Mergers and Acquisitions (M&A) in India are structured through a multi-stage legal process governed by stringent statutory mandates and judicial precedents. The successful culmination of any M&A transaction whether a share sale or a statutory scheme of arrangement is predicated on meticulous legal due diligence and securing crucial regulatory approvals.
This high-level legal overview outlines the mandatory documentation, the statutory scope of inquiry under the Companies Act, 2013, and the essential regulatory clearances required from bodies like the Competition Commission of India (CCI) and the Securities and Exchange Board of India (SEBI). The entire lifecycle, from the initial non-disclosure covenants to the final judicial sanction, is firmly rooted in India’s codified legislation, notably the Indian Contract Act, 1872, and the Companies Act, 2013, ensuring that all transaction parties are legally protected and fully compliant with Indian law.
Phase I: Establishing Foundational Covenants and Intent
Non-Disclosure Agreements (NDAs) under the Indian Contract Act, 1872
Non-Disclosure Agreements are necessary at the M&A outset to protect confidential information exchanged during due diligence. NDAs derive their enforceability from the Indian Contract Act, 1872. A valid NDA must satisfy the core contractual requirements, including lawful consideration, free consent, and terms that are definite and certain.
Crucially, the agreement must clearly define the confidential information, restrict its use, and outline the protection measures and remedies for breach. Since India lacks a dedicated statute for due diligence, breaches are primarily addressed under Section 73 of the Indian Contract Act, 1872, focusing on compensation for direct damages.
The Binding Nature of the Letter of Intent (LOI)
The Letter of Intent (LOI) or Term Sheet outlines the broad commercial intention and key terms, enabling the parties to commence formal due diligence. While the LOI consolidates intent, the Supreme Court has affirmed the generally non-binding nature of the core economic terms, stating that an agreement simply intended to “enter into an agreement” at a later date is non-enforceable regarding the transaction’s completion.
However, specific operational clauses, such as exclusivity and commitments to grant due diligence access, are routinely carved out and designated as immediately binding covenants, enforceable under the Indian Contract Act, 1872.
Phase II: Mandatory Legal Due Diligence and Compliance
Scope under the Companies Act, 2013
Legal due diligence is a critical step to identify liabilities and regulatory risks. Although no single enactment governs the process entirely, the Companies Act, 2013, places an implied duty on the acquiring company’s directors to prioritize company goals by mitigating all potential liabilities.
Corporate scrutiny involves verifying key documents, including the Certificate of Incorporation, Memorandum of Association (MoA), and Articles of Association (AoA), along with shareholding records, statutory registers, and all Board and shareholder meeting minutes to confirm corporate approvals. A review of compliance history with the Registrar of Companies (RoC) and any secretarial audit findings is essential. Judicial precedent confirms that an acquirer who has conducted due diligence is deemed cognizant of discoverable legal proceedings.
Sectoral and Cross-Border Compliance
Due diligence must verify adherence to specific sectoral laws, including the Income Tax Act, 1961, Intellectual Property (IP) laws for asset validation, and Labour and Employment Laws, such as the Industrial Disputes Act, 1947. For transactions involving foreign investment, strict adherence to the Foreign Exchange Management Act, 1999 (FEMA) is mandatory.
Compliance verification must ensure adherence to various Reserve Bank of India (RBI) regulations, including the filing of the Annual Return on Foreign Liabilities and Assets (FLA) and Form FC-GPR for reporting Foreign Direct Investment (FDI). Furthermore, Section 234 of the Companies Act, 2013, requires prior RBI approval for an Indian company to merge with a foreign company in a specified jurisdiction.
Phase III: Defining Risk in the Share Purchase Agreement (SPA)
Warranties and Indemnities
The Share Purchase Agreement (SPA) formalizes the share transfer and allocates post-closing risk. Warranties are contractual assurances provided by the seller regarding the target company’s operational, legal, and financial status, providing the buyer with a remedy if statements prove to be materially incorrect.
The buyer’s recourse for breach of warranty is subject to Section 73 of the Indian Contract Act, 1872, which limits recovery to reasonably foreseeable and non-remote losses, and imposes a corresponding duty to mitigate. Indemnity clauses offer superior protection by being specific contractual promises to compensate for defined liabilities, generally bypassing the mitigation, foreseeability, and remoteness requirements of Section 73.
Supreme Court on Contractual Termination (MAC and Frustration)
The Supreme Court jurisprudence restricts the enforceability of the Material Adverse Change (MAC) clause. The Court has affirmed that general adverse market conditions or a lack of expected economic prosperity does not constitute a valid reason for frustration under Section 56 of the Indian Contract Act, 1872. This strict approach reinforces that the acquirer bears a substantial burden to prove extraordinary, deal-specific harm, necessitating extensive due diligence to contractually protect against foreseeable economic risks.
Phase IV: Mandatory Regulatory Clearances
Competition Commission of India (CCI) Approval
Mergers and acquisitions that affect competition must be assessed against the thresholds prescribed under Section 5 of the Competition Act, 2002. Mandatory notification to the CCI is required if the combination exceeds asset and turnover limits. A critical trigger is the Deal Value Threshold (DVT), which mandates notification if the transaction value exceeds INR 500 crore (approximately $60 million), provided the target has substantial local presence in India. Compliance requires structuring CCI clearance as a condition precedent in the SPA.
Securities and Exchange Board of India (SEBI) Oversight
Acquisitions of publicly traded companies are governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations), aimed at ensuring transparency and protecting minority shareholders.
A mandatory public offer is triggered by the acquisition of shares or voting rights that entitle the Acquirer to exercise 25% or more voting rights. Crucially, Regulation 4 establishes the acquisition of control as an independent trigger, irrespective of the shareholding percentage.
Phase V: Judicial Approval and 2025 Legal Precedents
National Company Law Tribunal (NCLT) Sanction
Statutory mergers, amalgamations, and schemes of arrangement require final sanction from the National Company Law Tribunal (NCLT) under Sections 230 to 232 of the Companies Act, 2013. The NCLT, functioning as a quasi-judicial authority, mandates the circulation of disclosure documents, including the draft scheme, a director’s report explaining the share exchange ratio, and an expert valuation report, before approving stakeholder meetings.
The Supreme Court’s Doctrine on NCLT Power and Arbitral Remedies
The Supreme Court has restricted the NCLT’s power to modify schemes, clarifying that under Section 231(1) of the Companies Act, 2013, the Tribunal can only issue directions necessary for the proper implementation of the scheme. This power does not permit the alteration of the scheme’s basic fabric or commercial fundamentals agreed upon by the stakeholders.
Complementing this, the 2025 Delhi High Court judgment in Roger Shashoua & Ors. v. Mukesh Sharma & Ors. reinforced India’s standing as an arbitration-friendly jurisdiction by upholding a foreign arbitral award that mandated a complete shareholder buy-out remedy in a deadlocked joint venture. This precedent affirms that arbitral tribunals can grant robust corporate remedies, placing importance on meticulously drafted arbitration clauses in definitive agreements.
Conclusion
The successful conclusion of a complex M&A transaction in the Indian market requires highly sophisticated legal execution across three distinct phases: structuring foundational covenants, achieving mandatory statutory compliance, and securing final regulatory clearances. The process begins with legally sound Non-Disclosure Agreements and carefully stratified Letters of Intent, anchored in the Indian Contract Act, 1872.
Due diligence must be comprehensive, rigorously verifying compliance under the Companies Act, 2013, and extending to sectoral requirements, including labor laws, Intellectual Property laws, and the strict adherence to the Foreign Exchange Management Act, 1999. The final allocation of risk is determined in the Share Purchase Agreement, where targeted indemnities are strategically employed to overcome the limiting principles imposed by Section 73 of the Indian Contract Act, 1872.
Mandatory regulatory compliance requires detailed engagement with the Competition Act, 2002, and adherence to the stringent SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, for public entities. Ultimately, the reliance on explicit, written contractual terms is repeatedly reinforced by current jurisprudence, including the 2025 Delhi High Court ruling affirming expansive arbitral remedies, confirming that the ultimate resilience and finality of an M&A deal structure rest squarely on the precision and thoroughness of the contractual and statutory compliance documentation.