Category: Insights

Will the CCI’s Market Study on Private Equity Investments Provide Clarity for Minority Investments?

Insights | January 4, 2021 | Practice Area: , ,

In light of the growing trend of private equity (“PE”) firms acquiring minority stakes in multiple firms in the same sector, the Competition Commission of India (the “CCI”) has recently announced a market study to analyse the incentives and rights associated with such minority investments, and their impact on competition in India. There is a lack of clarity around situations in which a PE investor is required to notify a proposed minority acquisition to the CCI, and it is hoped that the CCI’s proposed market study will inform improvements to this framework, in order to bolster certainty and investor confidence. In this context, this note provides an overview of the existing Indian merger control framework vis-à-vis ‘minority acquisitions’, including the uncertainty currently surrounding the notifiability of such transactions, and suggests a possible way forward.

Dewan Housing: Why insolvency resolution processes need a greater degree of certainty

Insights | December 28, 2020 | Practice Area: , ,

In November 2019, Dewan Housing became the first non-banking financial company to be referred to the insolvency resolution process under Indian bankruptcy law. The process has seen four rounds of bids, of which the last two were driven by a bid submitted after the deadline. While one bidder withdrew from the process on grounds of unfair treatment, other bidders have protested against the late-stage non-compliant bid, which has further prolonged the insolvency resolution process and created a threat of litigation. While late-stage bids may be acceptable in exceptional circumstances, this cannot be allowed to become a regular feature of the insolvency resolution process. As described in more detail in this note, maximization of value of assets is not the sole objective of an insolvency resolution regime; such regime must also provide transparency and certainty, symmetry of information and a time-bound process to better preserve economic value.

Non-convertible Debentures: Entry Routes for Foreign Investors

Insights | December 10, 2020 | Practice Area: ,

Since January 2020, there have been more than 10 public issues of non-convertible debentures (NCDs) and over 1,600 private placements of corporate bonds in India. M&A transactions in India have also increasingly witnessed NCDs as a preferred instrument for funding, which may be attributable to the benefits that NCDs could provide to investors vis-à-vis equity instruments. Separate regulatory frameworks apply to acquisition of NCDs by registered foreign portfolio investors on the one hand and other foreign investors on the other hand. Further, Indian regulators have sought to encourage offshore debt funding, for example, by introducing the voluntary retention route for foreign portfolio investment in debt instruments. Accordingly, this note provides an overview of investment routes available to foreign investors in relation to NCDs.

Pre-Arbitration Steps: Contractually Prescribed Pre-Arbitration Mediation, Emergency Awards and Court Ordered Interim Relief

Insights | November 19, 2020 | Practice Area:

In drafting arbitration agreements and at the preparatory stages of an arbitration, important determinations are required as to any procedures that must precede the invocation of an arbitration (i.e., contractually prescribed pre-arbitral steps) and measures that a party may require to secure in advance any potential award that may be rendered in an arbitration.
The determinations regarding pre-arbitral steps and interim measures are riddled with intricacies of the applicable law(s) and contractual requirements, any applicable rules of arbitration and the strategic objectives intended to be achieved through the arbitration.
This note, first published by LegalEra, discusses some pre-arbitral interim measures that can be helpful in securing an award, considerations as to choosing the forum to approach for these measures and the issues presented when such measures are required before a contractually prescribed pre-arbitral procedure (such as mediation or conciliation) is completed. In that context, the considerations that apply at the time of drafting an arbitration agreement are also discussed briefly.

Beneficial Ownership: A Comparative Analysis

Insights | November 4, 2020 | Practice Area: ,

Since April 2020, prior regulatory approval has been required for all investments from countries that share land borders with India, including where the beneficial owner of an investing entity is situated in or is a citizen of any such country. The threshold for beneficial ownership has remained unclear and can arguably be triggered even if a single share of an investing entity is beneficially held by an investor from one of the restricted bordering countries (which include China). This has created uncertainty not only regarding inflow of new investments in the start-up sector but also beneficial ownership in a private equity fund. While other Indian laws prescribe certain tests for beneficial ownership, these are not consistent. This note examines the concept of “beneficial ownership” under certain Indian laws as well as the definition in the United Kingdom and the United States, and suggests next steps in the context of Indian foreign investment regulations.

Bribery and Money-laundering Risk Management in M&A

Insights | September 28, 2020 | Practice Area: , , ,

As government agencies and regulators around the world are strengthening their enforcement efforts (having unearthed major bribery, corruption and money laundering related lapses by various corporates in the recent years), corporate activities have come under increased regulatory scrutiny. A target’s historical and existing anti-money laundering (AML) or anti-bribery, anti-corruption (ABAC) violations and resultant liabilities typically become the acquirer’s responsibility post-closing. This can have far-reaching legal, business and reputational consequences on the acquirer and in an extreme case, could result in an acquisition being a failure. As a result of this, acquirers have to be cognizant of not only any post-closing transgressions but also any pre-closing ones that they know, or ought to have known. The approach of a hurriedly-conducted limited due diligence with heavy reliance on warranties alone is therefore a risky one.
This note is divided into four parts – the first part provides a general overview of the key legislations. The second part highlights certain factors such as the target’s jurisdiction, sector, local laws and other cultural and geographical issues that typically influence such AML and ABAC issues. The third part outlines safeguards that are customarily adopted by the acquirers and the last part proposes certain measures that may be considered and implemented for effective risk-management by the acquirers.

One year of the CCI’s ‘Green Channel’ route for deemed approval of combinations

Insights | September 17, 2020 | Practice Area: , ,

The Competition Commission of India (the “CCI”) recently commemorated the completion of the first year of the ‘Green Channel’ approval route for combination filings in India, by way of which, combinations which meet certain criteria are deemed to be approved upon filing a valid short form notification (Form-I) with the CCI. This unique approval route was introduced by the CCI with effect from 15 August 2019, for facilitating speedy clearance of transactions, and balancing the ease of doing business in India with appropriate regulatory oversight for such combinations. Since its introduction, almost one-fifth of the combinations notified to the CCI have availed of this route.
This note analyses certain issues relating to the implementation of this route, some of which have subsequently been addressed by the guidance issued by the CCI through its updated ‘Notes to Form-I’. While some issues remain to be clarified, it is hoped that going forward, these will be resolved through CCI’s further guidance and decisional practice, and facilitate a wider and more certain use of the deemed approval route.

Impact of COVID-19 on Proceedings under the Insolvency and Bankruptcy Code, 2016

COVID-19 Resources | August 20, 2020 | Practice Area: , ,

This note, first published on the National Law School Business Law Review blog, discusses recent amendments to the [Indian] Insolvency and Bankruptcy Code, 2016 in light of the COVID-19 pandemic, which inter-alia temporarily prevent creditors from initiating insolvency proceedings against corporate debtors. While the proposed changes are a step in the right direction, the Government should also consider the impact of the pandemic on pending proceedings as well as alternative mechanisms to restructure debt and resolve defaults in a cost-effective manner to preserve value.

Operational Creditors in Insolvency: A Tale of Disenfranchisement

Insights | July 30, 2020 | Practice Area: , , ,

This note attempts to explain the unique predicament of operational creditors under the Insolvency and Bankruptcy Code, 2016 (IBC). It examines the various factors considered by the judiciary in recent pronouncements that have shaped the status of the operational creditors and outlines solutions that could be considered for a constructive resolution of the issues at hand.
This note is divided into four parts – the first part discusses certain issues considered by the Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, and its key findings in this regard. In the second part, the authors highlight how the IBC and the ruling of the Supreme Court unfairly disadvantage operational creditors, and offer solutions in line with international practice. In the third part, the authors point out a lacuna in the IBC regarding the treatment of the claims of creditors with ‘disputed’ claims in an insolvency resolution process and propose an alternate framework to determine such claims. The last part underscores the key takeaways from this article and a few concluding thoughts.

Enforcement of Foreign Awards granting a Put Option despite objections under the FEMA

Insights | July 15, 2020 | Practice Area:

A ‘put option’ is a clause agreed in a contract whereby one party has the right (not an obligation) to sell its shares in a company to another person at an agreed price. Such price need not be an absolute number recorded in the contract and could be in the form of an agreed formula or may be left to determination by an expert (pre-agreed or subject to future agreement) using financial data as of an agreed date. A put option works as a means of exit for investor shareholders. Subject to a valid exercise of the put option and correctness of the valuation, once a put option is exercised, it entails a contractual obligation on the party upon which such option is exercised to purchase the shares at such price and acquire the shares.
This note seeks to briefly discuss the treatment of objections to enforcement of foreign awards on grounds that the put option clause granted through the foreign award violates the foreign exchange laws of India.