India-EFTA Agreement

Investments under the India-EFTA Agreement: Re-writing the Rules of the Game?

On March 10, 2024, India entered into a trade and economic partnership agreement (the “TEPA”) with the European Free Trade Association (“EFTA”). The Investment Chapter of the TEPA requires the EFTA States to aim towards (i) increasing foreign direct investment (“FDI”), and (ii) facilitating new jobs in India by specified numbers and timeframes, in exchange for India enhancing market access and simplifying customs procedures. This unique formulation could provide a new template for negotiating international investment agreements in the future – especially between developed and developing countries – given that it deviates from traditional treaty design by providing for non-reciprocal rights and differentiated responsibilities. This anomaly, in turn, could have far-reaching consequences for foreign investors and global FDI flows. However, the TEPA’s novel provisions also raise certain legal and practical concerns. In this note, we analyze such provisions of the Investment Chapter.


Payments to Micro and Small Enterprises

Payments to Micro and Small Enterprises (MSEs): Implications under Section 43B(h) of Income-tax Act, 1961

To encourage prompt payment of dues to micro and small enterprises (“MSEs”), the Government of India introduced clause (h) in Section 43B of the Income Tax Act, 1961 with effect from financial year 2023-24. As per clause (h) of Section 43B, if an assessee makes payment to MSE after the time specified under the Micro, Small and Medium Enterprises Development Act, 2006, then deduction for such payment will be allowed in the year of actual payment. In this note we examine the stipulations outlined in Section 43B(h) of the IT Act and delve into its implications on the taxpayers.


Foreign Investment in Nuclear Energy in India

Foreign Investment in Nuclear Energy in India

Nations across the globe have announced their net zero targets and other climate action commitments. Each country is pursuing its own pathway to achieve the net zero goal considering the resources available to it. In this background, in December 2023, the Government of India announced that it has initiated steps to substantially increase India’s nuclear power capacity.
This note provides an overview of the current legal framework for private/foreign investment in nuclear energy in India and the increased level of screening for foreign investment globally in the energy sector.


Semiconductor Industry in India

Opportunities in the Semiconductor Industry in India

Semiconductors or ‘chips’ are the building blocks of electronic devices and are used in a variety of electronic devices from cars to drones as well as smartphones and computers and across various sectors, including the aerospace and defence, telecom and automotive sectors. Currently, a majority of the semiconductor manufacturing market is dominated by countries such as Taiwan, China, the United States, South Korea and Japan. India relies on semiconductor imports from these countries. While the semiconductor manufacturing industry is currently at a nascent stage in India, due to the worldwide shortage of semiconductors, over the last couple of years, India has taken active steps to tap this market.
This note outlines the key initiatives of the Government of India in relation to the semiconductor industry, regulatory framework for investment, setting up operations in India and recent developments/investments in the semiconductor industry in India.


India's Satellite Communication

Regulatory Shifts in India’s Satellite Communication Landscape

There is a rising interest in satellite-based connectivity in the Indian market among internet service providers. Eutelsat OneWeb India, Jio Satellite Communications, Elon Musk’s Starlink and Amazon’s Kuiper are in the process of obtaining the requisite licenses to provide satellite communication services in India. Satellite communications represent an inevitable technological development in response to a continued demand for better network quality and higher capacity.
In this background, the Telecommunications Act, 2023 (“Telecommunications Act”) which received the President’s assent on December 24, 2023 and provides for administrative allocation of satellite spectrum as well as liberalization of the FDI policy applicable to the space sector further spurs the gaining momentum in satellite-based communication technology in India. This note explores the regulatory shifts in the Indian satellite communications landscape.


Capital Gains and Beneficial Ownership Test

Indian Tax Treaties: Capital Gains and Beneficial Ownership Test

India’s double tax avoidance agreements (“DTAAs”) with certain countries (for e.g. Singapore, Mauritius and the Netherlands) provide that the capital gains on sale of shares is taxable only in the resident country of transferor and no tax is payable in India. However, the tax authorities have disputed the benefit available under the DTAAs by applying the “beneficial ownership” test. Further, they have also argued the sufficiency of tax residency certificate (“TRC”) to claim such benefit. In this note we analyze these aspects in light of the decision of Delhi High Court in Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd., appeal against which has been recently admitted by the Supreme Court.


Legal considerations of investing in india

Investing in India: An Overview of Legal Considerations

Foreign investment is a key contributor to India’s growth story and India continues to consistently experience growth in inflow of foreign direct investment (“FDI”). The Government of India has announced that the provisional figure of FDI inflow into India for the financial year ended March 31, 2023 was USD 71 billion and according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report, India remains a favored destination for global investors.
In this note we discuss certain key legal considerations for a foreign investor investing in India.
 


Considerations in Outbound Foreign Investment

Geopolitical and National Security Considerations in Outbound Foreign Investment

In a world characterized by geopolitical shifts and heightened national security concerns, the realm of foreign investment is undergoing a profound transformation. Disruptive events, evolving alliances and strategic recalibrations are increasingly influencing how nations perceive the risks and opportunities associated with foreign investment. As international power structures continue to evolve, the rise of new global players – coupled with technological competition in emerging sectors, underscore the need for nations to reassess their foreign investment strategies in alignment with broader geopolitical goals.
In turn, businesses may be expected to not only navigate multiple FDI regimes in the future, but different outbound screening regulations too. Although the final scope of outbound investment review regimes is still being decided, both the US and the EU have indicated that critical technologies which have the potential to advance military and dual-use capabilities, especially in respect of outbound investment into strategic adversaries, will be additionally scrutinized. Accordingly, investors may need to integrate such factors in their due diligence and risk management processes.


Compulsorily Convertible Debentures

Compulsorily Convertible Debentures:
Whether ‘Debt’ or ‘Equity’?

Compulsorily convertible debentures (“CCDs”), as the type suggests, are debentures that are compulsorily convertible into equity shares. CCDs first became prominent in the foreign direct investment (“FDI”) context in 2007 when Indian foreign exchange laws expressly recognized them as the only type of debentures that Indian companies could issue to raise FDI. The reason to disallow other types of debentures for FDI purposes was to curb debenture issuances to foreign investors in the guise of equity. Since the foreign exchange laws had established a FDI regime for equity instruments and a separate external commercial borrowing (“ECB”) regime for debt instruments, it was felt that Indian companies were bypassing the ECB route by issuing hybrid debt instruments under the FDI route. Thus, CCDs have been regarded as equity instruments for FDI purposes.
In November 2023, the Supreme Court of India (“Supreme Court”) delivered its judgment in IFCI Limited v. Sutanu Sinha that dealt with the question whether CCDs are to be treated as ‘debt’ or ‘equity’ in a different context. This note analyzes the Supreme Court judgment and the ‘repayment of principal’ test that courts have consistently applied to determine whether convertible debt instruments are regarded as ‘debt’ or ‘equity’.


Managing Foreign Sellers’ Risks in Indian M&A Transactions

In a previous note published earlier this month, certain common risks for foreign buyers in Indian M&A transactions were discussed in addition to the strategies to mitigate such risks. In this note, the most common concerns of foreign sellers in an M&A transaction have been discussed i.e., to mitigate risk of deal certainty, risk of any payment default by buyer and limitation of foreign sellers’ liability post completion of an M&A transaction. This note also discusses certain trends and market practices relevant for foreign sellers to manage such risks within the Indian legal framework.