Mergers & Acquisitions

[By Lakshita Bhatt] The author is a student of Kes Shri Jayantilal H. Patel Law College.   Introduction  The much-anticipated merger between Sony Entertainment, herein referred to as “Sony,” and Zee Entertainment, herein referred to as “Zee,” faced numerous challenges that ultimately led to its unravelling fate. Although the merger had the potential to transform the Indian media and entertainment sector, internal conflicts and regulatory challenges stalled its progress. In this article, the author delves into the intricacies surrounding the unsuccessful merger between Sony and Zee Entertainment. Following that, the author clarifies how this merger, aimed at establishing dominance in the Indian market, encountered obstacles due to internal disputes, regulatory probes, and legal entanglements. In the end, the author elucidates the aftermath of this merger, highlighting broader concerns regarding corporate governance and financial resilience within the Indian Media sector.   Overview of Sony-Zee Merger  Initially valued at $10 billion in 2021, the merger aimed to create the dominant force in the Indian market by combining a wide range of channels and streaming platforms, with Sony holding the majority of the stake, adding up to 52.93%, and Zee holding 47.07% of the stake. However, tensions arose between Punit Goenka, the Managing Director (MD) and Chief Executive Officer (CEO) of Zee, and Sony Executives over the directorial position of the future merged entity. These internal disputes became a significant obstacle to the merger’s success. Investigations into alleged financial improprieties cast a shadow over the merger, adding to the challenges faced by both companies and eventually leading to the cancellation of the merger. As negotiations faltered, legal disputes emerged, with Sony demanding a $90 million termination fee for what they perceived as breaches of merger agreements. What could have been a billion-dollar revenue-generating merger has now become a legal dispute. Furthermore, it has broader implications for the media and entertainment industry in India. As Zee faced ongoing scrutiny and financial challenges, this left the company vulnerable in India’s booming streaming market, which is highly competitive and offers significant profit potential.  Legal Disputes and Regulatory Scrutiny   The merger between Zee Entertainment and Sony Entertainment India in September 2021 marked a pivotal moment, combining the strengths of Sony, a prominent Japanese media company, with Zee Entertainment to create a formidable entity in the media landscape. However, the trajectory of events took a tragic turn with the National Company Law Tribunal (NCLT) accepting the insolvency proceedings against Zee on 22 February 2023, followed by a petition by IndusInd Bank citing a substantial default of Rs. 83.08 crore attributed to Subhash Chandra, Zee’s founder. This decision came after a series of prior events, including the approval of the merger with Bangla Entertainment by Zee’s Board of Directors in December 2021 and the subsequent filing for insolvency proceedings in February 2022, which was contested with an application for dismissal. Despite gaining approval from the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE), and the Competition Commission of India (CCI) in 2022, challenges persisted, notably with the IDBI bank initiating insolvency proceedings against Zee in December 2022, seeking to recover dues of Rs. 149.60 crores. The NCLT’s directive in May 2023, led to a re-evaluation of initial merger approval by the Stock Exchanges. Despite objections from creditors, the NCLT eventually approved the merger in August 2023, dismissing objections from entities like Axis Finance and JC Flower Asset Reconstruction Co.   However, the Securities and Exchange Board of India (SEBI) confirmatory order in August 2023 barred Punit Goenka, and Subash Chandra, founders of Zee, from holding any key positions within Zee. Amidst ongoing legal battles, a one-time settlement with JC Flower allowed Chandra to regain ownership of family assets in October 2023, while the Securities Appellate Tribunal (SAT) overturned SEBI’s order restraining Goenka from holding a directorial position in the company. Legal disputes continued with appeals lodged against NCLT’s approval by IDBI Trusteeship and others, culminating in notices issued by the NCALT in December 2023, though no staying on the merger process was granted during the proceeding. Additionally, a SEBI probe unveiled allegations of Rs. 1000 crore being signed from the Sony-Zee deal post-merger cancellation.  The aftermath of the merger’s incompletion   Transitioning from the legal disputes to the aftermath of the merger’s incompletion, the leadership struggles between Sony and Zee came to the forefront. Sony expressed a clear intention to bolster its reputation and leadership role within the amalgamated entity. Concurrently, Sony conveyed dissatisfaction with the alternative proposals preferred by Zee. Sony’s resolve for a stronger presence and leadership position in the merger enterprise was unmistakable, as evidenced by its proposal to designate NP Singh, Sony’s India head, as the CEO of the amalgamated entity. However, discord arose when Zee expressed disapproval of this arrangement. Subsequently, Sony announced the cessation of negotiations through an official statement, citing unmet merger conditions and a failure to meet the stipulated deadline. Legal action ensued, with Sony initiating litigation against Zee, seeking damages, amounting to approximately $ 90 million. Sony contends that Zee violated the merger agreement terms as the period for completion of the merger ended in January 2024 and still the merger was not completed, whereas Zee maintains its adherence to the agreement in good faith. Simultaneously, Zee has initiated legal action in both India’s and Singapore’s jurisdictions to enforce the merger terms and prompt Sony to fulfill its obligations. The matter now rests with the court to decide the fate of the proposed merger. Additionally, Zee is facing regulatory scrutiny, particularly from the Enforcement Directorate (ED), a government agency combating economic crime, concerning allegations of financial impropriety involving its founders. Sony’s departure precipitated a decline in Zee’s shares, following the merger’s dissolution, resulting in a significant sell-off. Zee’s shares depreciated by 30%, reportedly marking the largest decline in Sony stock values within the market over five years. Institutional investors, entities managing substantial capital on the client’s behalf, seek clarifications. Reports indicate ongoing deliberation, contemplating avenues such as an extraordinary general meeting, potentially determining Punit Goenka’s tenure. The Zee founders are under

[By Aditi Mishra] The author is a student of NMIMS School of Law, Mumbai.   Introduction During M&A transactions, it is common for the seller to make representations and warranties to the buyer on several aspects pertaining to the target company such as material contracts, financial statements, tax information, intellectual property, etc. A representation is a statement of fact relating to the past or the present state of business of the Target company. The seller makes these representations to induce the buyer to enter into an agreement. For example, a seller might represent that all licenses required to operate the business were obtained lawfully and are valid as on date. A warranty, on the other hand, is a statement or a promise of a condition concerning the Target company relating to the present or the future. Hence, a promise that the necessary licenses will not be cancelled in the future is a warranty. In recent years, representations and warranties (“R&W”) insurance has gained much traction in the M&A segment. This is because it helps mitigate some of the risks that come with acquiring a new asset or business. An R&W insurance policy can be buy-side or sell-side. From the seller’s perspective, R&W insurance provides a cushion against any damages that the seller might have to pay to the buyer upon breach. From the buyer’s perspective, R&W insurance helps reduce any concerns that the buyer might have regarding the seller’s credibility. AIG’s 2021 International Claims Intelligence Report provides interesting insights into the current claims in this space.[i] The AIG Report finds elevated levels of claims, in terms of both severity and number. One in every five policies are invoked, with the average claims size being as high as $19 million. As the R&W claims increase, the claims process becomes more complex, notes Lowenstein Sandler’s 2023 R&W Insurance Claims Report. [ii] In this background, the article discerns common issues faced by the policyholders during the R&W claims process, regarding recent case law developments in the US and the UK. Key R&W Insurance Claims Issues I. Establishing Breach of Warranty The first requisite to claim under an R&W policy is to establish the breach of a warranty. The onus to establish breach is on the policyholder and it is observed that they are sometimes unable to discharge this burden. Common hurdles faced in establishing a breach are issues with the construction of the warranty and the timing of the breach. Construction of Warranty If the breach complained of does not fall within the ambit of the warranty as properly construed, there will be no payout. Mc Dermott et al. note that for a successful claim, the seller’s warranties must align with the buyer’s objectives, and the relevant R&W policy should apply in case of breach of warranties.[iii] To illustrate this point – in the case of Finsbury Food Group Plc v Axis Corporate Capital UK Ltd [2023] EWHC 1559 (Comm)[iv] (“Finsbury case”), Finsbury claimed that a recipe change by the Seller, Ultrapharm (a bakery business), had breached the Trading Conditions Warranty contained in the Share Purchase Agreement. The Court noted that upon a true construction of the Trading Conditions Warranty, to qualify as a breach, the recipe change must constitute a “material adverse change” in the trading position of Ultrapharm. It was found that the recipe change was not a material adverse change as it was a part of the ordinary course of a bakery’s business. Further, currently in Novolex Holdings LLC (ongoing matter), the success of Novolex’s claim hinges on whether purchase orders constitute a “contract” under Delaware law, to amount to a breach of the Material Contracts Warranty under which the seller had warranted that no material customer had indicated it intended to terminate or modify an existing “contract”. [v] Timing of Breach The insurer will only accept the claim when the breach takes place pre-closing i.e., before the transaction is concluded.  In the Finsbury case, Finsbury alleged that price reductions offered by Ultrapharm to its chief customer, Marks & Spencer, breached the Price Reductions Warranty.  The Court found that there was no breach because the Warranty only covered price reductions since the Accounts Date, and the price reductions were offered to Marks & Spencer before that Date. The Court noted that the Warranty only intended to cover breaches between the period of the Accounts Date and the conclusion of the SPA. II. Coverage of R&W Policy – Knowledge Exclusion The coverage of the R&W policy has two aspects attached to it: first, the breach must be a covered breach under the R&W policy; and second, the loss must exceed the retention limits under the policy. Knowledge Exclusion R&W policies often exclude payout for breaches that the policyholder knew about before closing. The onus to prove an exclusion under the policy is on the insurer – and it is generally a high one, however, in the Finsbury case, “actual knowledge” was held to also include Nelsonian knowledge or wilful blindness. The case illustrates the importance of evidence and the role transaction leaders play in conducting due diligence. The Court rejected most of the claimant-policyholder’s evidence and observed that it was enough that the relevant persons at Finsbury had all the facts available to them, they did not need to be told that “2 + 2 equaled 4”. Retention Limits R&W policies prescribe certain self-insured retention limits i.e., the amount that the policyholder shall pay out of their pocket, before the policy starts paying out on a claim. For example, if the policyholder makes a claim of $15 million and the R&W policy stipulates a retention limit of $5 million – the policyholder will only be entitled to the portion of the claim falling outside the self-insured retention limit, which will be $10 million. As per Lowenstein Sandler’s 2023 R&W Insurance Claims Report, 61% of respondents reported claims that were entirely within the self-insured retention limit. [vi] In Ratajczak v. Beazley Solutions Ltd., 870 F.3d 650 (7th Cir. 2017), one of

[By Jose S Jose] The author is a student of The National University of Advanced Legal Studies (NUALS), Kochi.   INTRODUCTION In a significant stride within the entertainment industry, NCLT (National Company Law Tribunal) Mumbai recently granted approval for the merger of Zee Entertainment Enterprises and Culver Max Entertainment, previously known as Sony Pictures Networks India. This transformative green light not only ushers in the possibility of a formidable entertainment giant commanding about 26% of India’s entertainment market but also beckons the amalgamation of rich content portfolios and industry expertise. However, beneath this promising surface, a series of legal challenges have cast shadows over the merger’s realization, resulting in protracted delays. In this comprehensive analysis, we’ll first explore the intricacies of the Corporate Insolvency Resolution Process (CIRP) proceedings against Zee by NCLT Delhi and the subsequent SEBI (Securities and Exchange Board of India) ban on Punit Goenka, Managing Director of Zee, which have collectively contributed to this prolonged period of uncertainty. Beyond legal matters, we’ll discuss the background of the merger, the strategic agreement between Sony and Zee, and the potential benefits for shareholders and consumers. We’ll also navigate the legal hurdles and strategic intricacies of the Sony-Zee Entertainment merger, ultimately shedding light on the promising future it holds for India’s entertainment landscape. BACKGROUND While industry analysts speculate that the merger could potentially materialize within the next 2 to 3 months, the  timeline remains subject to various factors, introducing an element of uncertainty. In the dynamic landscape of mergers and acquisitions, anticipation is met with caution. The seeds of this partnership were sown back in 2021 when both entertainment juggernauts, Sony and Zee, forged an agreement to pool their expertise, digital assets, and extensive networks. With this ambitious alignment, a new chapter in the entertainment industry seems inevitable. Under the terms of this strategic agreement, the Sony group stands poised to claim a controlling stake of approximately 51% in the nascent entity. Meanwhile, the founders of Zee are set to retain a notable 4% share. The remaining equity will be thoughtfully allocated among the existing shareholders of Zee, allowing for a diversified ownership structure reflective of the company’s roots. This merger is a juncture of strategic relevance, offering manifold advantages for the new conglomerate. By synergizing their strengths, these companies aim to fortify their competitive edge in the market. Beyond boardrooms, shareholders too are poised to reap the rewards, as the merger is anticipated to translate into an augmented value of shares. At the same time, consumers are expected to be the ultimate beneficiaries, as the amalgamation promises an enhanced content palette, catering to an ever-evolving appetite for diverse entertainment experiences. This significant milestone is currently hindered by the legal obstacles that have raised significant concerns. LEGAL IMPEDIMENTS: CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) A significant turning point emerged when IndusInd Bank set in motion the process for Corporate Insolvency Resolution Proceedings (CIRP) against Zee Entertainment. The initial salvo was fired with an application filed at the NCLT Mumbai, invoking Section 7 of the Insolvency and Bankruptcy Code (IBC), complemented by Rule 4 of the Insolvency & Bankruptcy (Application to Adjudication Authority) Rules, 2016. Section 7 of the IBC confers the authority upon financial creditors to initiate the corporate insolvency resolution process against a corporate debtor before the NCLT. Meanwhile, Rule 4 of the Application to Adjudication Authority Rules outlines the procedural compass for filing such an application. In this legal overture, IndusInd Bank set its sights on resolving a financial debt that scaled beyond 90 crores—a threshold that bore implications for both Zee Entertainment and the proposed merger. The filing of this application injected a notable pause into the rhythm of the merger’s progression, casting a shadow of uncertainty over its timeline. The unfolding narrative took a series of twists as the legal pendulum swung back and forth. The order initiating the insolvency process issued by the NCLT Mumbai, which carried the resonance of a significant pronouncement, encountered an intermission when it was effectively stayed by an order from the NCLAT Delhi. However, the tide shifted once more as the same judicial forum, the NCLAT Delhi, ultimately terminated the CIRP order. The restoration of movement was prompted by a pivotal development—namely, the emergence of a settlement between the two principal entities involved: Zee Entertainment and IndusInd Bank. Remarkably, the settlement between the two has streamlined the process of merger. DISQUALIFICATION OF DIRECTOR BY SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) Empowered by the SEBI Act of 1992, the Securities and Exchange Board of India (SEBI) stands as a consequential statutory body entrusted with safeguarding investor interests and fostering the growth of India’s securities market. In a sweeping move, SEBI wielded its regulatory authority to impose bans on two significant figures within the Essel Group—the Chairman, Subhash Chandra, and Zee’s CEO, Punit Goenka. This decisive action was catalyzed by compelling evidence that illuminated a troubling pattern: both individuals had allegedly misappropriated funds through a misuse of their directorial positions. The reverberations of SEBI’s stance echoed beyond its initial pronouncement. This interim ban, effectuated with resolute intent, was upheld by the Securities Appellate Tribunal (SAT). This affirmation cemented the gravity of the allegations and the necessity of the actions undertaken. The consequences rippled across the corporate landscape, throwing into question the identity of the future director of the envisaged merged entity—a role previously slated for Zee’s incumbent CEO, Punit Goenka. This unforeseen hurdle cast a shadow over the merger’s strategic blueprint, inducing fluctuations in market sentiment. The tangible ramifications extended to Zee’s stock price, experiencing a noteworthy reduction. Mandated by SEBI, a probe has been set in motion with the express aim of unravelling the intricate threads that have woven this complex narrative. The investigation’s scope, ambitiously encompassing an 8-month timeline, serves as a testament to the gravity of the situation and the meticulous inquiry required. NCLT APPROVAL OF THE MERGER While the ink on the merger agreement between these two entities was penned and announced back in 2021, the long-awaited

[By Himanshu Verma] The author is an Associate Trainee.   Introduction To promote the ease of doing business and processing the scheme of arrangements involving startups, wholly owned subsidiaries, or small companies in a cost-effective and comparatively swift way, India endeavoured to establish a framework that facilitates and expedites the growth of these companies through the implementation of a fast-track merger process, effective from 15th December 2016. Thus, the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 (“Principle Rules”) was introduced. This rule introduced an alternative pathway for select classes of companies to pursue mergers or amalgamations without the intervention of the National Company Law Tribunal (“Tribunal”). However, the fast-track process faced challenges such as delays and uncertainties. In order to overcome the limitations the Ministry of Corporate Affairs (“MCA”) introduced the Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023 (“Amendment Rules”) on 15th May 2023. These Amendment Rules officially came into effect on 15th June 2023 (“effective date”). The introduction of specific timelines and deemed approval provisions in the Amendment Rules has brought some improvements. Nevertheless, as we chart this trajectory toward efficient mergers, certain areas are beckoned for further refinement. In this article, the author provides insights concerning the Amendment Rules and engages in a discussion about persisting issues, along with proposing potential approaches to navigate these issues. Necessity of Amendment The M&A landscape in the Indian startup ecosystem experienced a significant milestone in 2021, as a noteworthy 210 deals took place and the momentum continued in the year 2022, with an impressive count of 240 M&A deals. However, the process has not lived up to its fast-tracked designation, and the corporate organizations have shown reluctance to pursue the fast-track merger route due to uncertainty regarding eligibility criteria and delays in obtaining authorization from the Registrar of Companies (“RoC”) or Official Liquidator (“OL”), thus hindering the intended purpose of expediting mergers. Regrettably, it was observed that the reports submitted by the RoC, OL and the Regional Director (“RD”) issuance of confirmation orders took longer than expected, resulting in delays in processing applications. According to MCA 8th annual report, there were 118 pending applications as of 1st April 2021, and 369 applications were received between 1st April 2021 – 31st March 2022, out of which 164 remained pending as of 1st April 2022. Furthermore, as per the annual report 2022-23 on 1st November 2022, 135 applications were pending and 403 applications were received between 1st November 2021 – 31st October 2022, out of which 188 were pending as of 31st October 2022. These statistics highlighted the importance of reevaluating India’s framework for fast-track mergers while acknowledging the challenges that corporations were facing. Amendment Rules: The Current Paradigm To instil greater confidence among companies engaging in fast-track mergers in India, the recent Amendment Rules have introduced specific timelines for government authorities. Previously, in Principle Rules no time limit was prescribed for the RoC and OL to provide any objections or suggestions to the Central Government (“CG”). However, with the introduction of the necessary changes through sub-rule 5, time limits have been established. If the RoC and OL have no objection or suggestion to the proposed scheme, they must approve it within 30 days. In the event, objections are not submitted by the RoC and OL, it shall be deemed that there are no objections, and the RD has to approve the scheme within 15 days after the 30 days have expired, provided that the RD determines the scheme to be in the public or creditor’s best interests. The Amendment Rules have also imposed strict deadlines on the CG under sub-rule 6, if objections/suggestions are received but are not considered sustainable, then the CG has to confirm the scheme within 30 days after the expiration of the initial 30-day period. In the event the CG identifies that the scheme is not in the best interests of the public or creditors, it can file an application before the Tribunal within 60 days of receiving the scheme. Therefore, the imposition of these strict timelines under sub-rules 5 and 6 has effectively addressed the issue of unnecessary delays and brought predictability to the fast-track merger process, as now companies no longer have to endure extended periods of waiting caused by bureaucrats or government officials. Another critical issue was what happens if the CG does not approve the scheme or refer it to the Tribunal within the timeframe specified. Would any member or creditor of the company be able to file an application before the Tribunal in such a case? MCA had given this clarification by introducing the deemed approval provision in the Amendment Rules. This provision provides assurance as well as clarity by specifying that if the CG does not issue a confirmation order within a specified timeframe or refer the scheme to the Tribunal within 60 days of receiving the scheme, it will be deemed that the CG has no objection and will be obliged to issue a confirmation order. This deemed provision also gave a clear understanding of the timeframe within which the merger schemes would be reviewed and decided upon. Issues and Recommendations The introduction of specific timelines has resulted in a smoother and more time-bound process, although the Amendment Rules and current provisions governing fast-track mergers still lack clarity on certain aspects and require further attention. For instance, the settled principle in India that any law altering the rights or obligations of parties should be applied prospectively, companies applying for the fast-track process on or after the effective date will benefit from the new Amendment Rules. Therefore, the author suggests that there should be a committee to clear already pending applications, failure to comply may result in a backlog of pending cases, causing delays in decision-making and imposing an undue burden on the authorities. Another aspect of concern relates to the concept of public interest, while the Companies Act, 2013 (“the Act”) acknowledges the significance of public interest as highlighted in several sections of the Act, including sections 62(4), 129,

[Siddharth Sengupta & Tanay Dubey] The authors are students of National Law University Odisha.   Introduction Over the past decade, the Indian Government has implemented a range of measures to attract foreign direct investment (FDI) into the country, resulting in a notable upsurge in FDI inflows from $24 billion in 2012 to $49.3 billion in 2022. A key factor behind such a dramatic increase in FDI in the last few years is the growing cross-border M&A activities. In 2013, the Securities Exchange Board of India (SEBI) permitted the use of option agreements in M&A transactions. An ‘option’ clause within a Shareholder’s Agreement (SHA) is a provision that gives the parties a right to either purchase (in case of a call option) or sell (in case of a put option) shares at a pre-determined price, after a pre-determined period. SEBI’s notification, which was applicable only to domestic transactions, was followed by an amendment to Foreign Exchange Management Regulations by the Reserve Bank of India (RBI), allowing foreign investors to include an optionality clause as an exit mechanism. The problem with the amendment was that in the case of the sale of securities via a put option, such an exit is without the component of “pre-determined rate” or ‘assured returns’, as per RBI’s amended Pricing Guidelines for FDI in India. Despite the law being largely clear, a ruling by the Madras High Court in January of this year, in the case of GPE (India) Limited v. Twarit Consultancy, has reignited the contentious discussion surrounding the implementation of put options which ensure assured returns. Deviating from an established line of precedents set by the Apex Court and other High Courts, the court, in this judgment, allowed assured returns under a put option between the parties, This article explores various aspects of cross-border M&A transactions and the use of put options as an exit mechanism. The article highlights the importance of assured returns during exits using put options and identifies the absence of them as a key hindrance in cross-border M&A transactions. Further, the article explores approaches that may be adopted as an alternative to put options in order to protect foreign investors under the current regulatory framework and the need for revision of pricing guidelines. Understanding Cross-Border M&A Transactions and the Importance of Assured Returns Cross-border M&A involves the integration of assets and operations from companies hailing from distinct jurisdictions. The term ‘acquisition’ pertains to the purchase of assets or stocks, either in whole or in part, of another company, thereby granting operational control over the whole or part of the said company; while the term ‘merger’ denotes the scenario wherein two independent companies are combined or consolidated into a single entity. Due to the international nature of cross-border M&A, investors face some unique challenges especially while investing in an Indian company. Under the FDI Policy, for example, there are sectoral caps in place for the amount of foreign investment in certain industries. These sectoral caps can be changed by the Union Government very easily, which can compel investors to sell their shares at a loss. Further, especially in FDI, the investor may not be able to get reliable information about the seller for a variety of reasons such as market data being opaque or hard to get. This is particularly prevalent in angel investments and investments into Micro, Small, and Medium Enterprises (MSMEs). Abrupt changes in tax laws combined with the acute difficulty in enforcing contracts in India are further problems that make foreign investments in India challenging. Incorporating put options in SHAs would typically offer a significant remedy to these issues by eliminating the uncertainty related to the ‘future value’ of shares in foreign investments. Regardless of whether the share prices experience significant fluctuations, the investment would remain secure. This approach proves particularly advantageous for investments in developing economies, where investors would be guaranteed a pre-determined amount upon exercising the put option at its expiration, even in the event of a sharp decline in share prices. However, the RBI’s prohibition on ‘assured returns’ clauses in foreign investments has resulted in the inability of put options to serve this purpose. Globally, having a provision for assured returns in a put option is considered standard, as it is essential for effectively hedging risks in foreign investments, which is the primary purpose of having an option clause in the first place. Regulatory Considerations and Legal Frameworks in India In 1999, the Parliament, enacted the Foreign Exchange Management Act (FEMA) with the objective to facilitate external trade and payments and regulate the foreign exchange market in India. Gradually, restrictions vis-à-vis FDI were eased, resulting in a tremendous increase in the value of FDI each year. In furtherance of the above-stated objectives, the Securities Exchange Board of India (SEBI), in 2013, allowed put & call options in M&A transactions. Subsequent to SEBI’s approval, the RBI through its circular and notification, allowed optionality in equity shares and compulsorily and mandatorily convertible preference shares/debentures to be issued to a person resident outside India with the objective to provide greater freedom and flexibility to the parties concerned under the FDI framework. Foreign investors now had the choice to exit the investment after the one-year lock-in period by invoking the optionality clause, thus enabling the investee company to buy back securities. However, such an exit cannot be made at a pre-determined value i.e., without any assured returns. The investors are obliged to at the market price prevailing on the recognised stock exchanges (in the case of listed companies) or a price determined through internationally accepted pricing methodology (in the case of unlisted companies), thus, defeating the very purpose behind the revision of pricing guidelines. Interestingly, there is no such restriction placed in regulations relating to domestic investments. Thus, such restrictions as are placed under FEMA are redundant. Until the pricing guidelines are amended, it is imperative to explore alternative approaches to Assured Returns clauses in FDI transactions, to protect investor interest. Alternative Approaches for Investors and Need for a

[By Sanidhya Bajpai] The author is a student of Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction Companies with an extensive capital and dominant position in the market have mastered ways of staying at the helm of the competition, and one strategy which they frequently follow is killer acquisitions. When a company eliminates an innovative firm by acquiring it at a nascent stage to eliminate any future competition from that firm, it is seen as a killer acquisition. The acquiring company can either terminate its innovative efforts or its development of an innovative product to stay at the helm while avoiding competition. Competition law regimes worldwide are trying to solve this Gordian knot to prevent the transactions from having any “appreciable adverse effect on competition” (A.A.E.C.). This piece focuses on how the current regime cannot curb these acquisitions and will only increase the Competition Commission of India’s (from herein CCI) burden and hamper businesses and proposes a more rational approach considering all stakeholders. Deal Value Threshold (DVT), De Minimis Exemption, and how killer acquisitions escape from scrutiny The infamous killer acquisitions generally escape from scrutiny as they fall under De Minimis exemption or small target exemption, which makes way for absolute exemptions for transactions from notifying the Competition Commission of India in cases where the value in India does not exceed INR 3.5 billion or the revenue from India does not exceed INR 10 billion. In today’s digitized market, foreign companies have operational centers in India, which are the backbones of their foreign parent firms. However, their on-paper value is low, which makes them eligible for the De Minimis exemption. This allowed Facebook’s acquisition of Whatsapp, made at around US$ 19 billion in the U.S., to escape antitrust scrutiny in India as the deal was below the assets and turnover threshold. Recently the parliament passed the Competition Amendment Bill, which, among other things, amended Section 5 of the Competition Act (from herein “the Act”) and provided that, if the enterprise being acquired, taken control of, merged, or amalgamated has “substantial business operations” in India, the CCI must approve any transaction involving the acquisition of control, shares, voting rights, or assets of an enterprise, as well as mergers or amalgamations with a value exceeding INR 20 billion. The bill also states that the De Minimis exemption will not apply where DVT is surpassed. However, killer acquisitions are, by their nature, acquisitions of small innovative firms or start-ups. It is not only possible but highly probable that these acquisitions will escape the DVT. The experience of the prominent antitrust regime of Europe shows that the introduction of DVT has not just increased the burden on the antitrust regulators but has not yet made a considerable dent in curbing these acquisitions. The predicaments of DVT The DVT of INR 20 billion is already seen as a threat to the ease of doing business in India as many transactions will be notified regarding the recent amendments, which will increase the burden on the CCI and affect business. Moreover, the evidence from countries that have introduced a lower DVT, like Austria and Germany, shows that it has increased the burden on antitrust regulators without any considerable dent in killer acquisitions. The example of European countries is noteworthy in this regard. Germany and Austria introduced the DVT in their competition law regimes to include transactions not addressed by the previous threshold and prevent transactions from turning into killer acquisitions. The countries introducing new thresholds also issued a slew of guidelines, including that the threshold will be applicable on transactions where the target has significant activities in the said countries, among a few other local nexus requirements. However, both countries are still apprehensive about DVT’s assistance addressing anticompetitive transactions. The findings of Germany, which it submitted to the Organisation for economic cooperation and Development (O.E.C.D.), reveals two things (i) an insignificant number of increased notification since the introduction of DVT, and (ii) as of 2020, the complete absence of a critical case to be notified before Germany’s Federal cartel office based on DVT. The European commission, understanding the shortcomings of the DVT approach, introduced a novel interpretation of E.U. merger control regulation which allows the E.U. member countries to refer to the commission to control acquisitions below the controllability of DVT. It is discernible from the E.U. experience that a DVT has not solved the Gordian knot of killer acquisitions but has only increased the regulatory burden as the member states still heavily recommend transactions below the threshold for antitrust scrutiny after gaining discretionary powers. The European Court has also allowed the national authorities to review below-threshold mergers under the abuse of dominance rules. We need to learn from these approaches of European antitrust regulators and have a more balanced approach that will aid not only pro-competitive business but also curb anti-competitive transactions. A more rational approach India, a developing economy, needs an approach that will put less regulatory burden on the business while curbing killer acquisitions. A more rational approach would be “to increase the DVT and make it mandatory for the firms with a dominant position in the relevant market to notify their acquisitions.” This approach would reduce the burden on the CCI and help businesses as it will exempt most benign transactions from antitrust scrutiny, destined to come under CCI purview in the present context. This approach of notifying the commission in cases of acquisition by a dominant firm is more rational as the dominant firms are the ones that mainly acquire these nascent firms preempting a future threat of competition to perpetuate their dominance. This is visible from the fact that Facebook, Google, Apple, and Amazon made more than 300 combined global acquisitions from 2009 to 2019. The pharma industry, which has a massive propensity of dominant firms acquiring small nascent firms, will also be strengthened by this development. The mandatory notification of acquisition by dominant firms in the relevant market will ensure the implications of the antitrust scrutiny at

[By Pranjal Kinjawadekar & Gunjan Hariramani ] The authors are students of Maharashtra National Law University Mumbai.   Introduction The significant component in any commercial contract is the pricing clause which states the pricing mechanisms which the parties would follow to complete the deal. A pricing mechanism is an important factor as it determines the amount of consideration to be paid by one party to another. In order to determine the purchase price of the target company, the parties involved in the transaction need to arrive at the value of the company. The value of the company is called the ‘base purchase price’ or ‘initial purchase price’ defined in the stock purchase agreement. In the past few decades, the widely used pricing models in mergers and acquisitions (“M&A”) transactions are the locked-box mechanism and the closing accounts adjustment management. In this article, the authors have attempted to analyse the concept of the locked-box pricing mechanism used in private M&A deals in India. Further, an analysis of the order against Bharti Airtel Limited wherein the Competition Commission of India had imposed penalties on the acquirer for gun jumping due to the use of locked-box mechanism, has been provided. Locked-Box Mechanism and Closing Accounts Adjustments Mechanism The locked-box mechanism is defined as a pricing mechanism used by the parties in commercial contracts where they freeze the purchase price of a target company based on a historical balance sheet date. In this pricing mechanism, there are three important dates, first, the locked-box date, second, the signing date of the sale and purchase agreement (“SPA”) and third, the closing date. At the date of SPA signing, the parties agree to a fixed equity value of the target company. The historic balance sheet is used to calculate the equity value of the target company that is fixed at the locked-box date. Further, in the locked-box mechanism, the parties identify and agree to various factors like working capital, cash, and debt of the target company that could change the value of the company in the future. However, once the price has been fixed at the SPA signing date, the parties cannot adjust anything between the SPA signing date and the closing date. Additionally, the target company cannot take dividends, management fees, assets at an under-valued price, and bonuses out of its business. During this interim period, the target company is only allowed to make payments in its ordinary course of business. This approach is gaining popularity in M&A transactions as it enables both the buyer and seller to determine the price of the target company early at the signing stage, thereby reducing the risk of post-completion price adjustments. On the other hand, the closing accounts mechanism is considered a traditional approach for determining the purchase price of a target company in a commercial contract. In this mechanism, the parties at the signing stage agree on a tentative purchase price by calculating the actual value of the target company’s assets and liabilities as of the date of closing the transaction. This means that the purchase price is adjusted and determined after the closing date of the transaction based on the actual financial performance of the target company. This approach is known as a buyer-friendly approach because the target company is responsible for all the economic risks till the closing date. The buyer undertakes all the risks and liabilities after the closing date. The closing accounts mechanism is considered a time-consuming, expensive, and complex process because it involves negotiations between the parties. Why Locked-Box Mechanism should be preferred? The locked-box mechanism serves the buyers and sellers with huge benefits in commercial contracts. One of the primary benefits of this mechanism is that it provides price certainty. By establishing a purchase price based on a historical balance sheet date of the target company, the buyer and seller can avoid the uncertainty and risk associated with post-completion price adjustments. This approach could be used to tackle times like COVID-19, where the sellers’ faced a downturn in business. For buyers, this mechanism is generally used as a stopgap measure in M&A transactions, in order to avoid value leakage and to prevent the seller from extracting value from the target company after the locked-box date. This mechanism makes the pricing process simpler by reducing the need for complex calculations and negotiations that often occur in the traditional M&A deals. Further, it allows the seller to continue to keep the benefit of the company’s control and management until the purchaser acquires the target company. In a traditional M&A transaction, the seller is supposed to prepare an up-to-date completion balance sheet, which would include the company’s cash flows up to the completion date. However, in the locked-box mechanism, the seller is not supposed to provide an up-to-date completion balance sheet, and the buyer is assumed to take the risk and benefit of the company’s cash flows from the historical balance sheet date. Additionally, the locked-box mechanism can help to speed up the negotiation process and reduce the cost of transaction. By agreeing on a price early in the negotiation process, the parties can focus on other key deal terms, such as representations, warranties and closing conditions. Therefore, it can be inferred that this process helps to reduce the time and costs associated with negotiating these other terms. When should it be preferred? There are several key considerations when opting for a locked-box mechanism in M&A transactions. It is commonly preferred when the parties involved in the transaction can agree on a fixed acquisition price based on past financial records, given the target company has steady and consistent cash flows. Additionally, as the locked-box mechanism gives them assurance and lowers the possibility of post-closing adjustments, it is frequently preferred by sellers. This type of mechanism works best when the buyer has completed thorough due diligence before signing the agreement and is satisfied with the accuracy of all the financial statements that have been furnished by the seller. However, alternate mechanisms should be preferred if,

[By Aisha Singh] The author is a student of Chanakya National Law University (CNLU), Patna.   Introduction The Indian President’s approval of the Competition (Amendment) Act, 2023, is set to bring significant changes to the merger review procedure employed by the Competition Commission of India (CCI). With amendments aimed at simplifying the notification process, establishing deal value thresholds, and shortening the review window, this new legislation promises to reshape the landscape of mergers and acquisitions (M&As) in the country. One of the ground-breaking features introduced by the Amendment Act is the concept of “deemed approval”. According to this provision, the acquisition would be deemed authorised if the CCI fails to reach a prima facie conclusion within 30 calendar days (as opposed to the prior 30 working days) about whether an M&A transaction is likely to raise competition issues in India. This means that parties involved in the transaction can proceed with closing it without waiting for a formal CCI approval order. Furthermore, the overall review period has been reduced from 210 calendar days to 150 calendar days, further streamlining the process. This move has been widely hailed as a positive step forward for M&As in India, addressing a long-standing gap in the Competition Act, 2002, which did not provide any implications or consequences if the CCI failed to provide its view within the prescribed timeline. With the introduction of the “deemed approval” provision, the Amendment Act seeks to fill this legal vacuum, bringing clarity and certainty to the merger review process. Benefit to Global Deals The adoption of a 30-calendar day review timeline aligns India’s merger review process with more mature jurisdictions, such as that of the European Union (EU), USA & Canada. This harmonization fosters a more efficient and consistent approach to M&A transactions. The streamlined timeline reduces uncertainty, enhances deal certainty, and expedites transaction closures. It creates a favourable investment environment, attracting foreign investors and stimulating economic growth. Additionally, the accelerated pace of transactions benefits global deals involving multiple jurisdictions, ensuring timely completion. Overall, this strategic alignment positions India as an attractive destination for domestic and international mergers and acquisitions. Thus, this strategic move is expected to yield substantial benefits for global deals, fostering a harmonized and efficient approach to M&A transactions. This progressive step demonstrates the Indian competition watchdog’s commitment to aligning its practices with those of mature jurisdictions such as the EU. In the European Union, the European Commission operates under a 25-working day timeline to conduct the Phase I review of a transaction and make a decision. Similarly, in both the United States and Canada, merger transactions typically undergo an initial waiting period of 30 calendar days. This waiting period serves as a crucial window for regulatory authorities to review proposed mergers and evaluate potential competition concerns. The streamlined review timeline holds particular significance for global deals, where coordination of approval timelines across borders and jurisdictions plays a crucial role. Failure to meet this timeline results in the transaction being deemed unconditionally approved. India’s adoption of similar timelines signifies its dedication to enhancing efficiency and aligning with global best practices. By aligning with international standards, India enhances its competitiveness and attractiveness as a destination for M&A activities, providing greater certainty and expediting the approval process for transacting parties. Comprehensive Notifications   With the introduction of the “deemed approval” provision, there is an increased expectation that transacting parties will file more comprehensive notifications, providing greater emphasis on the details and potential competition concerns. This change encourages parties to conduct a thorough assessment of potential anti-competitive effects before submitting their notifications, ensuring a more robust review process. Invalidation of Notices   The Amendment Act may also lead to an increase in the invalidation of notices filed by parties due to the absence of substantive pre-filing consultation (PFC) with the CCI. Parties are now required to engage in meaningful consultations with the CCI prior to filing, ensuring that the necessary information and details are provided. Failure to do so may result in notices being invalidated, leading to delays and potential disruptions in the transaction process. The reduction in timelines and the introduction of deemed approval in the Competition (Amendment) Act, 2023, bring welcomed changes. However, these adjustments also bring additional pressures on the CCI and M&A parties to expedite processes and provide necessary information promptly. As a consequence, there may be an increase in invalidated notices due to the absence of substantive pre-filing consultation (PFC) with the CCI. Furthermore, an increase in information requests from the CCI may disrupt the review timeline. Increase in Information Requests   To address the challenges posed by accelerated approval, stakeholders are likely to proactively engage in PFC meetings and collaborate with CCI case officers before formal filings. Another effect of these new deadlines might be an increase in the amount of information requests made by the CCI, which would halt the review timeline. These requests aim to gather additional data and insights to aid in the competition assessment. Parties’ response times to information requests made by the CCI are not included in (and may remain thus) the review deadlines that have been established. It is important to note that the implications discussed here are based on the anticipated effects of the Competition (Amendment) Act, 2023. The true impact will only become clear as the new legislation is put into practice and the CCI adapts to the changes. As with any new legal framework, challenges and adjustments may arise, and stakeholders will need to closely monitor the implementation and enforcement of the Amendment Act. Potential Clock Stops The CCI’s merger control division will now need to keep a watchful eye on the review clock as M&A deals will be automatically cleared post 30 calendar days. The introduction of new regulations resulting from the amendments raises questions about potential “clock stops” during the review process. It remains to be seen if these regulations will permit additional grounds for halting the review timelines. Additionally, it is worth exploring whether the new regulations will allow for