In the Budget Speech of February 1, 2017, the Finance Minister (FM) announced that the Government has “decided to abolish the Foreign Investment Promotion Board (FIPB) in 2017-18”. He also announced that the roadmap for the same is expected to be announced in the next few months, and in the meantime, “further liberalisation of FDI policy is under consideration.”

Considering that the “Approval Route” now forms only 10% or so of the FDI inflow, this decision appears logical. It is ironic, however, that this announcement should be hailed as a step to further improve “ease of doing business”, when the FIPB actually stands for “promotion of foreign investment”. Continue Reading FIPB – The Sunset Year

On December 7, 2016, the Ministry of Corporate Affairs (MCA) notified and brought into operation a significant chunk of sections under the Companies Act, 2013, including provisions relating to compromises, arrangements, reconstructions, mergers and amalgamations, with effect from December 15, 2016 (the Notification). This marks a paradigm shift in the corporate restructuring process, which is all set to undergo a transition from the earlier restructuring processes under the aegis of the High Courts, to National Company Law Tribunals (NCLTs), constituted with effect from June 1, 2016.

The MCA notified the Companies (Removal of Difficulties) Fourth Order, 2016, and the Companies (Transfer of Proceedings), Rules, 2016, on the same date as the Notification, clarifying that proceedings relating to schemes will stand transferred, forthwith, except where orders have been reserved. While applicants with final hearings on or before December 14, 2016, who were expecting orders to be reserved, heaved a sigh of relief, other applicants were caught in a limbo, while prospective applicants were left to surmise, and gear up for implementation of the new provisions, yet to be tested by NCLTs. The Notification was soon followed, on December 14, 2016, by the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, on sanction of schemes by NCLTs. Continue Reading National Company Law Tribunal: In the Scheme of Things

One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption.

Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognised in the Indian legislative framework. Under section 177(9) of the Companies Act, 2013, it is mandatory for every listed company to establish a vigilant mechanism for directors and employees. Furthermore, the revised clause 49 of the listing agreement mandates that the company must establish a whistleblower mechanism with adequate safeguards against victimisation of whistleblowers.

Whilst immensely beneficial, tipping off/whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistleblowers themselves. While there is no ‘one size fits all’, certain aspects, as detailed below, should be considered by any company seeking to establish a whistleblower mechanism: Continue Reading Who Can Hear The Whistle Blow? Whistleblowing And Its Impact On Corporate Governance In India

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