Module 6

MODULE 6
WHAT IS M&A AND JV
6.1. M&As
India has emerged as one of the most developing economies in the world. Post liberalization,
privatization and globalization, India and other countries have opened their doors to have hassle
free trade. Understanding the difficulties of running a business model solely, has given an
impetus to the modern businessmen and professionals to act in concert. Partnerships and
agreements on local grounds and, Mergers, Acquisitions and other alliances beyond local
grounds have changed the image of corporate and business models in the world. These special
kinds of commercial agreements have taken the graph of our economy much higher since
independence. Realizing that these agreements on corporate level have high bearing effects on
the economy, Government of India through various mechanisms has been trying every possible
step to encourage such corporate deals and along with this, it has also taken care of monitoring
and setting up guidelines to be followed by corporate bodies failing which would attract
undesirable effects to the business. In recent times, India has witnessed various domestic and
cross border mergers and acquisitions of which many succeeded and rest remained most talked
rumors as a result of failed planning.

The jurisprudence of Mergers and Acquisitions is based on common English saying, “unity is
strength”. A business model when incorporated goes through various phases. Amongst all the
phases, fund raising and risk bearing are de facto the vital elements which decide not only the
fate of business but also the fate of the stakeholders in such business. It is an agreement whereby
two or more body corporate come together in order to take benefits and advantage of each
other`s expertise in terms of estate and human resource, planning and business development,
strategy and operations as well as eliminate the risk of capital and thereby agree to continue the
business together.

The terms mergers, acquisitions and amalgamations (M&A) are usually interchangeably used in
common parlance, though they are different from each other in terms of execution and
implementation. However, these terms are not defined clearly under any enactments to
understand these terms specifically. The difference lies in the manner in which it takes place and
the end result. Let us understand with the help of examples:

1] Merger: There are 2 companies viz. “A Ltd.” and “B Ltd.” Now if there is a merger taking
place between the 2 companies, then one of these companies will transfer its assets and liabilities
to the other. Say, A Ltd. is merging with B Ltd. Here A Ltd. is transferring all its assets and
liabilities to B Ltd. and thus, A Ltd. upon completion of merger will lose its existence and either
a new entity will emerge as AB Ltd or B Ltd. will continue its existence with all the assets and
liabilities of A Ltd. which has ceased to exist. In such a case, the shareholders of A Ltd. will be
compensated by B Ltd. either by way of cash compensation or giving them equity shares in B
Ltd. based on the value which they were holding in A Ltd. This is also called as merger through
absorption.

2] Amalgamation: There are 2 companies viz. “A Ltd.” and “B Ltd.” There is an amalgamation
taking place between the said companies. In this case, both the companies will lose their
independent existence and a new entity shall exist. The assets and liabilities of both the
companies shall be transferred to this new company formed. Say, as a result of the amalgamation
between A Ltd. and B Ltd., a new company C Ltd. shall be formed. This is also called as
consolidation.

Thus, it can be said that, every amalgamation shall be a merger, but not all mergers are
amalgamations.

There are various forms of mergers based upon the business goals and needs which the corporate
entities intend to achieve. If, 2 or more entities intending to merger with each other are in the
same competing business, such merger can be termed as “Horizontal Merger” and such merger is
done in order to take advantage of the bigger market and/or eliminate smaller players or
challenge a big player in the same field, which may not be possible for a stand-along entity
intending to merge with the other. For example, 2 or more telecom operators may merge with
each other in order to achieve the purpose as mentioned above. Recently, such merger took place
in the telecom industry. Similarly, 2 or more entities intending to merge with each other, even
though in the same industry but not in competition with each other may undertake a merger. For
example, an entity manufacturing spare parts for an automobile can merge with another entity
which is manufacturing automobiles. Such a merger is typically called “Vertical Merger” and is
done in order to consolidate the various verticals of production under same roof which tends to

not only save the cost but ensures better quality control. Also, in some cases, 2 or more entities
from completely different fields may merge with each other in order to provide a larger portfolio
of business under common roof taking advantage of common pool of administrative and human
resources.

3] Acquisitions/ Takeovers: These two terms are different from each other in terms of its
implications. An “Acquisition” means, when any one or more of the corporate entities “acquires”
any kind of equity stake in another corporate entity and becomes its shareholder. Acquisition of
stake in such case can be, either minority or majority or complete buy out depending upon the
commercial understanding between the parties. It is usually done as form of a strategic alliance.
In case of a “Takeover”, one company (acquirer) assumes control over other company (target
company) in order to gain controlling stake in the later. More often experts say that acquisitions
are done in an amicable manner by mutual consent of the parties whereas, takeovers are used to
connote a forceful attempt to acquire the target companies.

[Note: It may so appear that there is no difference between a merger and an acquisition but there
are few grounds which can be used for distinguishing,

a) In a merger, two or more entities decide to operate as one single entity whereas, in an
acquisition, there is domination of control by the acquiring entity.

d) In a merger/amalgamation new entity is formed whereas, in acquisition/takeover no new entity
is formed.]

Mergers, acquisitions and amalgamations often lead to an increased value creation for the
company. In case of companies listed on respective stock exchange, it is expected that the
shareholder would enjoy increased value for their shares after the merger or acquisition of the
companies in which they held their shares. Thus, such corporate partnerships/ alliances benefit
shareholders in terms of increasing the value of their shares in the company. As the two entities
form a new and bigger company, the production is done on a much larger scale and when the
output production increases, there are strong chances that the cost of production per unit of
output gets reduced. This increases the overall efficiency and in turn the market share by selling
the products at effective prices to end user.

6.2. Laws regulating M&A:

6.2.1. Competition Act, 2002.

However, it should be noted that every such corporate alliances have numerous consequences on
the economy. For instance, there is a company “PQR Ltd.” and another named “XYZ Ltd.” in a
particular state and both of them are indulged in trading of oil and petroleum. There are no other
companies other than the two in a state indulged in such business. One day both of them agree to
merge their business and trade their products on a very higher price than they were individually
selling before. In this way they would earn exorbitant profits being the only company dealing in
oil and petroleum products and people will be bound to purchase them even at higher prices as
these are the products of daily necessities and cannot be dodged from buying. Thus, there is win-
lose situation as a result of such a merger and the losers being the general public. The
Competition Act, 2002 (which replaced the erstwhile Monopolies and Restrictive Trade Practices
Act, 1969) is the enactment which lays down provisions to regulate corporate “combinations”.
The Government of India, through establishment of regulatory body named “Competition
Commission of India”, has been monitoring these deals in a manner not prejudicial to national
and public interest at large. From time to time, it has also prescribed the control mechanism by
rolling out monetary limits, pre and post mergers, and revising these limits considering the need
of the current hour. However, the loopholes and difficulties are in a room which needs to be
cleaned by addressing them, to ensure swift and timely merger control regime.

This enactment provides for intervention by the authority only when there is actual ‘abuse’ of
dominant position by the company. According to this Act, dominance per se is not an offence but
abusing the dominant position is. Sections 5 and 6 of the Act and the Competition Commission
of India (Procedure in regard to the transaction of business relating to combinations)
Regulations, 2011 (Combination Regulations) are the prime laws dealing with combinations.
Any acquisition, merger or amalgamation that meets the jurisdictional thresholds, as provided in
Section 5 of the Competition Act, 2002 is a “combination” for the purpose of the Act. The
thresholds relate to the assets and turnover of the parties to the combination, i.e., target enterprise
and acquirer or acquirer group or merging parties or the group to which merged entity would
belong. The Act requires mandatory notification of all combinations. All combinations must be

notified to CCI prior to the same coming into effect. However, the CCI has also relaxed the
norms for small enterprises in this regard. transactions where the value of
assets/business/division/portion being acquired i.e. ‘Target Business’, taken control of, merged
or amalgamated is not more than Rs. 350 crores in India or turnover of said Target Business of
not more than Rs. 1,000 in India, are exempt from the provisions of Section 5 of the said Act for
a period of five years from 29th March, 2017. In cases where the enterprises are engaged in
similar business and their combined market share post combination is more than 15%, or
engaged at different levels of the production chain in different markets, and their individual or
combined market share is more than 25% in the relevant market, Regulation 5(3) recommends
parties to file their notices in Form-2. In the case of acquisitions, the acquirer is required to file
the notice. It should be noted that not all transactions need to be notified to the CCI. As per
Regulation 4, the categories of combinations mentioned in Schedule I are ordinarily not likely to
cause an appreciable adverse effect on competition in India and therefore, notice t need not
normally be filed in respect of these combinations. The CCI must form its prima facie opinion
within 30 days of filing of notices by the parties as to whether the proposed combination has an
appreciable adverse effect on the competition.

6.2.2. Company Law:

Being a corporate action, it is subject to compliance of regulations and procedures prescribed by
Companies Act, 2013 (as amended from time to time), rules, orders and other circulars as issued
by the Ministry of Corporate Affairs in this regard. Sections 230 to 240 of the Companies Act,
2013 and, the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
specifically contain the provisions regarding mergers and amalgamations.

Step 1: It should be noted that, the Memorandum of Association (MoA) of the companies
concerned must necessarily contain provisions to authorise mergers, amalgamations, acquisitions
and such other strategic alliances. In case such provisions are absent in the MoU, a general
meeting of the shareholders is to be held requiring their consent by a special majority, to amend
the MoU in this regard.

Step 2: Following the provisions of MoU, a meeting of the board of directors is to be convened
for considering the proposal of concerned combination.

Step 3: Subsequent to the preliminary board meeting, the valuation report and swap ratio aspects
are decided by drafting the draft scheme of arrangement.

Step 4: Further, a board meeting is to be convened for finalization of the draft scheme of
arrangement.

Step 5: On finalizing the draft scheme of arrangement, both the companies have to file the
scheme of arrangement with their respective stock exchanges and Securities and exchange board
of India (if listed).

Step 6: Further, Rule 3 of the Companies (Compromises, Arrangements and Amalgamations)
Rules, 2016 lays down that an application under Section 230 of the Companies Act, 2013 for an
order seeking direction for convening meeting of creditors and/or members or any class of them
shall be made to the National Company Law Tribunal (NCLT) by the companies in Form:
NCLT-1 along with notice of admission in Form: NCLT-2, for direction to convene the meeting;
an affidavit in Form NCLT-6 and the copy of scheme of arrangement.

Step 7: Post consideration of the application, the NCLT shall order to convene the meeting and a
notice in Form- CAA-2 shall be served upon the companies, creditors/class of creditors and
members, at least 1 month prior to the date of holding the meeting.

Generally, the Tribunal directs that the notice of the meeting of the creditors and members or any
class of them be given through uploading on the website of the companies and newspaper
advertisements also.

Step 8: Post convening of the meeting, the chairman of the meeting shall submit the report of the
meeting to the NCLT in Form CAA-4 within the time specified by the tribunal or, where no time
is specified, within 3 days of the conclusion of the meeting.

Step 9: The Company shall, within 7 days of filing the report, present a petition to the NCLT in
Form CAA-5, for sanctioning the scheme. The NCLT shall decide on a date for hearing the
petition.

The NCLT also directs that notices of the petition be sent to the objectors or to their
representatives under section of section 230(4) of the Act and to the Central Government and

other authorities who have made a representation under rule 8 and have desired to be heard in
their representation. A notice of the hearing shall be published in the same newspapers in which
the notice of the meeting was advertised or in such other papers as the NCLT may direct, not less
than 10 days before the date fixed for hearing.

Step 10: Where the NCLT sanctions the scheme, an order made u/s 232 read with section 230
shall be in Form CAA-6. A certified copy of the order shall be filed with the respective Registrar
of Companies (ROC) in Form INC-28 within 30 days of receipt of the order. The effective date
of the scheme shall be notified by the relevant authorities through the press.

Fast Track Mergers:

Further, the Companies Act, 2013 has introduced the concept of ‘Fast Track Merger’ for Small
Companies and merger of Holding companies with its wholly owned Subsidiary Companies.
Section 233 of Companies Act, 2013 read with Rule 25 of Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 deals with the procedure. It is a unique concept
as unlike other companies, a scheme of merger or amalgamation entered into between two or
more small companies or, a holding company and its wholly-owned subsidiary company does
not require approval of High Court. Only the approval of regional directors, Registrar of
Companies and Official Liquidator is required. Thus the small companies do not have to go
through unnecessary formal and other processes for getting the scheme of merger approved.

Cross Border Mergers:

Cross Border mergers in the Indian context means, merger taking place with a foreign company,
i.e. a company registered outside India. In an inbound merger, a foreign company will merge
with the Indian Company in India and in an outbound merger, an Indian company will merge
with the foreign company registered outside India. In case of cross-border mergers, apart from
Companies Act 2013, rules and regulations prescribed by Reserve Bank of India are also
required to be complied.

6.2.3. Securities Laws:

The Securities and Exchange Board of India (SEBI) is the statutory body established for the
purpose of regulating the capital and securities market in India. The provisions of the SEBI Act,

1992 and the regulations thereon specifically provide for procedures and compliances to be
adhered to where the merger, amalgamation or acquisition is between companies where either or
all the companies concerned are publicly listed companies. In case shares of the transferor and/or
the transferee entity are listed on the stock exchanges, approval of concerned stock exchanges
and SEBI shall be required. As a process, the listed entity is required to submit the merger
scheme, before approaching the NCLT, along with key documents like valuation report, pre and
post-merger shareholding pattern, fairness opinion, Auditor’s certificate certifying the
accounting treatment, etc. Once SEBI provides its comments on the merger scheme to the stock
exchange(s), the concerned stock exchange issues an observation letter or in-principal approval
letter to the listed entity. The SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 regulates the acquisition of shares, voting rights and control of listed
companies. The term ‘Takeover’ has not been defined under the said Regulations; the term
basically envisages the concept of an acquirer acquiring shares with an intention of taking over
the control or management of the target company. When an acquirer, acquires a substantial
quantity of shares or voting rights of the target company, it results in the substantial acquisition
of shares. As per Regulation 3(1) of the SEBI (SAST) Regulations, 2011, any acquirer who
desires to acquire shares or voting rights in a target company, which when taken together with
the shares or voting rights held by the acquirer, either individually or along with Persons Acting
in Concert (PACs) with him entitles them to exercise 25% or more of the voting rights in such a
target company, shall acquire only after making a public announcement of an open offer in
accordance with the provisions of the SAST Regulations. An open offer is an offer made by the
acquirer to the existing shareholders of the target company, inviting them to sell their existing
shares in the target company at a particular price to the acquirer. The primary purpose of this
offer is to provide an exit option to the shareholders, as there is a change in control or substantial
acquisition of shares of the target company. According to Regulation 7, the size of such an open
offer must be at least 26% of the total share capital of the target company. This would allow an
investor to acquire 51% stake in the target company. Regulation 3(2) of the SAST Regulations,
stipulates that an acquirer, who along with persons acting in concert has acquired and holds 25%
or more of the shares or voting rights in a target company, in accordance with the SEBI (SAST)
Regulations, but less than the maximum permissible non-public shareholding which is normally
75% of the total paid up share capital of the company, can acquire additional shares or voting

rights in a financial year in a target company, entitling them to exercise 5% of the voting rights,
without any requirement of an open offer. Any acquisition beyond 5% of the voting rights of the
target company can be made only after making a public announcement of an open offer for
acquiring shares of such a target company. If the proposed transaction is not automatically
exempted under the various categories mentioned in Regulation 10 discussed in the preceding
paragraphs above and the acquirers are of the opinion that the transaction that they propose to
enter into requires an exemption, the Acquirer must make an application to SEBI seeking
exemption. It must, however, be noted that the application shall be made before the
transaction/acquisition is initiated. Post facto exemptions are not granted by SEBI. The
application for exemption shall be under Regulation 11(3) of the Takeover Regulations and
submitted along with a non-refundable fee of INR 3,00,000. Further in case of mergers and
amalgamations, Regulation 11 of the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015 states that the scheme of
arrangement must not violate the provisions of the securities laws1.

6.2.4. Foreign exchange laws:

Since the era of liberalization and globalization, a number of foreign investors have been
desirous of deploying their funds and other assets in the Indian economy. The performance of
Indian corporate organizations is appreciated by overseas economies. Thus, investors from
various countries screen for profitable organizations in India to accomplice with. This strategy is
effected by acquiring or merging with the Indian organizations. This involves inflow and outflow
of foreign exchange reserves. Thus, the transaction must adhere to the guidelines laid down by
the Reserve Bank of India (RBI) and also the foreign exchange laws. The Reserve Bank of India
(RBI) notified the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 and
they have come into effect from March 20, 2018. The Regulations provide the guidelines for
mergers and amalgamations between Indian and foreign companies, covering both, inbound and
outbound investments. As per Regulation 3, no person resident in India shall acquire or transfer
any security or debt or asset outside India and no person resident outside India shall acquire or
transfer any security or debt or asset in India on account of cross border mergers, except in
accordance with the FEMA act. Where inbound mergers are concerned, the resultant company

may issue or transfer any security to a person resident outside India in accordance with the
guidelines and conditions provided in Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2017. In case of outbound mergers, a
person resident in India may acquire or hold securities of the resultant company in accordance
with the Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations,
2004. Regulation 9 further states that the resultant company or companies involved in the cross
border merger shall be required to furnish reports, as may be prescribed by the Reserve Bank of
India, in consultation with the Government of India, from time to time. Cross border mergers and
acquisitions lead to inflow of Foreign Direct Investment in the country, and hence would be
required to comply with FDI policy of India. The route of entry, sectoral caps and permitted
sectors must be studied in advance2.

6.2.5. Tax laws

Mergers, amalgamations and acquisitions being strategic associations are negotiated and
implemented with the objective of deriving financial benefits. The precept of finance is also that,
every financial benefit has a corresponding tax effect. Thus, while negotiating M&A deals,
significant focus must be directed to the taxation effects and specific advice and information
must be sought from a taxation expert.

6.2.6. Stamp duty

Stamp duty is applicable based on the stamp duty laws of the state in which the assets transferred
are located. Every state in India has different set of rules for applicability of stamp duty. While
some states levy stamp duty only on conveyance of immovable property, many states also have
provisions for levy of stamp duty on conveyance of movable assets. Usual cases, stamp duty levy
is borne by the buyer. Usually, stamp duty on the schemes of amalgamation is charged as a
proportion of the value of shares issued on the amalgamation, which in return is referenced to the
value of the property transferred on merger. However, different states have different rules for
levy of stamp duty on these kinds of transactions.

6.2.7. IPR laws

In M&A transactions, the assets and liabilities of the transferor or the target company are
assigned to the transferee or the acquirer company. The assets are inclusive of the intangible
properties viz. patents, copyrights, trademarks, designs, etc. Such intellectual assets are major
revenue centers for certain companies. When the intellectual property assets are owned by the
transferor company, such assets are transferred to the transferee company under the scheme of
merger. General principles of contract law provide that rights under agreements are presumed to
be assignable unless the statute, the contract, or public policy provides otherwise. The
intellectual property to be acquired should be analysed with respect to what is actually being
used or required to be used in conducting the business to be acquired and not from a theoretical
angle. The transfer of IPs, which is commonly known as assignment of IPs, is effected by
entering into formal agreement which must be in conformity with the Indian Contract Act, 1872
and the relevant IP laws. Section 18 of the Copyright Act, 1957 governs the assignment of
copyrights in India which enables the copyright holder to assign his copyrights to an assignee by
the entering into an assignment agreement. The agreement must also enumerate the rights
assigned and the period and territorial extent of assignment of the rights. Further, in case of
patents, Section 68 of the Patents Act, 1970 provides that the agreement must be in writing and
must further be reduced to the form of a document containing all the terms and conditions
governing the rights and obligations of the parties concerned. Thereafter, it is ought to be
registered with the Controller. As per Rule 91 of the Patent Rules, 2003, the controller is to be
presented with every assignment and every other document giving effect to the transfer of a
patent, as claimed in such application along with the application, accompanied by two copies of
the assignment deed or other document certified to be true copies by the applicant or his agent.
The Controller may further call for such other proof of title or written consent as may be
required. With regards to assignment of trademarks, the provisions are provided in Chapter V of
the Trademark Act, 1999, from Section 37 to Section 45. A registered trademark is
assignable and only the registered proprietor has the right to assign a trademark. An assignment
of a trademark must be notified and entered into the Register of Trade Mark. This acts as a prima
facie evidence of the existence of the trademark. The application is to be made in a specified
form for this purpose3.

6.3. JOINT VENTURES (JV)

6.3.1. Introduction to Joint Venture:

Joint Venture (JV) is a form of alliance wherein two or more entities agree to incorporate, a new
entity, by contributing equity and assets, in order to operate a business or to attain a commercial
objective. There is sharing of the revenues, expenses, and assets and management and control of
the enterprise. In certain situations, where companies are desirable of having short term to
medium term relationships, Joint Ventures can be a better option since the parties to the alliance
can decide the tenure of the relationship. Parties to a JV may have complementary skills or
capabilities to contribute to the JV, or parties may have experience in different industries which
it is hoped will produce synergistic benefits. The basis of a JV is the sharing of proficiency and
expertise of both the entities on mutually agreed terms. Such sharing ensures a competitive
advantage to the JV entities over other competitors in the market. JVs are the most preferred
avenues of gaining better market access. In the case of a cross-border JV, the engagement with
local entities may be desirable in countries where it is difficult for foreign entities to penetrate
the market or where the local law limits the ownership structure by foreign entities.

6.3.2. Types of JVs:

JVs may be either incorporated or unincorporated. An incorporated (equity-based) JV is an
arrangement whereby, either a separate legal entity (in the form of company/ LLP) is created in
accordance with the agreement of two or more parties or one entity acquires shares in an existing
entity which is used as a joint venture vehicle. The concepts of incorporated joint ventures are
quite similar to the concepts of “acquisitions” discussed above. The unincorporated (contractual)
JV might be used where the establishment of a separate legal entity is not required or such a
separate legal entity is not feasible. An equity-based joint venture is one in which all the joint
venture parties hold joint ownership, while contractual joint ventures are based on the mutual
agreement between the parties, most commonly found in the form of franchisee arrangements,
licensing agreements, and purchasing and distribution agreements. In such a JV the rights, duties
and other obligations of the parties as between themselves and third parties and the duration of
their legal relationship will be mutually agreed by the parties under the contract. Even though no

separate corporate vehicle is involved and the parties to the agreement are not equity partners, it
may be still possible for them to be exposed to claims and liabilities because of the activities of
their co-participants on a contractual or quasi-contractual basis.

• Incorporated (equity-based) JV: The most common ways of creating such a form of
joint ventures are as follows:

A) Subscription to shares on agreed terms: Parties to the JV incorporate a new
company and subscribe to the shares of the company in mutually agreed ratios and terms,
and commence a new business. The documents of incorporation, viz. the Memorandum
of Association and Articles of Association (in case of a company), or the LLP agreement
(in cases of LLPs), of the JV entity would be suitably drafted so as to express the rights,
intentions and obligations of the parties.

B)Business or Technology Transfer: parties to the JV incorporate a new company/LLP.
One of the parties transfers its business or technology to the newly incorporated
company/LLP in lieu of shares issued by the company. The other entities subscribe to the
shares of the company for cash consideration.

C) Collaborating with the Promoters of an Existing entity: A prospective JV partner
can acquire shares of the existing company either by subscribing to new shares or
acquiring shares of the existing shareholder(s). The Memorandum and the Articles of the
existing company would be amended accordingly.

• Documentations in Joint Ventures:

Establishing a JV comprises a series of steps like selecting of the appropriate partner, due
diligence, documentation, etc. Once a partner for the intended JV is identified, a
Memorandum of Understanding (“MoU”) or a Letter of Intent (“LoI”) is signed by the
parties expressing their intention to enter into definitive agreements. JV transactions

demand efficient, clear and foolproof documentation. Definitive agreements are drafted
depending upon the nature of the JV structure.

A) In case the JV is in the form of a Company:
- Joint Ventures Agreements(JVA):

A JVA/SHA provides for the method of formation of the JV entity and provides for
the mutual rights and obligations of entities for the purposes of conducting the JV and
the manner in which the entities shall conduct themselves in operating and managing
the JV. A further purpose is to prescribe, as far as possible, for resolving possible
deadlocks which may occur. A Joint Venture agreement will typically have
provisions on the scope of the business, details of equity infusion by each of the
partners, constitution of the board, manner of conduct of business operations,
distribution of profits, rights and obligations, transfer of shares, non-compete and
other boiler plate clauses such as arbitration and jurisdiction, representation and
warranties, indemnity, notice provisions etc.

- MoA and AoA of the JV entity:

The Companies Act, 2013 requires every company to have a Memorandum of
Association and Articles of Association. These documents are the charter documents
of the company. The JV agreement between partners does not bind the JV Company
unless its terms are included in the AoA of the JV company. In India, the AoA and
MoA prevail over the JV agreement and the legislation prevails over the charter
documents. It can be inferred that anything contained in any document which is
inconsistent with the provisions of the Act or the MoA or AoA of the company, is
ineffective and cannot be enforced. In order to avoid conflicts arising between the
agreement and the AoA, it is advisable to include a provision in the JV agreement to
the effect that if the AoA is conflicting with the provisions of the JV agreement, then
the parties will amend the MoA and AoA accordingly. It is advisable be to make the
main object clause of the MoA sufficiently broad to cover the company’s proposed
activities. A contract by a company on a matter not included in the Memorandum is

ultra vires. Therefore, the parties to the JV should ensure that the main objects of the
company are vide enough to cover the proposed activities of the JV Company.
Articles of Association regulates internal management of the company. They are the
rules for the conduct of Board and Shareholders meetings, Powers & duties of
Directors, Managing Director, issue and transfer of Shares, etc. The Articles shall
contain such of the basic rules of the company as are not set out in the agreement and
will set out the different class rights (if any) of shareholders.

- Other agreements such as trade mark licenses and technology transfers.

B) In case the JV is in the form of a LLP:

- Limited Liability Partnership Agreement:
- Other agreements such as trade mark licenses and technology transfers

C) Unincorporated JV entity:

Cooperation/Strategic Alliance/Consortium

- Cooperation Agreement;
- Other agreements such as trade mark licenses and technology transfers.

6.4. Public Private Partnership JV’s

• Regulatory aspects of JVs:

There are no separate or specific laws regulating the joint ventures. In case of
“incorporated joint ventures”, the provisions of Companies Act and FEMA laws as
discussed above are important. In case of “un-incorporated joint ventures”, provisions of
Contract Act are applicable.