Earlier yesterday, the Prime Minister of India announced (Announcement) [1] a number of key changes to India’s foreign direct investment (FDI) policy, as set forth in Consolidated FDI Policy Circular of June 7, 2016 (Policy)[2]. Broadly, these changes pertain to enhancing the limits of foreign investment (FI) and easing of existing conditions regarding FI in some sectors. Through this short update post, we seek to highlight some prominent changes thus announced.

Continue Reading Key Changes to India’s FDI Regime Announced Yesterday

We take a look at recent re-notification and revised merger control thresholds to the Competition Act, 2002, and how they will reduce regulatory hurdles for smaller transactions and facilitate ease of doing business in India.

The Competition Act, 2002 (Act), requires mandatory notification to and prior approval of the Competition Commission of India (CCI) for transactions wherecertain prescribed asset or turnover thresholds (Jurisdictional Thresholds) are exceeded. By way of a notification dated 4 March 2011 (2011 Notification), the Ministry of Corporate Affairs (MCA) enhanced the value of asset and turnover as provided in Section 5 of the Act by 50 per cent. In addition to the above, the MCA by way of notification on the same date (including a corrigendum dated 27 May 2011) also introduced a de minimis exemption in case of an acquisition. The said notifications contained a validity period of five years and were set to expire on 3 March 2016.

Continue Reading Recent Changes to Merger Control

The Early Years

With the creation of the Securities and Exchange Board of India (SEBI) in 1992, the existence of the Controller of Capital Issues (CCI) which was overseeing Indian capital markets was rendered redundant. However, the pricing guidelines issued by the CCI (PG) assumed greater importance despite CCI’s redundancy, given India’s intent to attract foreign direct investment (FDI). This was especially as most FDI transactions were in the unlisted entity space whereas SEBI was regulating listed entities. As such, the PG formulated by the CCI became the guiding principle for various investments into India. As per Reserve Bank of India (RBI) stipulations, the fair value of shares (FV) to be issued/ transferred to non residents (NRs) was to be determined by a chartered accountant (CA), in accordance the PG formula laid down by the CCI.

The rationale behind these stipulations was to garner maximum value and forex for Indian shares and was resultant of the 1991 crisis on balance of payments faced by India. Principles laid down in Press Notes 18/ 1998[1] and 1/2005[2] were also aimed at strengthening Indian promoters. In so far as outgo of currency was concerned, regulatory supervision was exercised to ensure that such outflow would be heavily regulated and minimised. This mindset continued to operate in the new millennium even as substantial liberalisation of sectors took place (in the context of FDI) and even when the context changed from regulation of forex to maintenance thereof.

Continue Reading Pricing Guidelines under FEMA – A Historical Analysis

A Brief Conceptual Background

The discourse on corporate governance has been garnering considerable attention in the public domain in India, mainly due to the introduction of the Companies Act, 2013 (“Act”), the steps being taken by the Securities and Exchange Board of India (“SEBI”) in promoting governance, and the escalating activism of shareholders and proxy advisory firms (“PAFs”) in the public markets.

The corporate governance regime in India has been implemented mostly reactively, thus far. One of the reasons could be the prevalence of the family-owned businesses in India which present a distinct and additional set of governance concerns such as safeguarding the interests of minority shareholders, the fiduciary duty (if any) of the promoter(s) to minority shareholders and the duties of the board of directors in conflict situations. As such, this feature may have effectively prevented Indian regulators from adopting the governance frameworks implemented in more evolved jurisdictions like the UK or the USA. Even Germany, where the corporate ecosystem is comprised of large family-owned businesses like India, could not have an appropriate reference point for Indian regulators, given the board structures there. To elaborate, German corporations have adopted a two-tier board structure whereby representation is mandatorily available to employees on the upper tier (supervisory) board. As such, this prevalence of family owned concerns could have been one of the reasons why the Indian corporate governance regime has largely remained prescriptive and reactive.

Continue Reading Corporate Governance & Shareholder Activism

Over the last few years, there has been considerable debate in Indian corporate legal circles around the interpretation of the term ‘control’ as defined under the SEBI (SAST) Regulations, 2011 ( “Regulations”). To those unaware of this issue, the question, simply put, is this: if an investor seeks to invest in an Indian listed entity (“Target”) and as a part of its investment terms requests for and obtains, certain contractual rights that are not available to other shareholders of the Targets (“Special Rights”), would such Special Rights amount to acquisition of ‘control’ of the Target by the investor for the purposes of the Regulations? The genesis of such debate may owe its origins to conflicting definitions of ‘control’ by Indian courts and legislators or interpretations of ‘control’ by Indian regulators but that would not be the focus of the current post. Nonetheless, there is no exhaustive definition of ‘control’ and recognising its impact on deal making and M&A in the public space in India, India’s securities markets regulator, the Securities and Exchange Board of India (“SEBI”) in March of 2016 initiated the process to define ‘control’ by proposing certain bright line tests (“BLTs”).

Continue Reading Brightlining ‘Control’