There have been some very wide sweeping and deep impact changes in the business and economic environment over the past few years, many of which have also had a strong social impact. While some changes could be considered political, there are many changes that have happened basically because the government of the day chose to bite the bullet. These were long overdue and just couldn’t be kicked any further down the road – to put it succinctly, “the time had come”.

India’s Foreign Direct Investment (FDI) policy, which has its genesis in the liberalisation era beginning in the early 1990s, had always been subject to periodic incremental relaxation of sectoral caps and other easing measures. However, after years of a gradualist mode, the current decade has seen more dramatic shifts in the hitherto entrenched position in respect to FDI in various sectors. The ultimate measure was of course the abolition in June 2017 of the two and half decades old Foreign Investment Promotion Board (FIPB), the inter-ministerial body that granted ‘prior government approval’ in mandated sectors.

The demise of this institution regarded as venerable by some and obstructionist by others, met as expected, with a mixed response. With nearly 95% of the FDI inflows in the country already coming in through the automatic route, the utility and need for such a body was clearly on the wane; practitioners were, however, apprehensive of the absence of the body, which had become the proverbial ‘go to place’ for clarifications and was the last port of call for policy intervention in case of need.

With the formal dissolution of the FIPB at the end of June 2017, a Standard Operating Procedure (SOP) was put in place whereby the sectors / activities / transactions that required government approval were mandated to approach the respective administrative ministries for the same. Simultaneously, the FIPB portal was literally morphed into the Foreign Investment Facilitation Portal (FIFP), bringing with it bare essential changes to name and ownership, but virtually nothing more.

Continue Reading FDI Policy – So What’s New?

Previously, the provisions of the Companies Act, 2013 (Act) governing inbound and outbound mergers, amalgamations or arrangements between Indian companies and foreign companies (Cross Border Mergers) were notified by the Ministry of Corporate Affairs on April 13th, 2017. Subsequently, on April 26th, 2017, the Reserve Bank of India (RBI) issued draft regulations to govern Cross Border Mergers (Draft RBI Regulation).

We had published an earlier blog piece on this, discussing the key highlights of the Draft RBI Regulation, which is available here.

It has been close to a year since the Draft RBI Regulation and on March 20th, 2018, the RBI has finally notified the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 (Merger Regulation). This article briefly analyses the key changes brought about in the Merger Regulation and its implications.

Continue Reading India finally notifies Cross Border Merger Regulations

The Insolvency and Bankruptcy Code, 2016 (IBC), since its enactment, has been a subject of great discussion and debate, both in the Industry as well as in the legal fraternity. This strong divide continues between those who consider it a necessary step (based on the abysmal rates of recovery of defaulted loans) and those who classify it as a ‘draconian legislation’. Given the division of views, it was expected that the IBC would be subject to legal and constitutional challenges.

This piece relates to one such challenge, and the first such judgement, on the constitutionality of provisions of the IBC.

The Supreme Court says: Do not examine constitutional validity

Interestingly, the Supreme Court, apprehending the largescale consequences of such challenges, advised the High Court of Gujarat in its order dated January 25, 2018 passed in Shivam Water Treaters Private Limited Vs Union of India & Ors[1], not to enter into the debate around the constitutional validity of the IBC. The Supreme Court observed that, “The High Court is requested not to enter into the debate pertaining to the validity of the Insolvency and Bankruptcy Code, 2016 or the constitutional validity of the National Company Law Tribunal.

Challenge of Constitutional Validity before the High Court at Calcutta

In November 2017, a challenge to constitutionality of provisions of the IBC was initiated before the High Court at Calcutta[2]. After hearing arguments, the High Court reserved its judgement on the issues on December 15, 2017, which was well before the order of the Supreme Court in the Shivam Water Treaters case. The challenge arose consequent to an order of the Kolkata bench of the National Company Law Tribunal, which admitted an insolvency resolution petition filed by a financial creditor (Sberbank of Russia) against a corporate debtor (Varrsana Ispat Limited).

Continue Reading Constitutionality of the IBC Upheld

Image credit: Scroll.in, September 26, 2017

This is the fifth blog piece in our series entitled “Those Were the Days”, which is published monthly. We hope you enjoy reading this as much as we have enjoyed putting this together.


India’s judiciary has been known for judicial activism with the Supreme Court often deciding to intervene, not just to strike down laws that are held to be unconstitutional, but also in governance, which many believe ought to be the exclusive domain of the executive. While opinion is divided about the desirability of judicial activism, most would agree that it is the judiciary and its fearless will to intervene and deliver justice, even at the risk of stepping into the domain of the legislature or the executive, which has preserved democratic process over the years.

Unfortunately, rampant judicial activism has given rise to an inevitable debate about the balance of powers between the “three pillars of democracy” and then, as a corollary, the question of the manner in which Judges are appointed in the first place. The prevalent “Collegium System” has been severely criticised, as being non-transparent and prone to nepotism, with several jurists and respected members of the bar themselves pointing out that in no other large democracy does an institution so powerful, choose its own members. The time is therefore right to look closely at the history of how the “Collegium System” evolved, through what is known as the Three Judges Cases.

Continue Reading Should the Judges Cases be Revisited?

Despite several existing schemes and interventions by the Reserve Bank of India (RBI), the problem of bad debt has plagued the Indian banking system. For years, various high value accounts have undergone restructurings that have not resolved stress or the underlying imbalance in the capital structure, or addressed the viability of the business.

The existing RBI stipulated resolution mechanism included corporate debt restructuring (CDR), strategic debt restructuring (SDR), change in ownership outside the strategic debt restructuring (Outside SDR), the scheme for sustainable restructuring of stressed assets (S4A), etc. All of these were implemented under the framework of the Joint Lenders’ Forum (JLF).

On February 12, 2018, the RBI decided to completely revamp the guidelines on the resolution of stressed assets and withdrew all its existing guidelines and schemes. The guidelines/framework for JLF was also discontinued.

The New Framework

The new framework requires that as soon as there is a default in a borrower entity’s account with any lender, the lenders shall formulate a resolution plan. This may involve any action, plan or reorganisation including change in ownership, restructuring or sale of exposure etc. The resolution plan is to be clearly documented by all the lenders even where there is no change in any terms and conditions.

Continue Reading Overhaul of Stressed Assets Resolution

Morning Mumbai mist, hot coffee and the 1986 song ‘The Final Countdown’ by Europe is playing in the background – life seems blissful! And it was mostly so for the Alternative Investment Funds (AIFs) industry. As we begin the run-up to Budget 2018, we look back at the milestones crossed in 2017 and the goalposts set for 2018 – and we focus on the key hits, misses and asks of the AIF industry.

2017: Key Highlights 

  • Investment by Banks in Category II AIFs: The Reserve Bank of India (RBI) amended the Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 permitting banks to invest in Category II AIFs up to a maximum cap of 10% corpus of such AIF. With Category II AIFs constituting nearly 50% of the total number of AIFs registered with the Securities and Exchange Board of India (SEBI), this amendment sets the roadmap for channeling domestic savings into productive alternate assets and, at the same time, provides banks with the ability to earn a risk-adjusted return, thereby boosting the overall Return on Equity for its stakeholders.

Continue Reading It’s the Final Countdown: Achievements by and Expectations of the AIF Industry

Image credit: Scroll.in, September 26, 2017

This is the fourth blog piece in our series entitled “Those Were the Days”, which is published monthly. We hope you enjoy reading this as much as we have enjoyed putting this together.


The world is becoming corporatised, and the time of the business owner living over his little shop are well-nigh over. The world is also becoming smaller and, as it does, a business’s reach spreads across multiple jurisdictions and through multiple subsidiary or group companies.

In this age of corporatisation, most jurisdictions recognise the concept of a company as a separate juristic person, with an identity distinct and independent of its shareholders, members or directors. This corporate existence separates a company’s identity from that of its promoters or shareholders. It enables the company to contract in its own name, with its shareholders and third parties, to acquire and hold property in its own name, and to sue and be sued in its own name. A company has perpetual succession; its life is not co-dependent with that of its shareholders and it remains in existence irrespective of any change in its members, until it is dissolved by liquidation. The shareholders of a company are not identified with the company and cannot be held personally liable for acts undertaken by, or liabilities of, the company.

This independence or distinction is not a new concept. In the late 19th Century, the judgment in the classic case of Salomon v. Salomon[1] was passed, ruling that a company is a separate legal entity distinct from its members and so insulating Mr. Salomon, the founder of A. Salomon and Company, Ltd., from personal liability to the creditors of the company he founded.

Continue Reading LIC v. Escorts and Beyond – Lifting the Corporate Veil

In the case of Wiki Kids Limited[1], the NCLAT upheld the order of the NCLT rejecting a scheme of amalgamation, as it resulted in undue advantage to the promoters of the amalgamating company.

Facts

Background

In the instant case, a non-listed company Wiki Kids Limited (Transferor Company), wished to amalgamate with Avantel Limited, a listed company (Transferee Company). For the aforesaid purpose, these entities (collectively referred to as Appellants) had proposed a scheme of amalgamation (Scheme) and approached the Andhra Pradesh High Court, seeking directions with respect to the meetings of the shareholders, and secured and unsecured creditors in the Scheme.

Pursuant to the directions of the High Court, the Scheme was approved by the shareholders of the Transferee Company. In the meantime, in view of a notification of the Ministry of Corporate Affairs dated December 7, 2016, the case was transferred to the National Company Law Tribunal (NCLT). The Appellants, accordingly, filed a second motion before the Hyderabad Bench of the NCLT. The NCLT, on perusal of various documents including the share exchange ratio and the valuation report, rejected the Scheme on the ground that it was beneficial to the common promoters of the Appellants and no public interest was being served.

Continue Reading NCLT Can Reject a Scheme of Arrangement if it is not in Public Interest

In the initial years of wireless telephony in India, radio spectrum was administratively allotted to licensees. However, following the recommendations of the National Telecom Policy, 2012, and the decision of the Apex Court in the case of Centre for Public Interest Litigation v. Union of India,[1] the Department of Telecommunications (DoT) de-bundled spectrum allotment from the grant of licenses, and adopted an auction-based price-discovery mechanism for spectrum allotment.

Scarce radio spectrum resources have typically been considered as bottleneck assets, and therefore auctions provide an effective means of price discovery, help maximise revenue for the Government, and ensure optimal allocation of spectrum resources. However, excessive reliance on bid markets risks overlooking potential market failures attributable to enterprises attempting to monopolise bottleneck assets such as spectrum.

Recognising the need to ensure that no one operator should be able to monopolise scarce spectrum resources to the detriment of its competitors and consumers, the DoT, in successive Notice Inviting Applications (NIAs) has prescribed ceilings for the amount of spectrum that can be held by any telecommunications operator in a given band within a Licensed Service Area (LSA), as well as a ceiling on the total amount of spectrum that can be held by an operator across all bands in an LSA. Presently, these stand at 50% of any given spectrum band in an LSA, and 25% of the overall spectrum available in such LSA across all bands. These restrictions have also been incorporated into the Mergers and Acquisitions Guidelines of 2014 (M&A Guidelines) as prescribed by the DoT.

Continue Reading Time to Revisit Spectrum Caps and Market Shares

On January 10, 2018, the Indian Cabinet gave its approval to a number of major amendments to the Foreign Direct Investment (FDI) Policy of India, to further liberalise and simplify the same. This is to increase the ease of doing business in the country, and continue to attract much needed foreign capital to fuel India’s growth. In this post, we examine the latest amendments and their impact on the crucial sectors involved therein.

Key Reforms

Single Brand Retail Trading (SBRT)

The latest amendment has brought sweeping changes in FDI norms for SBRT, thereby enticing significant foreign brands into India’s promising retail space.

The current FDI Policy on SBRT allows 49% FDI under the automatic route, and FDI beyond that and up to 100% through the Government approval route. Earlier, a sourcing norm was also attached to such an investment. This meant that investors were required to source 30% of the value of goods purchased for their Indian businesses through local sources. Several investors have had to spend a significant amount of time developing good local suppliers as partners and their inability to procure locally proved a major stumbling block in setting up their business in India.

Continue Reading Cabinet Approves Major Changes in FDI Policy