Structuring M&A: Add-ons
- IJLLR Journal
- 5 hours ago
- 2 min read
Adv. Ankit Thakur, LL M. (Corporate & Financial law and policy), O. P. Jindal Global University, Sonipat, Haryana
INTRODUCTION
As per the Fact Sheet on Foreign Direct Investment (FDI) Inflow published by the Department for Promotion of Industry and Internal Trade, cumulative amount of FDI inflow into India from April 2000 to September 2024 stood at USD 1,033,400 Million1. Incentives and promotion of FDI in India became the cause of rise in the level of ‘mergers & acquisitions’ (M&A) happening within India. Indian courts holding the fundamental power to consummate M&A transactions within Indian jurisdiction, yet parties often prefer contractual engagements to effectuate M&A transactions. With regards M&A transaction, control, management, indemnity, exclusivity, warranties, stand still obligations are notably the key attributes of the transaction. Regardless these, undermentioned are some noteworthy aspects which can have impact on the negotiations and further on the structure of the transaction.
INDIAN ACCOUNTING STANDARDS
For specified listed and unlisted companies, application of Indian Accounting Standards (Ind AS) has been made an obligation to follow as per section 133 of the Companies Act, 2013 (the Act) read with the Companies (Indian Accounting Standards) Rules, 2015. With such mandate in force for specified companies and others orienting themselves with the Ind AS too, while structuring and negotiating under M&A transactions, compliance with Ind AS should be considered as one aspect too. It becomes imperative considering the divergence in conduct and construct under the Act vis-à-vis Ind AS. Illustratively, in definitive documents, based on the nature of instrument issued, equity shares and debentures are treated differently while Ind AS also accounts for the rights conferred on the holders of such instruments instance. For example, when a clause in the definitive document is drafted providing exit opportunity to its investors possessing equity instruments is interpreted as an ‘obligation’ on the company which classify the equity instruments as liability and therefore, a debt instrument under Ind AS. Additionally, classification of subsidiary and holding company under the Act does not categorically recognize ‘control’ of parent company over its subsidiary by distinguishing the decision making head whilst for specified matters under the Ind AS, company is identified as the ‘subsidiary’ only when such matters remain with the majority shareholders.
