2017 is upon us, but many readers seem to have missed some very important and progressive changes to the Maharashtra Tenancy and Agricultural Lands Act, 1948 (Act) made last year on 1 January 2016! Two sections (63, and 63-1A) of the Act govern the ability to sell and buy agricultural lands (AL) for non-agricultural (NA) use.

Here is a comparative note on the pre-amendment and post-amendment law under Section 63-1A affecting AL bought for NA bona fide industrial use. Continue Reading Using Agricultural Lands for Non-Agricultural Purposes in Maharashtra – Important 2016 Amendments

On November 15, 2016, the Supreme Court delivered an important judgment in IDBI Trusteeship Services Limited v. Hubtown Ltd[1], a case involving investment in India by a foreign investor. While the main thrust of the judgment was on circumstances under which a defendant may be granted leave to defend in a suit for summary judgment, the observations of the court in the context of the structure in consideration provides important indicators as to how courts should look at structured transactions.

In brief, the facts of the case are as follows. FMO, a non-resident foreign entity, made an investment into an Indian company, Vinca Developer Private Limited (Vinca) by way of compulsorily convertible debentures (CCPS) and equity shares. The CCPS were to convert into 99% of the voting shares of Vinca. The proceeds of the investment were further invested by Vinca in its wholly owned subsidiaries, Amazia Developers Private Limited (Amazia) and Rubix Trading Private Limited (Rubix) by way of optionally convertible debentures (OPCDs) bearing a fixed rate of interest. IDBI Trusteeship Services Ltd. (Debenture Trustee) was appointed as a debenture trustee in relation to the OPCDs, acting for the benefit of Vinca. Hubtown Limited (Hubtown) also issued a corporate guarantee in favour of the Debenture Trustee to secure the OPCDs. Continue Reading IDBI Trusteeship v. Hubtown – Supreme Court Gives a Fillip to Structured Investments

Raindrops on roses and whiskers on kittens
Bright copper kettles and warm woollen mittens
Brown paper packages tied up with strings
These are a few of my favourite things…”

Hearing my niece practice this iconic song made me introspect on the year gone by. So, here are select highlights of 2016 from the Alternative Investment Funds (AIFs) industry perspective.

  1. Regulatory developments
  • 2016 started with Report 1 of the Alternative Investment Policy Advisory Committee (AIPAC), and drew to a close with Report 2 of the AIPAC in December 2016. SEBI amended the AIF regulations in November 2016 to implement recommendations relating to Angel Funds. Our last post covers key recommendations made by AIPAC in Report 2. AIPAC has rightly focussed on structural and evolutionary changes needed for the AIF industry and thus 2017 will be the year to implement or build on these recommendations.
  • In February 2016, subject to certain conditions, RBI permitted NRIs to invest in AIFs on a non-repatriation basis and for investments to be treated at par with investments by residents.
  • In April 2016, the Pension Fund Regulatory and Development Authority permitted pension funds to invest in Category I and Category II AIFs subject to various conditions. However, these conditions have effectively stymied pension fund investing in Category II AIFs. AIPAC reports recommend the liberalisation of regulations to allow investments in AIFs by pension funds, insurance companies, banks and others.
  • In April 2016, RBI amended the Foreign Venture Capital Investor (FVCI) regime under FEMA 20 to provide, inter alia, that FVCIs registered under the SEBI (FVCI) Regulations will not require RBI approval for investments as per amended Schedule 6. The RBI notification also stipulated that FVCIs can receive the proceeds on liquidation of venture capital funds (VCFs) or Category I AIFs. However, RBI’s October 2016 circular was a sting in the tail. That circular stated that downstream investment by VCFs / Category I AIFs that have been invested into by FVCIs will need to comply with Schedule 11 of FEMA 20 i.e. such downstream investments shall be subject to the sectoral caps and conditions under the foreign direct investment (FDI) policy.
  • In September 2016, RBI amended FEMA 20 to permit 100% FDI in ‘other financial services’ industry subject to conditions prescribed by the relevant regulator and FDI in entities conducting unregulated or partially regulated financial services (FS) activities with the prior approval of the Foreign Investment Promotion Board (FIPB). While this liberalisation was eagerly awaited, the language of the notification stirred up concerns surrounding the interpretation of ‘regulated FS activities’. For example, would FDI in an AIF manager which is exempt from registration under SEBI (Investment Advisers) Regulations require FIPB approval? Or would FDI in an Indian advisor to an offshore PE fund or Foreign Portfolio Investment (FPI) manager qualify for the automatic route?

Continue Reading 2016, The AIF Industry In Retrospect

In March 2015, the Securities and Exchange Board of India (SEBI) constituted a standing Alternative Investment Policy Advisory Committee (AIPAC) under the chairmanship of Shri. N. R. Narayana Murthy. AIPAC submitted its first report in January 2016 and its second report was released by SEBI on December 1, 2016 (Report 2) for public comments.

The Alternative Investment Fund (AIF) industry has been growing exponentially. The cumulative funds raised increasing from Rs 3,841 crores (approximately, USD 568 million) in September 2013 to Rs 29,016 crores (approximately, USD 4292 million) in September 2016[1]. In approximately four years since the introduction of SEBI (Alternative Investment Funds) Regulations, 2012 (Regulations), the number of AIFs registered has reached 268[2]. The AIF industry is thus poised to make its next leap of growth. Guided by this, Report 2 makes several recommendations to unshackle the AIF industry and lead the way into Phase II of its evolution. Some of the key recommendations that will facilitate growth are highlighted below. Continue Reading AIPAC Report 2: Bag Of Goodies and Festive Cheer for the AIF Industry

Money oils the wheels of commerce.

Since the 1970s, high denomination notes of Rs. 500 and Rs. 1000 had become the usual legal tender in India: inflation had virtually made the lower denomination notes “loose change”! The Reserve Bank of India Annual Report 2015-16, noted that as at end-March 2016, these notes together accounted for 86.4% of the total value of banknotes in circulation[1].

Historically, India has been a high-tax jurisdiction, weighted down by the “license-and-tax” raj (an elaborate system of regulations and licences, discretionary permissions and consents, promoting crony capitalism and red tape). India continues to be ranked high in corruption[2], and relatively low in competition[3]. It is widely perceived that citizens resorted to their own means to counter this system: under-and-over invoicing deals, incurring fictitious expenses, relying on money laundering and hawala schemes (informal money transfer schemes outside formal financial channels). Tax-evaded monies began to be stored in non-Rupee form, and it is alleged that the two biggest beneficiaries were gold and real estate, with the residue parked in foreign currencies. Counterfeit and fake currency, with cross-border connotations, added to the pain.

Especially in the real estate sector, news reports abounded about builders paying bribes to obtain approvals to commence, continue and complete construction; unaccounted cash being paid to buy agricultural lands; speed money paid to update land records; builders demanding “top-up” monies from flat and office buyers, and rooms-full of Rs. 500 and Rs. 1000 notes found in search and seizure raids[4]. All this has given a bad reputation to the real estate sector. Such reports, coupled with some builders acting as if “they were beyond the law” (by including absurd clauses in sale documents, causing unjustifiable delays in completing projects, and delivering poor construction quality) primed the climate for regulating “unaccounted money” in real estate. The recently enacted Real Estate (Regulation and Development) Act 2016 (RERA), and the recently amended Benami Transactions (Prohibition) Amendment Act, 2016,[5] are steps in this direction. The introduction of a national Goods and Service Tax (GST) in India from April 2017 will also add a fillip.

The Indian government has since banned Rs. 500 and Rs. 1000 denomination notes from midnight November 8, 2016.

With this background, what will demonetisation mean for the real estate sector in the next few years? We venture some thoughts below. Continue Reading Demonetisation in India and Real Estate

The Indian merger control regime is a suspensory one which means that, any acquisition, merger or amalgamation that is notifiable to the Competition Commission of India (CCI) may be consummated only after the CCI grants approval, or until a certain waiting period has lapsed.

Section 6(2) of the Competition Act (Act), provides that when an enterprise proposes to enter into a combination, it is required to give a notice to the CCI, disclosing the details of the proposed combination, within 30 days of executing the ‘trigger document’. Further, Section 6(2A) of the Act provides that no combination shall come into effect until 210 days have passed from the day on which the notice has been given or unless the CCI passes orders under Section 31 of the Act, whichever is earlier. In sum, the suspensory regime is an absolute one. Combinations cannot be consummated, in part or full, before either the CCI grants approval or until 210 days post the notification. Continue Reading Part Consummation of M&A Transactions: The Rhetoric of Gun Jumping

Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.

Franklin D. Roosevelt

The real estate sector is the backbone of the Indian economy, as it largely contributes to its growth. But despite its major influence, it has always been disorganised, inefficient and lacked transparency, which has to a degree diminished stakeholder confidence in real estate. To address this, change in legislation as well as implementation of a specialised regulator was critical to bring uniformity and transparency in the relevant laws governing this sector.

The Government of India enacted the Real Estate (Regulation and Development) Act, 2016 (Act) on May 1, 2016, inter alia, to address any shortcomings and overcome the difficulties surrounding this sector. It aims to ensure transparency, accountability, standardisation and consistency by regulating the sale of real estate and timely completion of projects. Continue Reading Real Estate (Regulation And Development) Act, 2016

In August of 2016, the Competition Commission of India (CCI) passed an order in the case of Builder’s Association of India (2016 Order) predominantly re-affirming its earlier order of June 2012 in the same matter (2012 Order).

By way of a brief background, the case originated from a complaint filed in 2010 by the Builders Association of India (BAI) against the Cement Manufacturers’ Association (CMA) and 11 Indian cement manufacturing companies[1] (collectively, the Opposite Parties). In June 2012, based on an inquiry conducted by it, the CCI imposed a penalty of INR 63.17 billion (approximately USD 933.68 million[2]) on the Opposite Parties. This penalty was imposed for using the platform provided by the CMA to fix cement prices as well as limit and control production and supply of cement in the market, thereby contravening the relevant provisions the Competition Act, 2002 (Act). This 2012 Order was challenged before the Competition Appellate Tribunal (COMPAT), primarily on grounds of due process and violations of principles of natural justice and was set aside on these grounds. The matter was remanded to the CCI for fresh adjudication. Consequently, the CCI re-heard the Opposite Parties and passed the 2016 Order. Continue Reading The Curious Case of the Cement Cartel

The Office of the Director General (DG), being the investigative arm of the Competition Commission of India (CCI), has conducted two search and seizure operations thus far. The first of these, more popularly known as dawn raids, was on the offices of JCB India Limited (JCB India) on 22 September 2014. More recently, the DG carried out a dawn raid on the premises of Eveready Industries Limited (Eveready), a leading dry cell manufacturer.

Dawn raids such as these signify the resolve of the CCI to actively conduct intrusive operations to enforce the provisions of the Competition Act, 2002 (Competition Act). In light of such a pro-active approach, and given that the DG enjoys wide (and mostly untested) powers whilst conducting such operations, companies in India must be aware of what they should do in the course of a dawn raid to contain the consequences and fallout. Continue Reading CCI Dawn Raids – How to Act and Contain Operations

On 31 August 2016, the Competition Commission of India (CCI) dismissed an information under Section 26(2) filed against M/s ANI Technologies Private Limited (Ola Cabs) in the case of Mr. Vilakshan Kr. Yadav and Ors v. M/s ANI Technologies Private Limited[1] alleging abuse of dominance, in contravention of Section 4 of the Competition Act, 2002 (Competition Act).

The information was filed with the CCI by a group of auto rickshaw and taxi drivers plying their trade in Delhi and the National Capital Region (NCR). The informants argued that the relevant product market should be defined as “paratransit services” comprising auto rickshaws, black-yellow taxis and city taxis given that all of these are used for point-to-point travel by passengers and, thus, compete within the same space. Further, according to the informants, the drivers for all these modes of transportation are drawn from the same pool. The informants asserted the relevant geographical market to be the NCR comprising Delhi and certain districts of three states namely, Haryana, Uttar Pradesh and Rajasthan. This was based on an agreement that was signed by the respective governments of these four states to issue permits for auto rickshaws and taxis providing unrestricted movement within the NCR. Continue Reading “Smooth” Driving For Ola – CCI Closes Investigation Under 26(2)