policies, additional liquidity‖ as important factors in pushing this wave of

Merger and acquisitions. Telecom and manufacturing industries seem to lead the deals

in mergers and acquisitions.

Laws governing mergers and acquisitions provide the backdrop upon which these

trade practises foster. The term merger is not present in the Indian Laws governing it,

however we may use it frequently. As per S. 2(1B) of the Income Tax Act, 196162

,

contains the term ―amalgamation‖ which defines the term ―with respect to

companies‖ as:

the merger of one or more companies with another company or the merger of two or

more companies to form one company (the company or companies which so merge

being referred to as the amalgamating company or companies and the company with

which they merge, or which is formed as a result of the merger, as the amalgamated

company) in such a manner that—

(i) all the property of the amalgamating company or companies immediately

before the amalgamation becomes the property of the amalgamated company

by virtue of the amalgamation;

61Partap Singh, 2012. ―Mergers and Acquisitions: Some Issues & Trends‖. International Journal of Innovations in Engineering

and Technology 1:1-9. 62Section 2(1B) of the Income Tax Act, 1961.

41

(ii) all the liabilities of the amalgamating company or companies immediately

before the amalgamation become the liabilities of the amalgamated company

by virtue of the amalgamation;

(iii) shareholders holding not less than three-fourths in value of the shares in the

amalgamating company or companies (other than shares already held therein

immediately before the amalgamation by, or by a nominee for, the

amalgamated company or its subsidiary) become shareholders of the

amalgamated company by virtue of the amalgamation, otherwise than as a

result of the acquisition of the property of one company by another company

pursuant to the purchase of such property by the other company or as a result

of the distribution of such property to the other company after the winding up

of the first-mentioned company.

As stated earlier, many legal provisions in India govern the mergers and acquisition

process. Not only they act against an unfair acquisition or merger, they also keep in

due consideration public interest. Mergers and Acquisitions in India are governed by

the Indian Companies Act, 2013, under Sections 230 to 240 of the Act which are new

provisions and prior to this it was Indian Companies Act 1956 under the sections 391

to 394 which governed provisions related to Mergers and Acquisitions. Under new

Act there are some of the differences on M&A when we compared it to old Act of

1956. Apart from Indian Companies Act there are some important provisions related

to M&A which are provided in the Competition Act 2002, Foreign Exchange

Management Act 1999, SEBI (SAST) Regulations, Income Tax Act 1961, Indian

Stamp Act, Intellectual Property and due diligence in mergers and acquisition, legal

procedure for bringing about mergers of companies and waiting period in mergers and

acquisitions also discussed in the chapter.

3.2 Laws governing Mergers and Acquisitions in India

Legal frameworks provide set of rules that could govern mergers and acquisitions.

Mainly, mergers and acquisitions are governed by the Companies Act, 1956 with

sections 391 to 394 and a newer version of the Companies Act, 2013 with sections

230 to 240. However, many other provisions have commandments related to mergers

and acquisitions. These are:

42

1. The Competition Act, 2002

2. The SEBI (The Securities and Exchange Board of India) SAST (Substantial

Acquisition of Shares and Takeover) Regulations, 1997, 2011

3. The Income Tax Act, 1961

4. The Foreign Exchange and Management Act, 1999.

5. The Intellectual Property rights

6. Indian Stamp Act, 1899

3.3 The Companies Act, 1956 and 2013.

The Companies Act is an Act to strengthen and make amendments to the laws which

cater to industries and their associations63

. The Companies Act, 1956 existed for over

50 years. In 2008, a new Companies bill was enacted in the Lok Sabha. It was in

2013, that 29 chapters, 470 clauses and 7 schedules comprising the Companies‘ Act,

2013 was passed64

. Though, Companies Act, 2013 has brought about changes much

needed in the Companies Act, 1956; the Companies Act, 1956 is not discarded

completely owing to certain changes that still need to be done in Companies Act,

2013. Some non-notified sections of the Companies Act, 1956 are still in effect.

Chapter V (―Arbitrations, Compromises, Arrangements and Reconstructions‖) of

Companies Act 1956 talk about merger and acquisitions in sections 390-396. The

Act runs through the following sections65

:

390: Deals with Interpretation of sections 391 and 393

391. Power of compromising or making arrangements with creditors and members

392. Power of High Court to enforce compromises and arrangements

393. Information as to compromises or arrangements with creditors and members

394. Provisions for facilitating reconstruction and amalgamation of companies

63Act 1, Companies Act, 1956. 64ASSOCHAM "Mergers and acquisitions in the new era of Companies Act, 2013".2014. www.ey.com/...Companies_Act/$File/Assocham_White_paper_Companies_Act.pdf. 65 Chapter V: Arbitration, Compromises, Arrangements and Reconstructions, Ss. 390,391,392,393,394, 394A, 395,396,396A,

Companies Act, 1956.

43

394A. Notice has to be given to the authority delegated by Central Government for

applications under sections 391 and 394

395. Power and duty to acquire shares of shareholders dissenting from scheme or

contract approved by majority

396. Power of Central Government to provide for amalgamation of companies in

public interest

396A. Preservation of books and papers of amalgamated company

Chapter XV (―Compromises, Arrangements and Amalgamations‖) of Companies

Act, 2013 comprises of sections 230 to 240 that deal with mergers and acquisitions.

The Act runs through these sections66

:

3.4 Disclosures about Merger & Amalgamation

Gandhi and Arora67

provide a comparative analysis of the Companies Act, 1956 and

2013. They bring about the new provisions and changes that the Companies Act, 2013

has brought about68

:

Under Companies Act, 1956: The judges had the power to sanction a

compromise or arrangements on the premise that the people involved have

disclosed all facts pertaining to the company in a truthful manner, in the form

or affidavit. Such as financial position of the company in the present scenario,

accounts of the company and a latest report by the auditor. Later, statements

regarding the compromise deal and its effect, material interest of directors or

other members of the company should be sent along with the notice for the

meeting. The tribunal had to co-ordinate with the central government to take

into account any other representations that might have been received by the

government. Also, the information of the deal had to be published in the

newspaper to be seen by all and if objections occurred, they should be heard

during the second motion petition.

66Chapter XV, Compromises, Arrangements and Amalgamations, Ss. 230-240, Companies Act, 2013. 67Karan Gandhi and Mukesh Arora. 2015. Last Updated-14 July 2015. ―India: Key Comparison Between Companies Act, 1956 &

Companies Act, 2013 - Merger & Amalgamation Perspective‖. Singh & Associates. Accessed July 10, 2017. http://www.mondaq.com/india/x/411816/Shareholders/Key+Comparison+Between+Companies+Act+1956+Companies+Act+20

13+Merger+Amalgamation+Perspective 68Ibid

44

Under Companies Act, 2013: It provides additional disclosures if there is any

reduction of the share capital or the case is of corporate debt restructuring

where 75% creditors must have consented. Also, if the auditor doesn‘t provide

a certificate as a proof of the finances of the company, the tribunal is not liable

to sanction the arrangement, according to Section 133 of the Companies Act.

Unlike, the previous act, not only the central government has to be informed

about the deal but many others like Income Tax Authorities, Reserve Bank,

Official Liquidator, Securities Exchange Board of India, Registrar of

Companies, Stock Exchange, Competition Commission of India etc. If there is

any objection by these authorities, it should be filed within 30 days of the

notice, either the process would go on hassle free.

3.5 Cross border merger and amalgamation

Under Companies Act, 1956: According to section 394 there can be a merger

between a foreign company and an Indian company. However, only ‗inbound

mergers‘ were allowed. Inbound merger takes place when an Indian entity is

acquiring a foreign company. Here, Indian company is the ‗transferee ‗and

foreign company is the target company or transferor company. Outbound

merger is when an Indian company becomes a target for the foreign company,

when India enters foreign markets. Hence, mergers were restricted to India

becoming an acquirer and not acquired company.

Under Companies Act, 2013: Here the previous restriction on mergers were

removed. Now, not only an Indian company can acquire a foreign company,

but it can also be acquired by a foreign company by RBI‘s approval. It has

brought a mighty influence on mergers and acquisitions in India and widen the

horizon of Indian markets.

3.6 Approval of Merger

Under Companies Act, 1956: If the arrangement is approved by three-forth

members or creditors in a proxy meeting or voting in person, then under

section 391(2) it is approved. There is no provision for e-voting.

45

Under Companies Act, 2013: With-holding the circumstances wherein not

every shareholder is able to be present at the voting, e-voting is permitted

under section 230(6)(1) of Companies Act, 2013. Here a member can cast his

vote through postal ballot. This enables all the shareholders to provide their

vote and hence influence the decision. The arrangement would have to be

approved by three fourth members and sanctioned by National Company Law.

3.7 New Provision: Fast Track Merger

It is a quick form of merger provided under the Companies Act, 2013. According to

this provision, two or more small companies or between the major or minor company

can come together in merger, without the prior consent of the tribunal or the court.

Approval required of:

Registrar of Companies;

Official Liquidator;

Members or class of members holding at least 90% of total no. of shares;

Majority of creditors or class of creditors representing 9/10th in value;

Each and every company involved in the merger shall file a declaration of

solvency with the ROC.

Section 233 of the Companies Act, 2013 (CA 2013) dealing with "Merger or

Amalgamation of Certain Companies" has also come into force with effect from 15th

December, 2016. In contrast to the Companies Act, 1956, this is a new provision

under CA 2013 which deals with out of court/tribunal, fast tracked merger or

amalgamation of certain companies subject to conditions prescribed.

The detailed framework and the procedure of the Fast Track mergers and

amalgamation has been provided under Section 233 of CA 2013 read with Rule 25 of

the CAA Rules.

46

3.8 Salient features of Fast Track Mergers/Amalgamations

Applicability

In terms of Section 233(1) of CA 2013, a scheme of merger or amalgamation can take

place between:

i two or more small companies

ii a holding company & its wholly owned subsidiary company.

iii other class of prescribed companies

The approval of the above scheme will not require mandatory approval of NCLT

unless the companies concerned opts for.

Eligibility for compromise or arrangement

The above mentioned class of companies would also be eligible for out of

Court/Tribunal process of compromise or arrangement in terms of Section 233(12) of

CA 2013. Such compromise or arrangement could be:

i Among a company and its creditors or any class of them; or

ii Among a company and its members or any class of them.

Conditions

The eligible class of company or companies as mentioned herein above are required

to fulfil the following conditions for Fast Track Mergers & Amalgamations under

Section 233:

i Objections and suggestions are invited by the ROC and Official Liquidator on

the proposed scheme;

ii To consider the objections and suggestions, if any;

iii To file declaration of solvency before the ROC; and

iv To get the scheme approved by the shareholders and creditors

Necessary Approvals for Fast Track Mergers & Amalgamations

47

Approvals of the following concerns are required for fast Track Mergers &

Amalgamations:

i Shareholders;

ii Creditors;

iii The Central Government (powers delegated to Regional Director vide MCA

notification7 dated 19/12/2016);

iv ROC; and

v The Official Liquidator

It is pertinent to note that if the ROC and the Official Liquidator concerned have no

cause to neither object to the scheme nor have they any suggestions to add, then the

Central government (Regional director) shall record the arrangement and provide

sanctions against them who are involved.

Procedure

The procedure under the Fast Track Mergers & Amalgamation may be summarized as

below:

i. There must be power to amalgamate with other companies in the

Memorandum of Association (MoA) of the companies seeking to merge. If not

such power provided in the MoA then as a first step get the MoA to be

amended to insert the provision empowering the company to get itself merged

with one or more other companies.

ii. Convene the Board of Directors meeting to get the scheme approved in both

the Transferor Company and the Transferee Company.

Send Notices (in Form CAA.9) by both the Transferor Company and the

Transferee Company inviting objections or suggestions on the scheme of

amalgamation to the ROC, Official Liquidator and such other persons who are

all affected by the scheme of merger/amalgamation. The Notice given to the

shareholders or creditors or any class of them, shall be contain the followings:

48

3.9 Arrangement of Amalgamation;

i. Statement disclosing arrangement of amalgamation and effect of arrangement

on its stake holders such as the shareholders, key managerial personnel,

directors, employees, promoters, creditors, debenture holders etc.;

ii. Copy of the valuation report;

iii. Such any other data which Management thinks is crucial for taking any

decision regarding arrangement.

iv. File Declaration of Solvency by both the Transferor and the Transferee

Company in Form CAA.10 with the ROC.

v. Summoning Shareholders for their Approval with 90% of the shareholders

approving the resolution.

vi. Summoning Creditors for the approval of the scheme by the majority

representing 9/10th in value of creditors or class of creditors of the respective

companies.

vii. The transferee company to file a copy of the scheme so approved in the Form

CAA-11 with the ROC in Form GNL-1 and with the Office of Official

Liquidator through hand delivery or by registered post or speed post.

viii. If there is no objection or suggestion received from the ROC and Official

Liquidator and the Central Government believes the scheme is in the public

interest or in the interest of creditors, a confirmation order of such scheme of

merger or amalgamation in Form No. CAA.12 shall be issued by the Central

Government.

ix. Where objections or suggestions are received from the ROC or Official

Liquidator and the Central Government is of the opinion that the scheme is not

in the public interest or in the interest of creditors, it may file an application

before the Tribunal in Form No. CAA.13 within sixty days of the receipt of

the scheme requesting that Tribunal may consider the scheme under section

232 of the CA 2013.

49

x. On receipt of an application from Central Government as aforesaid or from

any other person, if NCLT for reasons recorded in writing is of the opinion

that the scheme should be considered as per the procedure laid down in section

232, the NCLT may direct accordingly or it may confirm the scheme by

passing such order as it deems fit. x The confirmation order to be filed by the

transferor and transferee companies in Form INC 28 with the ROC concerned

within 30 days of the order of confirmation from the Central Government or

NCLT as the case may be.

3.10 Implications post Registration Scheme

The registration of scheme shall have the following effect:

1. Transfer of property or liabilities of the transferor company to the transferee

company so that the property becomes the property of the transferee company

and the liabilities become the liabilities of the transferee company;

2. The charges, if any, on the property of the transferor company shall be

applicable and enforceable as if the charges were on the property of the

transferee company;

3. Legal recourse against all the parties shall be continued once it is initiated.

4. Where the scheme provides for purchase of shares held by the dissenting

shareholders or settlement of debt due to dissenting creditors, such amount, to

the extent it is unpaid, shall become the liability of the transferee company.

3.11 Summary of the provision of Section 233 for Fast Track

Mergers

In nutshell the provisions of Section 233 provide a simplified procedure for the

merger & amalgamation including any scheme of compromise & arrangement for

certain specified companies. The modus operandi of this section is no mandatory

approval from NCLT and dissolution of transferor companies without process of

completing the registration of the scheme for the specified companies. It is a new

provision which was introduced in the Companies Act, 2013 as no such provision was

there in the previous Companies Act, 1956. This route of Fast Track Merger &

50

Amalgamation provides extensive relief to such companies from following the

meticulous and complex procedure of merger & amalgamation involving approval of

NCLT. As there are significant interest of third parties and general public in mergers

between holding and its wholly owned subsidiary company, the fast track mergers &

Amalgamation scheme is relevant and a boon for the corporate sector. The small

companies are also get benefitted by saving time and cost as well. The NCLT will

also become less burdened. This is a much-needed step taken by the Government in

order to promote ease of doing business in India and for the overall benefit of the

industries69

.

3.12 Objection to scheme of Amalgamation

As per section 230 (4) of Companies Act, 2013, shareholders having minimum 10%

holdings or creditors debt and less than 5% total outstanding debt as per the last

financial statement can pose an objection to a merger. Unlike, in the Companies Act,

1956 where even a shareholder with 1% share could object to the merger.

3.13 Body responsible for approving merger

As per the Companies Act, 1956, a merger had to be approved and presided by the

high court. However, as per the Companies Act, 2013, a merger has to be approved by

National Company Law Tribunal. It would be the one common body responsible for

merger and acquisition deals.

Apart from these six differences, Gandhi and Arora70

also talked about the difference

in mergers of listed and unlisted company and valuation report, under the two acts.

The new Act has been responsible to bring in many positive changes in the Indian

markets and made merger and acquisition a more accessible process. Fast track

mergers would also be a relief to small companies intending to merge, having gone

through a long process, before. The biggest advantage is providing a green signal to

cross mergers that has brought India at the centre of global markets. Indian

Companies are free to write their fate and shake hands with the foreign companies as

and when required.

69h t t p : / / w ww . m c a . g o v . i n / M i n i s t r y / p d f commencementnotif_08122016.pdf" 70Ibid

51

3.14 The Competition Act, 200271

In the unending degree of competition, with various brands, companies fighting to

grab the attention of consumers, it is mandatory to guard such competition lest

exploitation might occur. The Competition Act aims to protect unguarded

competition. It ensures the economy to have a healthy competition amongst the

industries of the market. It helps protect the interest of the consumers and ensures

other participants to have a fair amount of chance for providing competition to other

companies.

Before competition act came into being, Monopolies and Restrictive Trade Practices

Act, 1969 (―MRTP‖) ensured that no company could hold its monopoly in the market.

Every competitor should be given a fair chance to make profits in the market. Trade

practises could become more transparent and fair, in nature. The Act also contained

provisions for merger and acquisitions. A commission was set up to look into

monopolistic and unfair trade practises in the market. A consumer, consumer

association, trader or central government had the right to address their complaints to

the commission. It held enough power to provide a stop to the practise72

.

On the amendment of the act in the year 1991, the provisions related to

amalgamations were removed. In later years, government decided that the MRPT Act

doesn‘t hold true to the rising competition in the market. It focussed more upon

controlling monopolies. The need of the hour was a focus on enhancing competition

through fair practises. Therefore, the Competition Act, 2002 was enacted by replacing

the MRPT Act. However, the MRPT act was repealed in 2009 in section 66 of the

Competition Act.

The Competition Act, 2002 includes a more detailed list of provisions and regulations

to promote competition in the market. Competition Commission of India has been

established to look into anti-competition agreements, abuse of dominance, mergers,

amalgamations and takeovers and competition advocacy. Section 3 (anti competition

agreement), section 4 (Abuse of dominance) and Section 5, 6, 20, 29, 30 and 31

contain some provisions that are related to combinations.

71A Voesenek, and M.S.D Dwarkasing. ―The effects of mergers and acquistions on firm performance.‖ Tilburg: Tilburg

University (2014). 72 shodhganga.inflibnet.ac.in/bitstream/10603/74926/6/chapter%203.pdf

52

3.14.1 Anti-Competitive agreements73

Section 3 of the Competition Act, 2002 talks about certain kind of agreements that

pose a threat to a healthy competition in the market. The Act prohibits such

agreements as non-competitive. It states that:

3.14.2 Abuse of Dominance

Section 4 of Competition Act, 2002 contains provisions against abuse of dominance.

It implies that companies having a dominant position in the market shouldn‘t misuse

their power to exploit the other companies. Dominant position is determined when a

company is able to influence its consumers or competitors on its own favour. When it

enjoys a positive, all empowering, dominant role in the market. Though having a

dominant position is not a problem, misusing the role is restricted.

A dominant company is said to misuse its power when74

:

i. It is involved in Predatory pricing;

ii. Directly or indirectly imposes unfair or discriminatory conditions;

iii. Limits or restricts production of goods or provision of services;

iv. Denies market access, etc.

v. Uses its position in one market to influence the other

3.14.3 Regulation of acquisitions, mergers and combinations

Section 5 talks of Competition Act, 2002 talks about combinations as those including

acquisitions, mergers, amalgamations, joint ventures, takeovers and acquiring control.

It prohibits any combination in the form of acquisitions, mergers, amalgamations etc.

that could have an adverse effect on competition.

3.15 Financial Thresholds

Thresholds75

in terms of law is ―the maximum or minimum value serving as a

benchmark to compare and guide any breach that can cause a review of a situation or

73 S. 3, Competition Act, 2002. 74 S. 4(2), Competition Act, 2002. 75Black's Law Dictionary.

53

redesigning the system‖. The Competition Act prescribes certain thresholds while

dealing with combinations. The threshold was revised in 2016 and 2017. Revised

threshold of 2016are as follows76

:

Target or Deminimus exemption: Where an enterprise, whose control,

shares, voting rights or assets are being acquired, is exempt from filing a

notification with the CCI, if it either has assets of the value of not more than

INR 350 crores (INR 3.5 billion) in India or turnover of not more than rupees

INR 1000 crores (INR 10 billion) in India, for a period of five (5) years that is

until march, 2021.77

Jurisdiction threshold revised: The Act prescribes certain asset and turnover

thresholds, which, if met by the parties to the transaction, would require filing

of a mandatory notification with the CCI. The MCA, has now enhanced the

combined thresholds required to be met by the parties for filing a notification

with the CCI, by 100%. Accordingly, a transaction would require filing a

notification with the CCI, if the parties to the transaction (by way of the

Parties Test) or the group to which the entity would belong post-transaction

(by way of the Group Test), meets the thresholds, provided below:

o When the parties have combined assets in India of INR 2,000 crores (INR 20

billion) or a combined turnover in India of INR 6,000 crores (INR 60 billion);

or

o the parties have combined worldwide assets of USD 1 billion, including

combined assets in India of INR 1000 crores (INR 10 billion) or a combined

worldwide turnover more than USD 3 billion, including a combined turnover

in India of INR 3,000 crores (INR 30 billion).

o The group has assets in India of more than INR 8,000 crores (INR 80 billion)

or a turnover in India of INR 24,000 (INR 240 billion); or

o The group has worldwide assets of USD 4 billion, including assets in India of

INR 1,000 crores (INR 10 billion), or a worldwide turnover of USD 12 billion,

including turnover in India of INR 3,000 crores (INR 30 billion).

76Economics Laws practice. Indian Merger Control Thresholds Revised under the Competition Act, 2002. 2016. Legally India.

http://www.legallyindia.com/views/entry/competition-law-alert-merger-control-thresholds-revised-under-the-competition-act-

2002.

54

Definition of group revised by 50%: While considering the group or the

resulting entity, all enterprises that form the group are given consideration for

calculating threshold values. A ―group‖ as defined under the Act, means two

or more enterprises which, directly or indirectly, (i) are able to exercise 26%

or more of the voting rights in another enterprise; or (ii) appoint more than

50% of the members of the board of directors in another enterprise; or (iii)

control the management or affairs of another enterprise. However, with

revision of the notification, enterprises having less than 50% voting rights are

exempted from filing a notification with the CCI.

Now, regarding the threshold notifications of 201778

:

There was an ambiguity in the validity of de minimus exemption in cases other

than that of acquisitions. It was sought to provide exemption to those

enterprises whose shares, voting rights and overall control was being taken

over by another company, hence in case of acquisitions. However, with due

notification in 2017, it was made clear that threshold exemption is valid in

case of all types of combinations and amalgamations.

According to Section 5 of the Competition Act there is a standard manner to

compute the total value of asset and turnovers when determining whether the

threshold value according to the Act has been crossed. So even when the

transaction involved 1 % or 100% of the assets, the entire value of the

enterprise who was selling the assets was taken into consideration to

determine the financial threshold value under the Competition Act. However,

with 2017 notification only the portion that has been acquired or merged will

be considered to calculate the threshold value. So, the value of the total

enterprise would not be regarded for calculating financial threshold.

The notification also provides the manner of calculating the threshold value.

According to it:

78Merger control exemptions expanded- better late than never: Competition Law Hotline. 2017. Nishith Desai Associates. Accessed on October 25,

2017.file:///C:/Users/Anil%20Jaggi/Desktop/Merger_control_exemptions_expanded__better_late_than_never_.pdf

55

The value of assets will be the book value of assets for the financial year

immediately preceding the financial year in which the date of the combination

falls as per the:

audited books of accounts of the enterprise; or

statutory auditor‘s report if the financial statements of the enterprise have not

yet become due to be filed

As reduced by depreciation and the value of assets shall include various forms

of intellectual property including goodwill, brand value etc, if any.

The turnover will be the turnover of the said portion or division or business of

the enterprise as certified by the statutory auditor on basis of the last available

audited accounts of the company79

.

3.16 Pre-filing consultation

The companies which intend to come together in the form of a merger or acquisition

may inform the Competition Commission of India. They must discuss the matters

with the official and take guidance from them on such a proposal.

3.17 Mandatory Reporting

Section 6 of the Competition Act makes a combination null or void if it has an

adverse effect on competition. Therefore, to avoid such a case it is mandatory by

Section 6 of the Competition Act to inform the Competition Commission of India

about a combination within 30 days of the decision made towards it. It is imperative

for the companies to take a prior permission from the Competition Commission of

India before setting forth or executing the combinations. The Competition

Commission of India will then look into the adverse effects if any in the desired

combination. If it has any doubt of the combination being a nuisance to the healthy

market competition, then it has the full right to reject it. The companies must wait till

they get a nod from the Competition Commission accepting their proposal or wait till

the end of 210 days upon which a decision accepting or rejecting the combination

would be made by the Competition Commission of India.

79 Ibid

56

3.18 Single notification involving multiple tranches

If a business transaction takes place through a series of steps or smaller transactions

and requires combination in between then all such information should be a part of a

single notice that must be filed by the intenders to the combination.

3.19 Combination which don‟t need notification

A company whose assets in the form of shares, controls etc are being acquired by

another company and has a total value of not more than INR 250 crores (approx. USD

56 million) in India or turnover of the value of not more than INR 750 crores (approx.

USD 160 million) in India, is not liable to follow the provisions of Section 5 of

competition act, 2002 till March 4, 2016.

3.20 Exceptions to Filing

There are certain set of categories that aren‘t regarded as having a negative effect on

competition don‘t require to be notified to the Competition Commission of India

according to section 6. These are:

Acquisitions of shares or voting rights in the form of an investment wherein

the investor doesn‘t carry more than 25% of the voting rights of the company

whether directly or indirectly.

A merger wherein one of the company already had a 50% or more share or

voting rights in the company. The company acquiring the other company must

be liable to notification only if there is a transfer of power from joint control to

individual control.

An acquisition wherein the company acquiring the voting rights or shares of

another doesn‘t belong to the same business.

Acquisitions which are in the form of acquiring stocks-in-trade, raw materials,

stores, current assets etc.

Acquisitions or mergers taking place outside India with no connection to the

local markets but influencing markets in India.

57

3.21 SEBI introduced SAST

SEBI introduced SAST (Substantial Acquisitions of Shares and Takeovers) in 1994,

1997 and the latest in 2011, to regulate acquisition of shares and voting rights in

public listed companies in India. These regulations apply on direct or indirect

acquisition of voting rights or shares in target company. Some of the important

provisions of the SEBI (SAST) Regulations, 2011 are80

:

According to the 1997 regulation, an acquirer had to be a party and there

should be substantial acquisition of shares. However, the regulations of 2011

provides the acquirer the liberty to act through other people and the scope of

PAC81

to include people directly or indirectly to give in to acquisitions of

shares, voting rights, or exercising control over the target company. Therefore,

a company, with its holding company and subsidiary companies under same

management/directors and any persons entrusted with the company are

deemed to be PAC unless stated otherwise. Also, the persons acting in concert

has been broadened to include those entrusted with the management and not

just management of funds.

The initial trigger point for open offer which was 15% has increased to 25%.

That is when the acquirer alone or with PAC acquires more than 25% shares

and voting rights of the company along with the existing holdings, should

make public announcement for open offer. So, the investors now can increase

stake holding upto 24.99% without open offer.

Acquisition by way of control whether directly or indirectly would require the

acquirer to make public announcement for open offer. Change in control

through passing of special resolution through postal ballot has been

withdrawn. The open offer size has been increased from 20% to 26%.

There have been provided different methods for determining the offer price of

direct or indirect acquisition. The price is determined at volume weighted

average market price at 60 days rather than simple average.

80PriyaShanmuga. 2012. SEBI (SAST) Regulations 2011.CA Club India. https://www.caclubindia.com/articles/sebi-sast-regulations-2011-13538.asp 81PAC means "any person or group of people who with common objective of Acquisition as defined earlier directly or indirectly

cooperate for acquisition of shares or voting rights in or exercise of control over Target Company". Source: Ibid.

58

Voluntary open offer means open offer given by the acquirer voluntarily

without triggering the mandatory open offer obligations. An acquirer can

make an open offer of 10% of total shares of target company provided he

directly or with PAC already holds 25% of the shares and has not acquired any

shares in the preceding 52 weeks except through open offer. Also, he is

restricted to make any acquisition for a period of 6 months after the

completion of open offer except through another voluntary open offer or

competing offer.

The new regulations have also made it obligatory for the acquirer to make

disclosures whereas according to the 1997 regulations, only the target

company was obligated to do that. There are two types of disclosures:

Event Based Disclosures

i. When the acquirer acquires the shares or voting rights of the target company,

which taken along with his existing holding and that of his PAC is 5% or more

of shares or voting rights of the target company, then disclosure is to be

submitted to the stock exchange in the subscribed format. Also, to the target

company within 2 days of the receipt of intimation of allotment or acquisition.

ii. When the acquirer together with the PAC holds more than 5% of the shares or

voting rights of the Company, then every acquisition and disposal of shares

representing 2% of the shares of the target company has to be informed by the

acquirer to the stock exchanges and the target company within 2 days of the

acquisition or disposal.

Continual Disclosures

Every person who along with the PAC holds shares or voting rights more than 25% of

the shares or voting rights of the target company has to inform the aggregate

shareholding or voting rights as of 31st March of every year to the stock exchange

and the target company within 7 days from the end of financial year.

3.22 Income-Tax Act 1961

Income Tax Act, 1961 doesn‘t use the term merger while dealing with arrangements

or combinations of any type. It uses the term ―amalgamation‖ under Section 2(1B) of

59

the act. It defines amalgamation as a merger of two or more companies with one

company or a merger of two or more companies into one company in such a manner

that:

All the properties related to the amalgamating company becomes a part of the

amalgamated company.

All the liabilities of the amalgamating company become the liabilities of the

amalgamated company

Shareholders holding two third or more shares of the amalgamating company

become shareholders of the amalgamated company.

Mergers and acquisitions are subject to the following taxes82

:

3.22.1 Capital Gains Tax

According to the Income Tax Act, whatever gains are acquired in the transfer of

assets including shares is liable to capital gains tax. However, if the amalgamated

company that is the resultant company from amalgamation is an Indian company then

it is exempted from paying capital gains tax even in the transfer of assets.

3.22.2 Tax on transfer of share

When shares are transferred from amalgamating company to amalgamated company,

it is liable to pay security‘s transaction tax and stamp duty. However, if the shares are

in a dematerialized83

form then no stamp duty is to be paid.

3.22.3 Tax on transfer of fixed asset

When property is transferred the respected state is liable to impose taxes on it. There

are two kinds of properties having separate form of taxes. These are:

Movable Property: When the property being transferred is immovable in

nature, then Stamp duty and registration fee must be paid on the instrument of

transfer84

82Diljeet Titus. 2008. ―Mergers and Acquisitions (―M&A‖) is the route most often adopted for corporate growth and expansion in India‖. 83 ‗Dematerialized‘ form is an electronic form of shares kept in a demat account. 84 ‗An Instrument of Transfer‘ is a document necessary for transferring the legal title of the shares.

60

Immovable Property: When the property being transferred is immovable in

nature, then Stamp duty and VAT (imposed by the state) must be paid on the

instrument of transfer.

3.22.4 Tax on transfer of liabilities

Even when liabilities are transferred from one company to another, they are subject to

taxes. The following provisions are levied on liabilities acquired in transfer:

Income Tax: Before the merger and till the effective date of merger the

previous owner is liable to pay the Income Tax on liabilities. After the

company has been transferred to another, the new owner is responsible for

paying the Income tax on liabilities.

Central Excise Act: Under this Act, when a company or business is

transferred by a person who has his name registered with the company must

de-register his name. Upon which the new owner shall register his name with

the company. In case the previous owner has Cenvat85 credit, the same is

transferred.

Service Tax: When owner of a company discontinues to pay taxes owing to a

transfer of his company to another, he must deregister himself. Likewise, the

new owner has to file a fresh registration with the company upon which he

would have to pay service tax now. Regarding the Cenvat credit, the rules are

according to the Central Excise Act.

Value added Tax: The statutes which govern the imposition of VAT require

to be informed about the new ownership of business to the relevant authority.

However, these don‘t have fixed guidelines on how to transfer tax credit.

There is an ambivalence in the joint venture of tax payment by previous owner

and the new owner.

3.23 Foreign Exchange and Management Act, 199986

Foreign Exchange Management Act (FEMA) protects and deals with cross border

mergers. The Foreign Exchange Management Regulation (Transfer or Issue of

85 ‗Cenvat Credit‘ is a scheme where the manufacturers are allowed a set off the taxes paid on the inputs or the input services that

are used while manufacturing the final products or providing the output service. 86 Singh, Avatar, Company Law,16, (Lucknow: Eastern Book Company, 2014).

61

Security by a person residing outside India), 2000 manages shares being transferred to

foreign companies. These regulations have guidelines for inbound (Foreign

companies merging with India) and outbound (Indian companies merging with

foreign) cross border mergers in India. According to the foreign exchange

management regulation, if the merger is sanctioned by the Indian court, then the

transferee company is free to transfer shares to the shareholders of the transferor

company which is outside India. However, it is subject to certain rules such as:

i. The shareholders of the new company residing outside India are not allowed to

exceed their percentage of shareholding beyond sectoral cap87

ii. The transferrer or the transferor company shouldn‘t be engaged in actions

prohibited by the Foreign Direct Investment (FDI) policy.

3.24 Intellectual Property Rights and Due Diligence

Intellectual property rights are defined as a property that came into existence through

the use of intellectual faculty by some people or person. It can refer to creations of the

mind such as designs, logos, inventions, literary pieces, art work, symbols, signs etc

that can be used in the business world. Intellectual property rights ensure that the

owners of these rights benefit from their creation even when their creation is exploited

through commercial means. These rights work within the provisions of legislature and

are statutory rights. These rights aim at praising the creativity of human mind and

hard work put by certain individuals in the success of human beings88

In case of merger and acquisition, all the assets of the acquired company, including

Intellectual property like patents, trademarks, designs are transferred to the acquiring

company. If a trademark or copyright is unregistered, it is transferred like any other

right as per the scheme of arrangement under Section 394 of the Companies Act,

1956. If a trademark or copyright is registered, then it is transferred after a sanction by

the high court. Transfer of trademark or copyrights may be given in the license where

the transferor or licensor consents to it himself89

.

87Sectoral Cap: It is the maximum amount that can be invested by foreign investor in a company. 88Intellectual Property India. 2017. Accessed July 14, 2017. www.ipindia.nic.in/ 89Diljeet Titus. 2008. ―Mergers and Acquisitions (―M&A‖) is the route most often adopted for corporate growth and expansion in

India‖.

62

Intellectual Property rights also involves Due Diligence. Due diligence is a process by

which a party investigates into the whereabouts of the other party in terms of its

ownership, usage rights and also stop others from using intellectual property rights of

other individuals90

.

Due Diligence in Intellectual property is used where91

:

i. If Intellectual property assets are ignored or not given importance, its

maximization would be discussed

ii. If a prominent use of trademarks led to the loss of its unique value, then

methods to reinstate its value would be discussed

iii. If the mark is becoming common and losing its identity then reclaiming it

would be considered

iv. Certain events can lead to devaluation of Intellectual property assets to prevent

such events, the impact of product and company on the assets could be known

with due diligence.

v. Due diligence can also highlight contingency risks.

So, with due diligence in intellectual property rights, it can be known what the present

and future value of the assets is.

3.25 Stamp Duty92

The Indian Stamp Act, 1899, is a state-wise legislation. Some of the states have their

own stamp acts, while others follow the Indian Stamp Act, 1899 (ISA) with their state

amendments. The Indian Stamp Act lays down the law related to tax applicable in the

form of stamps on instruments recording transactions.

A standing committee of State secretaries of Stamp and registration headed by

Additional Secretary (revenue) has been constituted vide Department of Revenue‘s

Resolution dated 9th August 2000, for discussion and examination of issues related to

stamps and registrations.

90Prabhanshu. 2015. Laws regulating mergers and acquisitions in India. Legal Service India.Accessed July 14, 2017. http://www.legalserviceindia.com/article/l463-Laws-Regulating-Mergers-&-Acquisition-In-India.html 91Ibid 92Indian Stamp Act, 1899.

63

Maharashtra, Gujarat, Karnataka, Rajasthan etc have their own Stamp Duty Acts.

They have made their own legislations regarding the payment of Stamp Duty on the

order of the high court under section 394 in their Acts/ Schedules. While other states

like Madhya Pradesh, Andhra Pradesh etc. have adopted the Indian Stamp Act, 1899.

They rather have made their own amendments to apply Stamp duty on the high court

order. As for the remaining states, which neither have an independent Stamp Duty Act

nor have they made amendments to the existing one levy Stamp Duty as per the

decision of High court or Supreme court. So, in case the transferor company has its

assets in different states, calculating Stamp duty becomes complicated because every

state has its own method of arriving at a figure. Payment of stamp duty is an

important consideration before going for mergers especially when the asset of the

transferor company has a significant amount of value.93

However, according to a circular issued in the year 1937 vide had exempted Stamp

Duty to be paid when there is an amalgamation between Holding and Subsidiary

Company94

.

All these laws make matters related to mergers and acquisitions highly critical and

effort making. Indian legislature involves procedure to follow during an

amalgamation.

3.26 Steps involved in Amalgamation

Sections 391 to 394 of the Companies Act, 1956 lays down the steps involved in

amalgamation:

1) Examination of Object clauses: MOA of entities should be examined in this

clause.

2) Intimation to stock Exchanges:

3) Approval of the draft amalgamation proposal by the Respective Boards:

Application to the National Company Law Tribunal (NCLT): Dispatch of

notice to shareholders and creditors:

4) Holding of Meetings of shareholders and creditors:

93Didwania, Pradhumna. 2013. ―Stamp Duty On High Court Orders In Case Of Mergers In India‖. Accessed July 31, 2017.

http://www.mondaq.com/article.asp?article_id=218792&signup=true 94 Ibid

64

5) Petition to the NCLT for confirmation and passing of NCLT orders:

6) Filing the order with the Registrar:

7) Transfer of Assets and Liabilities:

8) Issue of shares and debentures: The amalgamated company, after fulfilling the

provisions of the law, should issue shares and debentures of the amalgamated

company. The new shares and debentures so issued will then be listed on the

stock exchange95

.

3.27 Scheme of Amalgamation96

Scheme of amalgamation doesn‘t have any specific form. It is designed as per the

requirements of the proposal. However, it should contain certain information as per

Section 394 of Companies Act, 1956:

1. It should contain the details of the transferor and transferee companies

2. The date appointed for the merger

3. Terms on which assets and liabilities of transferor company is being

transferred to the transferee company.

4. The date on which the scheme will fall in effect

5. How specified properties or rights of transferor company is being dealt with

6. The terms on which the business would be carried out by transferor company

between the decided date and effective date.

7. Details about share capital of transferor company and transferee company,

with specific details on authorized, issued, subscribed and paid up capital.

8. The proposed ration of exchange. Conditions if any attached with it and the

fractional certificate to be issued.

9. Issues related to shares of transferee company.

95 ―Legal steps involved in mergers and acquisitions/ procedure of mergers‖. Scribd.Accessed on July 28, 2017.

https://www.scribd.com/doc/6624395/Mergers-and-Acquisition. 96Ibid

65

10. Details about the staff of the company, workmen, employees. Information

about the status of provident fund. Superannuation fund or other funds related

to the employees.

11. Information about any miscellaneous provisions covering income tax dues,

contingent and other accounting entries which require specific treatment.

12. Commitment of transferor and transferee company towards making an

application U/S 394 and other provisions which are applicable under

Companies Act, 1956 to their respective high court.

13. Enhancement of borrowing limits of transferee company whenever scheme is

coming into effect.

14. Information about the treatment of expenses which be in course of the scheme

15. Transferor and Transferee company would be willing to make changes in the

scheme as directed by the court or any other presiding authority and exercising

the powers on behalf of the companies by their respective boards.

16. Information regarding the power owned by the delegates of the transferee

company to give effect to the scheme of merger. Several qualifications which

are attached to the scheme and require approval of different agencies.

17. Effect of non-receipt of approvals/ sanctions etc.

3.28 Approval by National Company Law Tribunal97

For the merger to get approved the steps laid down in the Section 230 and 232 of the

Companies Act, 2013 is to be followed. The company has to file an application with

the NCLT which entails a host of documents:

The application for merger or acquisition

a notice of admission

an affidavit

97 "Rules relating to compromises, arrangements, amalgamations and capital reduction notified". KPMG: Tax Flash News. 2016.

http://www.in.kpmg.com/taxflashnews/KPMG-Flash-News-MCA-Rules-on-compromise-and-arrangements-4.pdf

66

copy of the scheme along with the required disclosures (company's financial

position, auditor's report etc).

After receiving the application, NCLT may hold meetings with the shareholders and

creditors of the transferor and transferee Company. The members and creditors are

also required to send notice to regulatory bodies such as Central Government,

Registrar of Companies, Income Tax authorities, RBI, SEBI, Competition

Commission of India, Stock Exchange as directed by the tribunal. The process also

involves filling of Affidavit of the Chairperson which states all the directions

regarding issue of notices and advertisements for convening meetings are complied

with.

At the meeting, voting takes place whether in person or through e-ballot. However,

only members holding more than 10% of shareholding and creditors holding 5% are

eligible for the vote.

The next step entails filling of representation by the regulators or statutory authorities

to the tribunal within the prescribed time limit. The chairperson of the meetings is to

submit the report of the result of the meeting to the tribunal.

Then the companies are required to file a petition with the tribunal to confirm the

merger agreement. The tribunal shall decide on a fixed date for hearing of petition and

send notices informing all the members and creditors to be aware of the final hearing

at the tribunal. If all the procedures had been complied with and the NCLT finds no

reason to reject the proposal, the merger application is passed and the companies are

provided a certified copy under the section 232 read with section 230 (7) of the

Companies ACT, 2013.

3.29 Approval by Competition Commission

The Competition Commission, according to regulation 19 of The Competition

Commission of India Regulations, 2011 lays down the prima facie opinion that is

responsible for the approval of mergers.

67

Regulation 19 of The Competition Commission of India, 2011 lays down provision

such as98

:

19. Prima facie opinion on the combination. –

(1) The Commission shall form its prima facie opinion under sub-section (1) of

section29 of the Act, on the notice filed in Form I or Form II, as the case may be, as to

whether the combination is likely to cause or has caused an appreciable adverse effect

on competition within the relevant market in India, within thirty working days of

receipt of the said notice99

.

So, The Companies Act (1956, 2013), The Competition Act 2002, SEBI‘s (Securities

and Exchange board of India) Regulations, Income-Tax Act 1961, Foreign Exchange

and Management Act, 1999 and Intellectual Property rights due diligence, together

govern the welfare of mergers and acquisitions in India. There have been amendments

to these laws according to the changing needs of the market. With an increasing state

of market competition and growing cases of mergers these laws must be updated to

contain all the possible conditions or problems that the combinations might have.

The laws discussed above confine themselves to profit, loss, liabilities, assets, rules,

prohibitions, permissions, notifications, procedures of mergers and acquisitions. Let

us see if they have any share in protecting the rights of employees involved in

mergers and acquisitions.

3.30 Laws governing rights of employees

There are several labour regulations that stand guard for the rights of the employees.

These labour laws are a kind of social security meant for the welfare of the people. No

matter what the ideology of a nation is, protection of employees always find place

amongst the legislatures. Social welfare is a basic right of every human being and is

important for his healthy development. Indian legislation imposed many laws to

protect the rights of the employees in organised and unorganised sector100

.

98 Regulation 19, The Competition Commission of India, 2011. 99

Section 29 and 31 of the Competition Commission of India,2011. 100JyotiAngrish, ―Impact of globalization on Indian labour laws with special reference to social security‖. Shodganga: A reservoir

of Indian thesis. Accessed on July 24, 2017. http://hdl.handle.net/10603/57426.

68

In cases of mergers and acquisitions, when the employees are transferred from one

organisation or the other; or the management above introduces changes because of

amalgamations; these labour laws often become the saviour for the employees. They

can invoke such laws in case they feel exploited by their employees or demand certain

rights encased in the labour laws.

State and Central government are the sources of employment laws. The major laws

amongst these are101

:

1) Industrial Disputes Act, 1947 (“ID Act”): The Industrial Disputes Act

contains provisions to regulate the employer-employee relations. It lays down

legislations related to settlement of disputes, strikes, lock-outs, retrenchments,

unfair labour practices, transfer of employees in cases of undertaking, closure

of establishment etc.

2) Contract Labour (Regulation and Abolition) Act, 1970: The Contract

Labour Act contains provisions regarding the regulation of contract labour and

prevention their exploitation at the hands of the employers. It also contains

provisions under which the contract labour is to be abolished. The Act lays

down regulations for the duties and obligations of the employer and the

contract, who acts as a mediator between employee and contract labour.

3) Employees‟ Compensation Act, 1923 (“EC Act”): The Employee

Compensation Act makes sure to provide the required compensation to the

employee if he happens to be caught in an accident or death, at the workplace.

4) Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952

(“EPF Act”): The Act ensures socials security for the employees after their

term of employment at an establishment. It provides provisions for provident

funds, pension funds and deposit linked insurance fund for the benefit of

employees working in factories and establishments.

5) Employees‟ State Insurance Act, 1948 (“ESI Act”): The Act contains

provisions for the social welfare of its employees in certain cases such as

101Vaibhav Bhardwaj and Pooja Ramchandani. 2017. Employment and Labour Laws 2017.International Comparative Legal Guides.https://iclg.com/practice-areas/employment-and-labour-law/employment-and-labour-law-2017/india\. Accessed on

August 2, 2017.

69

sickness, pregnancy, employment injury and related matters, where they

require support in terms of their health.

6) Equal Remuneration Act, 1976 (“ER Act”): The Act guards against any

kind of discrimination meted out on the basis of sex, and provides for an equal

payment of remuneration between men and women.

7) Factories Act, 1948 (“Factories Act”): The Act contains provisions

regarding the welfare of the employees, in this case labour employed in

factories. The Act creates an obligation on the employer to govern matters

related to health, safety, working hours, annual leaves etc, for his employees.

8) Industrial Employment (Standing Orders) Act, 1946 (“S.O. Act”): This

Act provides for a formal and clear definition of conditions of employment in

case of industrial establishments. The Standing Order Act mandate an

employer to prescribe standing orders which are required to be certified. The

standing order contains matters related to classification of workmen, working

in shifts, attendance and late coming, procedure for leave and holidays,

termination of workmen, suspension or dismissal for misconduct, etc.

9) Maternity Benefits Act, 1961 (“MB Act”): The Act regulates employment of

women in a company for a definite span of time before and after childbirth. It

also provides certain maternity benefits to the new mother.

10) Minimum Wages Act, 1948 (“MW Act”): The Act sets a minimum wage

limit to be exercised by the employers in case of wages of employees, working

hours, overtime etc.

11) Payment of Bonus Act, 1965 (“Bonus Act”): The Act provides an employer

to pay bonus to his eligible employees. The bonus is not subject to any loss or

profit that might have incurred during the financial year in which the bonus is

liable to be paid to the employee. However, an establishment is not liable to

pay bonus in the first five years of getting established if there are no profits.

12) Payment of Gratuity Act, 1972 (“Gratuity Act”): Payment of Gratuity Act

prescribes payment of gratuity to the employees which is a form of retirement

benefit for the employees upon the cessation of employment.

70

13) Trade Unions Act, 1926 (“TU Act”): The Act contains provisions for

registration of trade unions and prescribes certain rights and duties upon

registration. A trade union has the right to enter collective bargain with the

employer for demands such as better wages or better conditions at work.

14) Payment of Wages Act, 1936 (“PWA”): The Act regulates the payment of

wages to employees in an industrial or other establishment notified by the

government. Among other things, the act contains provisions for fixed periods

of wage earning, fixed timings for the wages and permissible deductions that

can be made from the wages.

15) Apprentices Act, 1961 (“Apprentices Act”): The Act promotes regulation of

training apprentices in the country and creating a readily available work-force

who possess skills relevant to the market.

16) Labour Welfare Fund Acts (“LWF Acts”): The Act promotes state specific

legislations to govern matters related to the welfare of labour working in a

state. The Act provides for constitution of funds for the purpose of promoting

welfare and financial activities for the labour in such states.

17) Shops and Establishments Acts (“Shops Acts”): The Act promotes state

specific regulations for commercial establishments where any trade or

business is being carried on. The Act governs regulation of working hours,

payment of wages, leave, holidays, terms of service and other conditions of

work of persons employed in establishments.

These labour laws together regulate the welfare of the employees in organised or

unorganised sector. Social welfare is an important part of Indian legislation. It does

keep in mind that a healthy and happy employee leads to a successful establishment.

It provides regulations against any kind of exploitation meted out to the employees

and provide them a space to voice their opinions invoking the labour laws, wherever

applicable.

3.31 Rights of employees encased in the Constitution of India

Indian Constitution promotes certain rights for the employees, apart from the labour

laws framed to govern their well-being at work. The Indian Constitution embedded a

71

series of fundamental rights for the labourers. These rights govern welfare of

labourers in terms of equality in pay and in terms of opportunity, having a right to

decent working conditions, to form unions at work etc. These rights guarantee a

labourer or an employee to have an equal and fair amount of experience during work.

Certain articles in the Indian Constitution provides rights to employees and labourers

to promote health, safety, opportunity and scope for success, in employment. These

are:

1) Article 14102

: This article promotes equality of a laborer before law. It ensures

that the state shall not deny any person equality before the law. It also

promotes an equal protection of the laws within the territory of India. It

prohibits discrimination on the grounds of religion, race, sex, caste, or place of

birth.

2) Article 15103

: This article is a complement of article 14. Article 15 prohibits

discrimination between people based on religion, race, caste, sex or place of

birth, by the state.

3. Article 16104

: This article promotes equality of opportunity in terms of

employment.

4. Article 19105

: This article provides protection against the right to speech to

every citizen of India. Article 19 (c) protects the rights of labour unions to

form associations in a legal and rightful manner.

5. Article 23106

: This article prohibits any form of human trafficking or forced

form of labour, against any citizen of India.

6. Article 24107

: This article prohibits child labour by law. It provides that there

must be no child employed in factories and other harmful establishments. No

child who is less than fourteen years of age forced to do work in any factory

and mine where hazardous types of works are carried out.

102 Article 14, The Constitution of India, 1949. 103 Article 15, The Constitution of India, 1949. 104Article 16, The Constitution of India, 1949. 105Article 19, The Constitution of India, 1949. 106Article 23, The Constitution of India, 1949. 107Article 24, The Constitution of India, 1949.

72

7. Article 38108

: The article directs the state to promote the welfare of its people

through a secured social order.

8. Article 41109: The article ensures e that state is under obligation to provide its

citizens with the right to employment, right to education and right to public

assistance in case of need.

9. Article 42110

: This article provides for a just and humane conditions of work

during employment. It also guarantees a right to maternity relief.

10. Article 43111

: The article promotes the right of wages to the workers.

These above said articles together form a kind of secure niche for the workers

to work in. It also provides them with an opportunity to know if they are being

exploited or discriminated against.

3.32 Summary of the chapter

Mergers and Acquisitions are business and financial processes, undertaken by several

companies intending to reach heights of success. Indian legislature provides certain

laws that would look into the entire process from the very start to the end of a

company‘s existence. It ensures that not only mergers and acquisitions are done in a

fair manner but for the welfare of the market and people too. No whims and fancies

are allowed to promote the process of mergers. If the government finds a merger

against the welfare of the people or competition in the market or market itself, it

might as well prohibit such an action.

Laws related to mergers and acquisitions are framed in order to promote an equal and

just opportunity for companies to undergo amalgamations of any kind. These laws lay

procedures to be carried out by the companies intending to merger, for the process to

be without a hitch. The Companies Act, 1956 and 2013, The Competition Act 2002,

SEBI‘s (SAST) Regulations, Income-Tax Act 1961, Foreign Exchange and

Management Act, 1999, Intellectual Property rights due diligence and Stamp duty are

certain provisions to be followed during mergers and acquisitions. They are

108 Article 38, The Constitution of India, 1949. 109Article 41, The Constitution of India, 1949. 110Article 42, The Constitution of India, 1949. 111 Article 43, The Constitution of India, 1949.

73

responsible in their own way to keep the financial combinations under due check of

the government.

While merger and acquisition laws provide surveillance to the procedures involved in

merges and acquisitions, some labour legislations provide protection for the

employees working in such companies. These are socio-comical and welfare

legislations: Industrial Dispute Act, Contract Labour Act, Maternity Benefits Act,

Minimum Wages Act, trade union act and so on. These laws help the employees to

work in a healthy environment with a just amount of salary. Those employees who

had been working for a significant amount of time with a company are liable to

receive many benefits from the employees. The legislations make sure that the efforts

that the employees put in their work don‘t go unnoticed.

These rights often fall vulnerable during mergers and acquisitions. When employees

are transferred from one company to another, they are at ample risk and vulnerability.

It is often a well cited phenomenon that employees seek retirement benefits rather

than transferring to the newly formed company. It is their apprehensions and doubts

that are never solved by the company‘s involved in mergers. Many lose jobs, out of

which many are those that have passed the minimum age of getting a job elsewhere. It

leads to an ample amount of unemployment.

Indian Constitution also guarantees certain rights to the labourers for them to fare well

in their work. These are article 14, 15, 16, 19 (c), 23, 24 and so on. These provide

employees equality before law and in terms of employment. Provides them freedom

of speech and to demand their rights by organising themselves as unions. These are

intended to provide the working citizens of India some fundamental rights. These

fundamental rights prohibit any instance of discrimination against any employee.

Though, laws are doing their bit to safeguard the rights of the employees involved in

mergers, there is still a scope to improve by knowing the phenomenon better through

a deep study. A study that could focus on the employees during mergers and not any

financial or economic aspects during mergers. To study the plight of people who are

vulnerable the most and are ignored the most. How these laws fare in those instances

where employees are exploited or undergo injustice during market oriented mergers

and acquisitions.