Three years ago, India’s Prime Minister Mr. Narendra Modi, had expressed his desire to see India amongst the top 50 nations in terms of ease of doing business.

On October 31st, 2017 with the release of the World Bank’s Doing Business Report 2018 (Report), this dream is now racing towards to becoming a reality. After continuous and vigorous legislative overhauling, coupled with regulatory and infrastructural reforms, India surged up 30 places to the 100th rank among 190 countries. The Report lists India as one of the 10 improvers this year. We briefly explore the key reforms which have led to this historic jump in the rankings.

Leaps Across Sectors

The Report is based on how easy it is for companies to do business, and it also takes into account certain regulations based on 10 parameters, which are listed below. India has improved its standing in 6 out of these 10 indicators. These are as follows:

Continue Reading India Makes it into Top 100 in ‘Ease of Doing Business’ Rankings

Technological innovation is the new normal in the financial services sector. The evolution of every aspect of this industry in the past few years has been truly transformational, whether it is access to funds, demand creation/aggregation or even payment systems. The inception and growth of peer-to-peer (P2P) lending platforms in India is one such example. P2P platforms effectively function as an online marketplace for lenders and borrowers, for a commission. A need for regulatory oversight was considered by the Reserve Bank of India (RBI), given the recent rise in the number of such operators and their integration into the financial services sector.

The RBI outlined its proposal to regulate such platforms in its consultation paper issued last year. Following notification on August 24, 2017 categorising P2P lending platforms as Non-Banking Financial Companies (NBFCs), the RBI has finally issued its widely anticipated master directions on October 04, 2017 (Master Directions).

Continue Reading One Size Fits All? Regulating Peer-To-Peer Lending Platforms

The RBI has amended the Master Directions on Financial Services provided by Banks. This is a significant move permitting Banks to invest in Category II Alternative Investment Funds.

As of June 30, 2017, Alternative Investment Funds (AIFs) had raised the cumulative figure of Rs. 48, 129 crores, against aggregate capital commitments of Rs 96,000 crores. The AIF industry is thus growing at an exponential rate, raising monies from domestic and offshore investors.

Unfortunately, however, the Indian AIF industry, lags behind its western counterparts in terms of participation by domestic pools of capital. In western countries, long term or patient capital, such as pension funds, contributes nearly 40% of the capital raised by AIFs. In the Indian context, restrictions prescribed by sector regulators have inhibited fund managers from raising capital from the domestic financial services sector.

Hence, it was no surprise that one of the key themes in the 2016 reports of the Alternative Investment Policy Advisory Committee (AIPAC), chaired by Mr Narayan Murthy, was “unlocking domestic pools of capital”. The committee’s recommendation was premised on the argument that the domestic capital pools – pensions, insurance, domestic financial institutions, banks, and charitable institutions – need access to appropriate investment opportunities to earn risk-adjusted returns.

Continue Reading It’s a Yes – for Banks!

Financial investors in India are scared of regulatory uncertainties. Not that uncertainties are exclusive to our country but it’s a critical risk factor that is assessed by those making substantial investments. Historically, one of the most important regulatory concerns for such investors is related to being categorised as ‘promoter’ of a listed company, both when the company is going public and also in cases where a private equity (PE) player intends to take a control position in an already listed company, by replacing its present promoters or by becoming co-promoters. Promoter liability theories have kept such investors away from taking control positions in listed companies. On the contrary, in the unlisted space where the promoter position is perceived differently, control deals are a way of life for certain PE funds in India.

Continue Reading New Promoters on the Block: The Financial Investors

The ability to attract large scale Foreign Direct Investment (FDI) into India has been a key driver for policy making by the Government. Prime Minister Modi seems to be going along the right track, with India receiving FDI inflows worth USD 60.1 billion in 2016-17, which was an all-time high. Hence, the FDI policy of India has always been closely watched and carefully amended over the years.

On August 28th, 2017, the Department of Industrial Policy and Promotion (DIPP) had issued the updated and revised Foreign Direct Investment Policy, 2017 – 2018 (FDI Policy 2017). The FDI Policy 2017 incorporated various notifications issued by the Government of India over the past year.

Please find below a brief analysis of the key amendments brought by the FDI Policy 2017 to the erstwhile FDI Policy of 2016 and their potential impact on FDI in India:

Continue Reading India announces new Foreign Direct Investment Policy, 2017 – 2018

Mergers are compared to marriages. As a union of companies, they require patience and understanding, but they also involve a large amount of paperwork. Mergers, like marriages, can flourish with the right synergies, but if there are differences between the entities, the arrangement can often collapse. The recent breakdown of the Snapdeal – Flipkart transaction, can provide a useful context to understand the reasons for the success/failure of M&A transactions.

The success of a deal depends on the companies, the individuals, the business climate, as well as the different regulators involved in the transaction. A few common reasons for deals breaking down are – valuation differences, different expectations between the parties involved, regulatory roadblocks or a lack of consensus regarding the exit horizons.

While these are reasons general to any corporate transaction, there are some requirements specific to M&A deals that must be met in order for the deal to survive.

Continue Reading When the Engagement Ring Doesn’t Fit – Why M&A Deals Fall Apart

The foundation of every state is the education of its youth,” said Diogenes, the ancient Greek philosopher.

Herein lies the crux of why education remains vital for any government across the world, often as a charitable and social responsibility.

This piece intends to provide an overview of the education sector in India; to highlight some of the key legislations and regulatory regimes that govern education in the country; shed light on some of the recent government initiatives in the sector; and, in conclusion, make a case for increased private participation in Indian education.

Continue Reading Regulatory Hot Broth: Why Private Participation Would Add to the Flavour of the Indian Education Sector

Until recently, whilst it was possible for a foreign company to merge with an Indian company, it was not possible for an Indian company to merge with a foreign company within the court sanctioned merger framework set out under Indian corporate law. This finally changed in April 2017, when the company law provisions that govern cross border mergers were brought into force. In the same month, the Reserve Bank of India (RBI) also issued draft regulations setting out the conditions for obtaining ‘deemed’ approval from the RBI for cross border mergers. Now, companies in India desirous of merging with a foreign company may do so in specified jurisdictions.

Following are some of the key highlights of the recent regulations governing cross border mergers:

  • Jurisdiction Test

The eligible jurisdictions are: (a) those whose securities market regulator is a signatory to the Multilateral Memorandum of Understanding of the International Organisation of Securities Commission or to the Bilateral Memorandum of Understanding with the Securities and Exchange Board of India; or (b) jurisdictions whose central bank is a member of the Bank of International Settlements; and jurisdictions not identified in the public statement of the Financial Action Task Force (FATF) for deficiencies relating to anti-money laundering or combating terrorism financing or jurisdictions without an action plan developed with the FATF to address the deficiencies. Key countries like the USA, UK, Russia, Germany, France, Japan, China, Singapore, Mauritius, etc. will fall within the definition of eligible jurisdictions. Continue Reading A New Dawn for India’s Cross Border Merger Regime

The Securities and Exchange Board of India (SEBI) recently issued an informal guidance in response to a request for an interpretive letter from Kotak Mahindra Bank Limited (KMBL) on the continual disclosure requirements under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations).

Regulation 7(2) of the PIT Regulations prescribes a two-step disclosure mechanism wherein:

  1. Promoters/ employees/ directors of listed companies are required to disclose to the company, within two days of the occurrence of a transaction, the number of securities acquired or disposed, where the value of such securities in the transaction (or a series of transactions in any calendar quarter) amounts to a traded value in excess of Rs. 10 lakh.
  2. The company in turn is required to disclose such trades to the stock exchanges, on which the traded securities are listed, within two days of receipt of the disclosure or upon becoming aware of such information.

Continue Reading SEBI’s Informal Guidance on Continual Disclosures under the Prevention of Insider Trading Regulations

As per the market regulator Securities and Exchange Board of India’s (SEBI) order dated March 31, 2017, in the Kamat Hotels (India) Limited (Kamat Hotels) case, Clearwater Capital (Clearwater) had subscribed to the foreign currency convertible bonds (FCCBs) of Kamat Hotels. Pursuant to a change in the applicable regulation relating to the conversion price for FCCBs, Kamat Hotels passed necessary resolutions approving the revision in price for conversion of FCCBs. Clearwater entered into an inter-se agreement (Agreement) with Kamat Hotels and its promoters on August 13, 2010. The Agreement expired on July 31, 2014. The Agreement had certain affirmative voting rights as are typical for the private equity (PE) investors to have for protection of their interests. Clearwater decided to convert the FCCBs into equity shares on January 11, 2012. The conversion resulted in increase in the shareholding of Clearwater from 24.50% to 32.23% requiring Clearwater to make an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).

The open offer was made only under Regulation 3(1) which relates to acquisition of equity shares/voting rights and not under Regulation 4 (relating to acquisition of control). SEBI issued an observation letter on the draft letter of the offer filed for the open offer. SEBI’s letter stated that Clearwater acquired control under the Agreement in the year 2010 itself as certain affirmative voting rights/ protective covenants gave control to Clearwater and therefore, the open offer should have been made under Regulation 12 (relating to acquisition of control) of the 1997 Takeover Regulations. The protective covenants mandated approval of Clearwater before altering the share capital of Kamat Hotels, creating new subsidiaries, entering joint ventures, disposing or acquiring any material assets, lending or borrowing money beyond certain limits, winding up, etc.

Continue Reading SEBI’s Observation on Protective Covenants – Positive, But Law Not Settled Yet