INDIA Law and Practice Contributed by: Anand Lakra, Shivpriya Nanda, Zain Pandit and Ami Shah, JSA Advocates & Solicitors
change of control of the target) and demergers where the resulting company issues shares to the demerged company (or its shareholders) in proportion to their existing shareholding in the demerged company are also exempt. 2.5 Labour Law Regulations Depending on, inter alia, the acquisition struc - ture and nature of the workforce, M&A trans - actions can trigger the applicability of several Indian labour laws. The key extant labour laws relevant for an acquirer would be: • the laws governing conditions of service and employment including worker disputes, such as the Industrial Disputes Act, 1947 and state-specific shops and commercial estab - lishments acts; • the laws governing defined benefits and defined contributions for employee social security such as Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, Pay - ment of Gratuity Act, 1972 and Employees’ State Insurance Act, 1948; and • the laws governing pre- and post-maternity benefits for women, ie, the Maternity Benefit Act, 1961. Based on the sector, industry and nature of the target, specific laws may also apply, such as the Factories Act, 1948, which is applicable to manufacturing facilities. To ensure statutory and contractual wage-pay sufficiency as part of the acquisition transac - tions, acquirers must ensure that a thorough assessment of existing employee welfare meas - ures and benefits under applicable labour laws is undertaken. Workforce-centric legal and finan - cial diligences are recommended pre-acquisition to understand the general health of compliance, including correctness of compensation struc -
tures and potential shortfalls in social security contributions. Transactions involving the acquisition of entire business undertakings, or cherry-picked assets including employees, need to be carefully struc - tured, keeping in mind considerations such as employee consent, recognition of service con - tinuity and payment of adequate compensation for employees refusing their transfer. Defects in payments in certain cases can result in liabilities being passed on to the acquirer. Transactions with labour union involvement may be contin - gent on discussions with labour union represent - atives and provisions under collective bargaining agreements, if any. While the Indian Parliament has passed four new labour codes (ie, the Code on Social Secu - rity, 2020; the Occupational Safety, Health and Working Conditions Code, 2020; the Industrial Relations Code, 2020; and the Code on Wages, 2019), which consolidate 29 existing central Indian labour statutes, the same are yet to be brought into effect. The labour codes are antici - pated to be harmonised and in effect by the third quarter of 2025. Acquirers should monitor these developments closely to ensure full compliance with the evolving labour regulatory landscape. 2.6 National Security Review Acquisitions and investments in certain sensi - tive sectors above the prescribed thresholds (eg, defence and ground handling services under civil aviation) are subject to a national security review. Additionally, any investments from coun - tries sharing land borders with India (more par - ticularly set forth in 2.3 Restrictions on Foreign Investments ) are also subject to a national secu - rity review. Additionally, directors from countries which share a land border with India are also
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