This article is written by Anika Jhaveri pursuing a Diploma in Mergers and Acquisitions, Institutional Finance and Investment Laws (PE and VC Transactions) from LawSikho.

Introduction

The food industry is the economy’s primary sector of activity. India’s food industry is poised to experience tremendous growth, increasing its contribution to the global food trade every year. In India, the food sector has become a sector with strong growth and high profitability due to its immense potential for added value. Though in recent times we see fewer food startups, it is important to know that in today’s world it is more demanding towards collaboration rather than competition. In this article, I am talking about the important food laws of India, acquisition deals done in India in the food industry. 

Laws for acquisition in India

The important laws for acquisition in India are as follows:- 

• The Companies Act, 2013
• SEBI Takeover Code 1994 
• Foreign Exchange Management Act, 1999
• The Competition Act, 2002 
• The Income Tax Act, 1961

Important food laws you need to know about

The Indian food industry is governed by several laws which control aspects of sanitation, licensing, and other necessary permits that are required to start and run a food business. The legislation that dealt with food safety in India was the Prevention of Food Adulteration Act 1954 (hereinafter referred to as “PFA”).

The law that replaced the PFA is the Food Safety and Standards Act 2006 (hereinafter referred to as “FSSA”) which takes precedence over all other food laws. It specifically repealed eight laws that were in effect before the FSSA came into effect: 

• The Vegetable Oil Products (Control) Order, 1947
• The Prevention of Food Adulteration Act, 1954
• Essential Commodities Act, 1955 (in relation to food)
• The Fruit Products Order, 1955
• The Solvent Extracted Oil, De oiled Meal, and Edible Flour (Control) Order, 1967
• The Meat Food Products Order, 1973
• The Milk and Milk Products Order, 1992
• The Edible Oils Packaging (Regulation) Order, 1998

Key features of the Food Safety and Standards Act,2006

1. Packaging and labeling: Section 23 of the FSSA deals with the requirements of the packaging and labeling of the food. It provides that the packaging and labeling of the food should not be misleading in any way. 

2. Restrictions of advertisement and prohibition as to unfair trade practices:  the FSSA provided that, there should be no advertising made for any food that is misleading or deceptive or contravenes the provisions of this law.

Section 24 of the act further indicates that no individual will be guided by any unreasonable trading practice for the ultimate purpose of offering, supplying, using, and utilization items or adopt any unfair act or deceptive practice, including the practice of making a statement, whether verbal or recorded as a hard copy which: 

• Erroneously speaking that sustenance is of a quality, amount, standard, or evaluation utilization.
• Make a false or delicate representation of the value or demand of the item.
• Open any certification of viability that did not depend on sufficient or logical legitimation.

3. Licensing registration and health and sanitary permits: Under the permit and enlistment guideline, the nourishment business administrators in the nation are required to be necessarily be registered or authorized in accordance with the guidelines under the FSSA. Thus, no individual will start a food business unless a legitimate license is checked by the administrator of the subsistence business. The conditions regarding mental soundness, well-being, and sterile prerequisites must be fulfilled in a consistent manner. These guidelines perceive and help ensure that the sustenance business administrators keep up sterile and clean conditions required in each nourishment classification.

4. Penalties:- By law, all those involved in the breach with the company are convicted and legal proceedings are initiated against them. In the case of several branches of a company, the head office will be considered responsible for the fault. Offenses covered under the FSSAI law are mandatory for all. 

The director, the manager, the administrator, the secretary, or any other person in charge of the company, if he is held responsible, will be prosecuted and punished accordingly.

Food startup acquisition deals

The food startup acquisition done in India in recent times are discussed below:-

1. Grupo bimbo acquires Modern Foods:

• Acquiree company Modern Foods

Modern Foods, which was established in 1965 by the Government of India, was the first branded bread company in the country. Global private equity player Everstone acquired Modern Food – which had exited several markets, including Delhi and from FMCG major Hindustan Unilever in 2015. 

• Acquirer company Grupo Bimbo

Grupo Bimbo began operations in Mexico in 1945. To operate in 33 countries, also in India, and having a diverse portfolio of over 13,000 products and over 100 renowned brands, Grupo Bimbo is the largest bakery company in the world. Currently, Grupo Bimbo sells the Harvest Gold bakery brand of India, which was acquired in 2017 as part of its entry into India. 

• Deal structure

Grupo Bimbo acquired 100% share capital of  Modern Food Enterprises Private Limited through the financial details of the transaction were not disclosed by the companies. 

 2. Tata consumer products acquire Soulfull

• Acquiree company Soulfull 

“Soulfull” was launched in 2013, founded by Rasika Prashant, Amith Sebastian,   Prashant Parameswaran, and Dr. K K Narayanan. Since then, it has been marketing a wide range of millet-based products such as breakfast cereals as well as snacks like Ragi Bites, Millet Muesli, etc. The company is currently very present in the urban markets of Southern, Western as well as Northern India. 

• Acquirer company Tata Consumer Products

Tata Consumer Products is a fast-moving consumer goods company with a headquarter in Mumbai, Maharashtra, India.  It is a subsidiary of the Tata Group company, and world’s second-largest manufacturer and distributor of tea, and a major producer of coffee. 

• Deal structure

Tata Consumer Products Ltd (TCPL) has signed a definitive agreement to acquire a 100% stake in Kottaram Agro Foods, the Soulfull brand manufacturer of millet-based breakfast cereals as well as snacks. The TCPL has agreed to acquire 100% of the issued and paid-up equity share capital of Kottaram Agro Foods for a consideration of Rs. 155.8 crores.

3. Ruchi Soya acquires Patanjali Natural Biscuits

• Acquiree company Patanjali Natural Biscuits

The Patanjali Biscuits Private Limited company is an unlisted private company incorporated on 09 January 2009. It is classified as a private limited company and is located in Kolkata, West Bengal.

• Acquirer company Ruchi Soya

The  Ruchi Soya company was incorporated in 1986. It manufactures Soya proteins, with a specialty in Soya products, Soya snack foods, and Nutrela. Ruchi Soya is India’s largest manufacturers of edible oil in India. It has been acquired by Patanjali Ayurved in the year 2019.

• Deal structure

The amount of consideration for the acquisition of PNBPL agreed under the BTA (Business Transfer Agreement) is Rs 60.02 crore. And the transaction is undertaken on a slump sale basis. The consideration is payable in two installments. Approximately Rs 15 crore of the total purchase amount will be paid on or before the closing date, while the remaining Rs 45.01 crore will be paid within 90 days of the closing date. The transaction includes certain contract manufacturing agreements as well as the transfer of employees, assets (tangible and intangible), current assets and current liabilities, licenses, and permits (excluding certain assets and liabilities of PNBPL as specified under the BTA.

PNBPL and Ruchi being related parties have entered into a non-compete agreement under which PNBPL as well as its respective subsidiaries, including Patanjali Ayurved Limited can not enter into competing biscuit business in India directly or indirectly. 

Legal considerations

The legal consideration to be followed for the acquisition of food start-up in India is discussed below:- 

• If the acquisition of an Indian listed company involves the issue of new equity shares or securities convertible into equity shares (“Specified Securities”) by the target (issuer) to the acquirer, the provisions of Chapter V (“Preferential Issue Regulations”) contained in ICDR Regulations will apply.
• All compromises, arrangements, and mergers have been carried out according to the provisions related to the Companies Act, 2013 (essentially Sections 230, 231, and 232) and the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.  

If an acquisition is contemplated by issuing new shares, or acquiring existing shares or voting rights, of a listed company, to or by an acquirer, the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 are applicable. 

Other than this, the Competition Commission Act, 2002, the rules of NCLT, the Rules and regulations of RBI, the provisions of Foreign Exchange Management Act, 1999, the provisions of The Income Tax Act, 1961, etc. related to the acquisition must be followed.     

Conclusion

The merger and acquisition deals in food start-ups will definitely help the country to increase the GDP, as India’s most of the GDP comes from the primary sector (which also includes the food industry) of activity in the economy. 

References

1. https://www.mondaq.com/india/food-and-drugs-law/244880/laws-governing-the-food-industry-in-india–revisited
2. https://mnacritique.mergersindia.com/news/tata-consumer-products-to-buy-maker-of-soulfull-cereals/
3. https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers___Acquisitions_in_India.pdf
4. https://www.lawyered.in/legal-disrupt/articles/laws-governing-food-industry-india/

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