– Lengthy court-driven process for amalgamations in India;
– Inability of an Indian company to amalgamate with a foreign company (as the current provisions under Sections 391-394 only permit a foreign company to amalgamate with an Indian company);
– Shareholder approval requirements under Section 372A of the Companies Act for investments exceeding 60% of net worth or 100% of free reserves of the acquirer;
– Prohibition on multi-level subsidiaries that is currently being discussed in the context of the new Companies Bill;
– Difficulties in using acquirer’s shares as currency for acquisition (due to restrictions on stock-swap transactions) – although a DIPP discussion paper considers proposals to alleviate this concern going forward;
– Restrictions in the proposed merger control regime under the Competition Act, 2002;
– Restrictions imposed by RBI on the amount of cash that can be used for acquisitions (currently pegged at 400% of the acquirer’s net worth).
Added to this is the unavailability of a dual listing regime for Indian companies, which restricts large overseas acquisitions. The failure of the Bharti-MTN transactions has partly been attributed to this.
While there have been a number of changes in the last few years that have facilitated overseas acquisitions by Indian companies, the above list suggests that a number of hurdles continue to exist. There is a need for streamlining the regime for such acquisitions through a holistic approach rather than a fragmented application of various diverse legal provisions to outbound acquisitions.
For a general discussion of the legal and other factors governing outbound acquisitions by Indian companies, please see this paper by Afra Afsharipour.