At the end of March the Japanese government confirmed plans for bilateral cooperation on a far reaching project relating to the "Delhi Mumbai Industrial Corridor". The Japanese government is aiming to help Japanese companies expand into the Indian market through involvement in infrastructure and manufacturing projects which will present opportunities for Japanese companies to expand their operations into India, including via mergers and acquisitions.

We at Herbert Smith Freehills have a great deal of experience of working on cross-border M&A into and out of India; indeed, this has been recognised by Chambers Asia Pacific which just named Herbert Smith Freehills as "India International Law Firm of the Year".

We have the following observations on doing M&A in India.

Key M&A Issues in India


  • The Indian decision-making process can be comparatively hierarchical and "top down", and so it is important to determine who the ultimate decision maker is and involve him/her in the negotiations early on.
  • Differences in management styles can sometimes lead to cultural misunderstandings, particularly in relation to the pace of the decision making process, and these cultural issues must be carefully managed by the advisors.
  • In India there is generally no established concept of a balanced first “market draft”: the first draft is likely to be very partial towards the party preparing it. Consequently it is best to prepare the first drafts yourself or be prepared to negotiate on every point.

Due Diligence

A number of factors combine to make India a complex jurisdiction in which to carry out due diligence:

  • Indian companies are often family owned, or have grown from such family owned enterprises, and consequently have relatively complex corporate and shareholder structures.
  • The federal nature of India also leads to complex tax structures, and often less commercial and financial data is available than in other jurisdictions.

In many cases the Indian counterparty's business team is not as prepared as the Japanese counterparty might expect.

Memorandum of Understanding/Heads of Terms/Term Sheet

An MoU is commonly used as a starting point in Indian deals. In Japan this is often a relatively simple non-binding document containing clear provisions on principal commercial terms to provide a starting point for the negotiation teams. However, our recent experience is that Indian counterparties will produce quite long detailed MoU which can take many months to negotiate. We commonly come across the following issues in MoU:

  • Is there a period of exclusivity and is it intended to be enforceable?
  • Confidentiality and non-disclosure
  • Is the MoU intended to be legally binding in its entirety or just certain provisions?
  • Can either party withdraw and if so how?

Articles of Association

Articles of association of Indian companies are very similar to articles of association used in the UK. One specific point to be aware of is that there is an Indian law precedent to the effect that restrictions on share transfers in a shareholders agreement (including pre-emption rights) may not be enforceable even between members themselves, if not reflected in the articles of association of the company. Therefore it is critical to ensure that relevant terms of the shareholders agreement are properly reflected in the articles.

Technology Transfer Agreement & Trademark Licence Agreement

India operates a system of registration for IPR and is a signatory to various international IPR treaties. Nevertheless, a foreign investor should conduct an audit to identify what, if any, of its IPR will be exposed to the Indian market, and then consider whether it is worth protecting.

Steps that can be taken by a foreign investor to protect its IPR include:

  • Registration and the making of specific provisions in the joint venture agreement.
  • Separate documentation ancillary to the joint venture agreement may also be executed, such as a trademark and logo licence agreement with the Indian entity.
  • A technology transfer agreement will usually be executed if there is any technology and know-how transfer involved.

Competition Regulation

The Competition Act regulates “combinations” (i.e. mergers, acquisitions or amalgamations) and deems void those combinations that cause or are likely to cause an “appreciable adverse effect on competition”. Merger clearance filings must be made in respect of proposed transactions that breach the following sets of thresholds:

  • In respect of both the acquirer and target entities: in India combined assets of more than US$ 330 million or combined turnover of more than US$ 1 billion; or worldwide combined assets of more than US$ 750 million or combined turnover of more than US$ 2.25 billion.
  • In respect of the acquirer’s group (post transaction): in India assets of more than INR 60 billion (approximately JPY 100.5 billion) or turnover of more than INR 180 billion (approximately JPY 301.5 billion); or worldwide assets of more than US$ 3 billion (approximately JPY 300.1 billion) (including Indian assets of more than INR 7.5 billion (approximately JPY 12.6 billion)) or turnover of more than USD$ 9 billion (approximately JPY 900.3 billion) (including Indian turnover of more than INR 22.5 billion (approximately JPY 37.6 billion)).