Impact of COVID-19 on FDI Regimes

In mid-March 2020, German media reported that the United States President had offered to take over CureVac, a German vaccine firm which was working on a vaccine for COVID-19, to secure the vaccine only for the United States – these reports were later denied. Indian media has recently reported that the Chinese central bank now holds more than 1% shareholding in HDFC, India’s largest housing finance company. The COVID-19 pandemic has not only brought healthcare and critical infrastructure into focus from an FDI perspective, but has also weakened companies in other sectors and made them easy targets for creditors and opportunistic buyers.

This note examines the measures taken by certain countries, particularly in Europe, to protect their businesses from being taken over by foreign investors as well as India’s current position on FDI. While India has so far focused on liberalizing the FDI regime, if COVID-19 propels the Indian Government to follow suit, investors can expect introduction of additional restrictions on FDI as well as extended timelines for approval.


A Review of the Foreign Investment Approval Process in India

With the aim of enhancing “ease of doing business” and “promoting the principle of Maximum Governance and Minimum Government”, the Government of India abolished the Foreign Investment Promotion Board on May 24, 2017. In its place, the relevant administrative ministry/department in consultation with the Department for Promotion of Industry and Internal Trade are now directly responsible for processing applications for foreign direct investment in India in sectors which require prior approval of the Government.

The move was expected to make the process of obtaining FDI approval faster and more efficient. Almost three years after the move, we consider in this note the current framework for FDI approval and areas for improvement.


COVID 19: Revised default trigger under the Insolvency and Bankruptcy Code

The COVID-19 pandemic has caused widespread disruption of businesses and daily life. As governments across the world struggle to contain the pandemic, a number of regulatory and policy measures are being implemented by the Government of India to minimize the impact of the disruption caused to several classes of persons and corporate bodies.

A recent measure is the increase in the threshold for default by corporate debtors under Section 4 of the Insolvency & Bankruptcy Code, 2016 (the “Code”) from INR 100,000 to INR 10,000,000 and a potential suspension of certain key provisions of the Code. These measures may have some positive and certain unintended consequences of concern to stakeholders.


COVID-19: Coping with the Pandemic and the Changing Regulatory Regime in India

The outbreak of the coronavirus disease 2019 (COVID-19) pandemic has caused widespread disruption of businesses and daily life. As governments across the world struggle to contain the pandemic, a number of measures are being implemented aimed at minimizing its spread. In India, such measures are increasingly taking the form of mandatory social distancing through the imposition of a series of restrictions. As the situation evolves, the requirement for further restrictions is being constantly evaluated by governments and new measures are being implemented. The pandemic and the resulting measures raise a host of legal issues and concerns for businesses. This update analyzes certain legal and regulatory concerns arising in light of the COVID-19 pandemic and the consequent restrictions.


Completing an M&A Transaction On-Market – Certain Key Considerations

In case of acquisitions involving listed companies, parties often choose to complete the transaction ‘on-market’, that is, on the floor of the stock exchanges, on account of tax benefits. This note analyses certain key legal considerations in completing such on-market acquisitions, including: (i) considerations for non-FPI foreign acquirers; (ii) the modes through which negotiated transactions can be completed on-market; and (iii) considerations under the takeover regulations when completing acquisitions during the pendency of a mandatory tender offer.


A New Method of Minority Squ(ease) Out

On February 3, 2020, the Ministry of Corporate Affairs notified sub-sections (11) and (12) of section 230 of the Companies Act, 2013 along with also notifying the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2020 and the National Company Law Tribunal (Amendment) Rules, 2020 (collectively, the “Takeover Notification”), which would enable shareholders of unlisted companies holding at least 75% securities (including depository receipts) with voting rights to acquire the remaining minority shareholders pursuant to a court-approved compromise or arrangement that includes a takeover offer.

Certain other methods that are generally considered for buying-out minority shareholders, often termed as minority squeeze-outs, include undertaking a selective reduction of share capital under section 66 of the Companies Act and the purchase of minority shareholding by a majority shareholder holding 90% or more of the share capital under section 236 of the Companies Act, 2013.

This note briefly discusses the new method of minority squeeze-out introduced by the Takeover Notification and considers whether the Takeover Notification makes it easier to squeeze out the minority shareholders as compared to the other available options mentioned in the paragraph above.


The Personal Data Protection Bill, 2019

The Personal Data Protection Bill, 2019 (“PDP Bill”), which was presented before the lower house of the Indian Parliament on December 11, 2019, seeks to provide for the protection of personal data of individuals and establish a Data Protection Authority. The PDP Bill has been referred to a joint select committee of both the houses of the Indian Parliament, which is expected to submit its report in early 2020. Accordingly, there may be changes to the PDP Bill based on the recommendations of the joint select committee. Once enacted, the PDP Bill will replace Section 43 of the Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 and prevail over any other inconsistent laws in this regard (e.g., any sector-specific laws). This note provides an overview of the PDP Bill


Insolvency and Related Considerations for Directors

Directors of a company in financial difficulty should be aware that their conduct may be subject to close scrutiny if the company is subject to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, as amended. The directors of such companies should take all steps to ensure that the company continues as a going concern. This is relevant as courts have held that unless all measures have been taken to revive a company, the making of a winding-up order may not be in the best interests of creditors, and going concern values may result in higher repayments to the creditors. In this regard, directors of a company in financial difficulty should be aware that their conduct may be subject to close scrutiny if the company falls into insolvency and such directors should be able to defend their actions provided that they were made in good faith.


Reflections on Section 36 of the Indian Arbitration Act

The time taken and procedures involved in enforcement proceedings of arbitral awards in India have drawn substantial criticism over the years, paving the way for the amendments in 2015 and 2019 to the Arbitration and Conciliation Act, 1996. This note briefly examines the effect of the recent judgment of the Supreme Court of India in Hindustan Construction Company on the question of whether the operation of a domestic arbitral award is automatically stayed upon the filing of a challenge to the award and traces the development of the automatic stay rule through the amendments to the Arbitration and Conciliation Act, 1996 in 2015 and 2019 prior to the Supreme Court’s judgment.


Goliath v. Goliath: The Supreme Court Verdict Putting an end to the Battle for Essar Steel

By a judgment dated November 15, 2019, the Supreme Court of India has put an end to the long drawn out battle for the acquisition of steel giant – Essar Steel India Limited (“Essar Steel”) under India’s newly introduced insolvency legislation.