This article is taken from GTDT Practice Guide: India M&A. Click here for the full guide.

Mergers and acquisitions (M&A) are tools used for the growth of business and optimisation of resources. M&A transactions have an impact on the employees of target entities, and the success of these transactions depends on establishing a fair balance between employees’ security and business interests.

‘Merger’ is not defined in the Companies Act 2013 or the Income-tax Act 1961. Generally, a merger means the combination of two or more entities and their businesses into a single entity. In a merger, only the resultant entity continues to exist, and all other entities are dissolved.

An acquisition involves either:

• purchase of controlling shares of one entity by another person or entity (share purchase acquisition); or
• purchase of a business in the form of assets and liabilities along with employees on a going-concern basis (commonly referred to as a ‘slump sale acquisition’).

In some cases, a buyer purchases certain identified assets and hires only selected employees of the target entity, but not the entire business on a going-concern basis. Such transactions are generally categorised as pure asset purchase transactions (asset purchase acquisition).

M&A and employment arrangements

Mergers

Mergers are carried out under the supervision of the National Company Law Tribunal (NCLT), which a quasi-judicial body. The scheme of merger of entities, which is placed before the NCLT...

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