Mergers & Acquisitions (M&A) in India

India is one of the most active M&A markets in Asia, attracting cross-border transactions across technology, pharmaceuticals, infrastructure and financial services. Foreign investors entering India through mergers, acquisitions or joint ventures face a layered regulatory environment that combines company law, competition law, foreign exchange controls and sector-specific restrictions. Navigating this environment without specialist guidance routinely leads to deal delays, regulatory rejections or post-closing liabilities. This article covers the principal deal structures available in India, the due diligence process, mandatory regulatory approvals, key contractual protections and the most common mistakes made by international acquirers.

The choice of deal structure in India is not merely a matter of commercial preference - it determines which regulatory approvals are required, what tax treatment applies and how quickly the transaction can close.

A share deal is the acquisition of equity shares in an Indian company. The buyer steps into the shoes of the seller and assumes all existing liabilities, including contingent and undisclosed ones. Share deals are the most common structure for acquiring a going concern, particularly in the technology and consumer sectors. Under the Companies Act, 2013 (Section 56), share transfers must be completed using prescribed transfer forms and registered with the target company within 60 days of execution.

An asset deal involves the purchase of specific business assets - plant, machinery, intellectual property, customer contracts or real estate - rather than the corporate entity itself. Asset deals allow the buyer to cherry-pick assets and leave behind unwanted liabilities. However, they trigger stamp duty on each asset transferred, which in India is levied by individual states and can reach 5-8% of the asset value depending on the state and asset class.

A merger or amalgamation under Sections 230-232 of the Companies Act, 2013 is a court-supervised process involving approval by the National Company Law Tribunal (NCLT). The NCLT is the competent authority for approving schemes of arrangement, mergers and demergers. The process typically takes 6-12 months and requires approval from shareholders, creditors and, in certain cases, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

A joint venture (JV) is a contractual or equity-based arrangement between a foreign investor and an Indian partner. JVs are particularly common in sectors where foreign direct investment (FDI) is capped or where local market knowledge is essential. The JV agreement must address governance, deadlock resolution, exit mechanisms and the treatment of intellectual property - areas where disputes most frequently arise.

In practice, it is important to consider that the choice between a share deal and an asset deal is often driven by the target's liability profile rather than by tax efficiency alone. A common mistake is for international buyers to default to the share deal structure without conducting a thorough pre-signing liability assessment, only to discover post-closing tax demands or labour disputes that were not adequately priced into the transaction.

India's FDI framework is administered by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry, and by the RBI under the Foreign Exchange Management Act, 1999 (FEMA). Understanding the distinction between the automatic route and the government approval route is essential for any cross-border M&A transaction.

Under the automatic route, foreign investment up to prescribed sectoral caps does not require prior government approval. The investor simply notifies the RBI within 30 days of receiving funds. Under the government approval route, prior approval from the relevant ministry or the Foreign Investment Facilitation Portal (FIFP) is mandatory before the investment is made.

Sectors subject to FDI caps or requiring government approval include defence (74% under automatic route, beyond that requires approval), broadcasting (49% for news channels), print media (26%), banking (74% for private sector banks) and insurance (74%). Certain sectors - including gambling, lottery, chit funds and tobacco manufacturing - are entirely prohibited for foreign investment under the Consolidated FDI Policy.

The Press Note 3 of 2020 introduced an additional requirement: entities from countries sharing a land border with India must obtain prior government approval for any investment, regardless of the sector or the amount. This requirement applies to all forms of investment, including acquisitions of existing shares.

A non-obvious risk arises in downstream investments. When a foreign-owned Indian company invests in another Indian company, the downstream investment is treated as foreign investment and must comply with the same sectoral caps and conditions. Many international acquirers structure their Indian holding companies without accounting for this rule, creating compliance gaps that surface only during subsequent transactions or regulatory audits.

To receive a checklist for FDI compliance in M&A transactions in India, send a request to info@vlo.com.

Due diligence in India covers legal, financial, tax, regulatory and commercial dimensions. For cross-border transactions, the legal due diligence report is the primary tool for identifying deal-breakers, negotiating price adjustments and drafting targeted representations and warranties.

Corporate due diligence focuses on the target's constitution documents, shareholding structure, board resolutions and compliance with the Companies Act, 2013. A key area is the verification of share transfer history: under Section 88 of the Companies Act, 2013, companies must maintain a register of members, but gaps or irregularities in historical transfers are common, particularly in family-owned businesses.

Tax due diligence in India is especially critical. India's Income Tax Act, 1961 contains provisions that can create successor liability for the acquirer. Under Section 281 of the Income Tax Act, 1961, certain asset transfers made when a tax demand is pending are voidable. Additionally, the General Anti-Avoidance Rule (GAAR) under Chapter X-A of the Income Tax Act, 1961 empowers tax authorities to disregard arrangements that lack commercial substance, which can affect the tax treatment of the acquisition itself.

Labour and employment due diligence is frequently underweighted by international buyers. India's Industrial Disputes Act, 1947 and the Code on Industrial Relations, 2020 impose significant restrictions on retrenchment and closure of establishments employing more than 100 workers. Acquiring a manufacturing business without understanding the workforce composition and pending labour disputes can result in substantial post-closing costs.

Intellectual property due diligence should verify ownership, registration status and freedom to operate. India follows a first-to-file system for trademarks under the Trade Marks Act, 1999, and a first-to-file system for patents under the Patents Act, 1970. It is common to find that key trademarks are registered in the name of a promoter individually rather than the target company - a structural defect that must be resolved before or at closing.

Real estate due diligence requires title searches at the relevant sub-registrar's office and verification of encumbrance certificates. India does not have a centralised land registry, and title defects are among the most common sources of post-closing disputes in asset-heavy transactions.

A common mistake made by international clients is to rely on due diligence reports prepared by local counsel without requesting a specific section on contingent liabilities arising from regulatory non-compliance. In India, companies in sectors such as pharmaceuticals, food processing and financial services frequently carry unresolved regulatory notices that do not appear on the balance sheet but represent material financial exposure.

The Competition Act, 2002 establishes a mandatory pre-merger notification regime administered by the Competition Commission of India (CCI). Transactions that meet the prescribed asset or turnover thresholds must be notified to the CCI and cannot be completed until clearance is granted or the statutory review period expires.

The current thresholds (subject to periodic revision by the government) require notification when the combined assets of the parties in India exceed INR 2,000 crore, or the combined turnover in India exceeds INR 6,000 crore, or when global thresholds are met. The CCI has a 30-working-day period for Phase I review. If the CCI identifies competition concerns, it may initiate a Phase II investigation, which can extend the review by up to 210 working days.

The CCI has the power to approve transactions unconditionally, approve them subject to structural or behavioural remedies, or prohibit them. Structural remedies typically involve divestiture of overlapping businesses. Behavioural remedies may include supply obligations, access commitments or pricing constraints.

Beyond CCI clearance, sector-specific regulators play a significant role. Acquisitions in the banking sector require approval from the RBI. Acquisitions of listed companies or transactions involving listed securities require compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - commonly known as the Takeover Code. Under Regulation 3 of the Takeover Code, an acquirer who crosses the 25% shareholding threshold in a listed company must make an open offer to acquire at least 26% of the total shares from public shareholders.

SEBI's open offer requirement is one of the most commercially significant regulatory obligations in Indian M&A. The open offer price is determined by a formula set out in the Takeover Code and is typically the higher of the negotiated acquisition price and the volume-weighted average market price over the preceding 60 trading days. Failure to comply with the open offer obligation exposes the acquirer to penalties under the Securities and Exchange Board of India Act, 1992.

For transactions in the insurance sector, approval from the Insurance Regulatory and Development Authority of India (IRDAI) is required. For telecommunications, approval from the Department of Telecommunications (DoT) is necessary. Each sectoral regulator operates on its own timeline, and parallel regulatory processes must be carefully sequenced to avoid a situation where one approval lapses before another is obtained.

The risk of inaction is particularly acute in CCI filings: completing a notifiable transaction without prior CCI approval is a void transaction under Section 6(1) of the Competition Act, 2002 and exposes the parties to penalties of up to 1% of the combined assets or turnover, whichever is higher.

To receive a checklist for regulatory approvals in M&A transactions in India, send a request to info@vlo.com.

The principal transaction documents in an Indian M&A deal are the term sheet or letter of intent, the share purchase agreement (SPA) or business transfer agreement (BTA), the shareholders' agreement (SHA) and ancillary documents such as employment agreements, IP assignments and real estate documents.

The SPA is the central document in a share deal. It contains representations and warranties given by the seller about the target, conditions precedent to closing, covenants governing the period between signing and closing, indemnification provisions and the mechanism for any post-closing price adjustment.

Representations and warranties in Indian SPAs cover corporate existence, capitalisation, financial statements, tax compliance, material contracts, litigation, intellectual property and regulatory compliance. A common structural choice is whether to include a warranty and indemnity (W&I) insurance policy. W&I insurance is increasingly available in the Indian market and allows the buyer to claim directly against an insurer rather than the seller for warranty breaches, which is particularly useful when the seller is a financial sponsor seeking a clean exit.

Indemnification provisions must be carefully drafted to address India-specific risks. Tax indemnities should cover not only known tax demands but also demands arising from completed assessments that may be reopened under Section 147 of the Income Tax Act, 1961, which allows reassessment up to 4 years (and in certain cases up to 10 years) from the end of the relevant assessment year.

The shareholders' agreement governs the ongoing relationship between shareholders after closing. Key provisions include reserved matters requiring unanimous or supermajority approval, tag-along and drag-along rights, pre-emption rights on share transfers, anti-dilution protections and exit mechanisms. Under Indian law, SHA provisions that conflict with the company's articles of association (AoA) are unenforceable against third parties. It is therefore essential to align the SHA with the AoA or to amend the AoA to incorporate key protective provisions.

Escrow arrangements are commonly used in Indian M&A to hold a portion of the purchase price pending resolution of identified risks or post-closing adjustments. The escrow agent is typically a scheduled commercial bank or a reputable professional services firm. The escrow period usually ranges from 12 to 36 months depending on the nature and magnitude of the identified risks.

A non-obvious risk in Indian M&A documentation is the enforceability of non-compete and non-solicitation covenants. Under Section 27 of the Indian Contract Act, 1872, agreements in restraint of trade are void. Indian courts have interpreted this provision broadly, and non-compete covenants that are unlimited in time or geographic scope are routinely struck down. Covenants must be narrowly tailored to the specific business sold and limited in duration - typically 2-3 years - to have a reasonable prospect of enforcement.

We can help build a strategy for structuring transaction documentation and negotiating key protections in Indian M&A deals. Contact info@vlo.com to discuss your specific transaction.

Scenario 1: Technology startup acquisition by a foreign strategic buyer. A European technology company seeks to acquire a 100% stake in an Indian SaaS startup with 80 employees and no manufacturing operations. The transaction falls below the CCI notification thresholds, so no competition clearance is required. The primary regulatory step is filing with the RBI under FEMA within 30 days of the share transfer. Due diligence reveals that the startup's core software is partly developed by contractors who have not signed IP assignment agreements - a common defect in early-stage Indian technology companies. The buyer conditions closing on execution of IP assignment deeds by all relevant contractors. The transaction closes within 60-90 days of signing.

Scenario 2: Acquisition of a listed Indian company by a foreign private equity fund. A Singapore-based private equity fund acquires a 30% stake in a listed Indian company from a promoter group. The acquisition triggers the open offer obligation under the Takeover Code. The fund must appoint a SEBI-registered merchant banker as manager to the open offer, make a public announcement within 2 working days of the agreement, and dispatch the offer document to shareholders within 26 working days of the public announcement. The open offer process adds approximately 26-30 weeks to the overall transaction timeline and requires the fund to have committed financing for the maximum open offer consideration. The fund structures a bridge financing facility to cover the open offer obligation.

Scenario 3: Cross-border merger of an Indian subsidiary with its foreign parent. A multinational corporation seeks to merge its wholly owned Indian subsidiary into the foreign parent company through an inbound merger under Section 234 of the Companies Act, 2013. This structure requires prior approval from the RBI in addition to NCLT approval. The RBI evaluates the transaction from a foreign exchange perspective, and the NCLT reviews the scheme for fairness to creditors and minority shareholders. The process takes 9-12 months. A key risk is that the NCLT may require an independent valuation report from a registered valuer, and any discrepancy between the valuation and the agreed exchange ratio can delay approval.

These scenarios illustrate that the transaction timeline, cost and complexity in India vary significantly depending on the deal structure, the target's regulatory profile and the acquirer's own regulatory footprint.

What is the biggest practical risk for a foreign buyer in an Indian share deal?

The biggest practical risk is successor liability for undisclosed or contingent obligations of the target. In India, tax demands, labour disputes and regulatory penalties can surface years after closing, and the buyer as the new shareholder bears full exposure. Thorough due diligence, targeted indemnification provisions and an appropriately sized escrow arrangement are the primary tools for managing this risk. W&I insurance is an additional layer of protection but does not substitute for rigorous due diligence. Buyers who rely solely on seller representations without independent verification consistently face post-closing surprises.

How long does a typical M&A transaction in India take, and what are the main cost drivers?

A straightforward private share deal with no CCI filing and no listed company involvement can close in 60-90 days from signing. Transactions requiring CCI clearance add a minimum of 30 working days for Phase I review. Transactions involving listed companies and open offer obligations add 26-30 weeks. NCLT-supervised mergers take 6-12 months. The main cost drivers are legal fees (which for mid-market transactions typically start from the low tens of thousands of USD for each side), regulatory filing fees, valuation fees and, where applicable, merchant banker fees for open offer management. State stamp duty on share transfers is levied at 0.015% of the consideration under the Indian Stamp Act, 1899, but stamp duty on asset transfers is substantially higher and varies by state.

When should a foreign investor choose a joint venture over a full acquisition in India?

A joint venture is preferable when the target sector has FDI caps that prevent full foreign ownership, when local regulatory relationships or distribution networks are critical to the business and cannot be replicated quickly, or when the investor wants to test the Indian market before committing to full ownership. The trade-off is governance complexity: JVs in India frequently encounter deadlocks over operational decisions, dividend policy and exit timing. A full acquisition avoids these governance risks but requires greater upfront capital and a longer regulatory process. Investors with a clear long-term commitment to the Indian market and sufficient capital generally find that a full acquisition, where permitted, delivers better outcomes than a JV structure.

M&A in India offers significant opportunities for international investors, but the regulatory framework is multi-layered and unforgiving of procedural errors. The choice of deal structure, the depth of due diligence, the sequencing of regulatory approvals and the precision of transaction documentation each determine whether a transaction closes on time, on budget and without post-closing disputes. The cost of non-specialist mistakes - whether a missed CCI filing, an unenforceable non-compete or an undisclosed tax liability - routinely exceeds the cost of proper legal preparation by a substantial margin.

To receive a checklist for structuring and executing M&A transactions in India, send a request to info@vlo.com.

Our law firm Vetrov & Partners has experience supporting clients in India on mergers and acquisitions matters. We can assist with deal structuring, due diligence coordination, regulatory filings, transaction documentation and post-closing integration planning. To receive a consultation, contact: info@vlo.com.