Introduction On December 5, 2017, the Insurance Regulatory and Development Authority of India (the “IRDAI”) issued the IRDAI (Investment by Private Equity Fund or Alternate Investment Fund in Indian Insurance Companies) Guidelines, 2017 (the “PE Investment Guidelines”). The PE Investment Guidelines provide the framework for investments by private equity funds either as an investor or…
It is commonplace in global M&A deals for buyers and sellers to strongly negotiate the seller’s indemnity obligations, and many a times, unsatisfactory seller indemnities result in deals not going through. Effective May 20, 2016, the Reserve Bank of India (the “RBI”) amended India’s foreign exchange regulations (the “FEMA Regulations”), and imposed a requirement to…
INDIA’S TAX REGULATOR “CLARIFIES” INDIRECT TRANSFER PROVISIONS IN CASE OF REDEMPTION OF SHARES OUTSIDE INDIA
Under the provisions of the Income-tax Act, 1961 (the “ IT Act”), the income of a non-resident will be deemed to accrue or arise in India if it arises, directly or indirectly, through or from any business connection, property, asset or source of income, or from a transfer of a capital asset (shares or other interest) situated in India. The indirect transfer provision was introduced in the Finance Act, 2012, by way of Explanation 5 to Section 9(1)(i) of the IT Act, clarifying that an offshore capital asset will be treated as situated in India if it substantially derives its value (directly or indirectly) from assets located in India.
On March 25, 2009, NTT DoCoMo Inc., a company incorporated in Japan (“ NTT”), entered into a shareholders’ agreement with Tata Teleservices Ltd. (“TTL”). Under the terms of the agreement, it was agreed that if TTL failed to satisfy certain “key performance indicators” within a period of five (5) years, then TTL would be required to find a buyer to purchase NTT’s shares (26%) of TTL at the sale price that was higher of: (a) the fair value of those shares as of March 31, 2014; or (b) 50% of the price at which NTT purchased those shares. In July 2014, when TTL could not fulfill the performance indicators and, thereafter, could not find a buyer to purchase NTT’s shares, NTT requested TTL to buy the shares at the price of INR58.04 per share.
In India, under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “ Takeover Regulations”), there exists a mandatory tender offer regime for acquisition of listed companies. Under this regime, both, the acquisition of a substantial shareholding stake (25%) and the acquisition of “control” are treated equally, and require the acquirer to make an open offer to the public shareholders. Currently, under the Takeover Regulations, the test to determine what constitutes change of “control” is principle-based. Keeping in sync with global norms, in early 2016, the Securities and Exchange Board of India (the “SEBI”) released a discussion paper (the “ Paper”) to explore bright-line tests to determine what constitutes as change of “control.”
Recently, the Securities and Exchange Board of India (the “ SEBI”) has approved and notified several important changes to Indian securities regulations, including, extending relaxations from open offer and preferential issue requirements to new investors acquiring shares of distressed companies, extending relaxations from open offer requirements to acquisitions made pursuant to resolution plans approved by the National Company Law Tribunal (the “NCLT”) and exemptions from lock-in requirements at the time of initial public offer (“IPO”) to Category II Alternative Investment Funds (“ AIFs”) such as private equity funds and debt funds.
The Indian government enacted the Insolvency and Bankruptcy Code, 2016 (the “ Code”) to consolidate the law on insolvency in India, and provide an effective and timebound mechanism for recovering debts due to both, financial as well as operational creditors. The provisions of the Code are being tested in Indian courts, and an important ruling has been passed by India’s Supreme Court (the “Court”) on out-of-court settlements between parties following the commencement of insolvency proceedings.
With the aim of having a robust and efficient insolvency process and to remedy the appalling credit default situation in India, the Indian government enacted the Insolvency and Bankruptcy Code, 2016 (the “ Code”). The Code introduced sweeping reforms by consolidating the law on insolvency in India, and providing an effective and time bound mechanism for recovering debts due to both, financial as well as operational creditors.
In 2009, the Indian government implemented the provisions for prohibition of anti-competitive agreements and abuse of dominant position in India under the Competition Act, 2002 (the “Act”). More recently, antitrust litigation has picked up in India as the general public is becoming aware of various issues such as price fixing, cartel formation, tying arrangements and predatory pricing.
Under the existing provisions of section 10(38) of the Income-tax Act, 1961 (the “IT Act”), income arising from the transfer of a long term capital asset, being equity shares of a listed company or units of an equity oriented fund, is exempt from capital gains tax if the sale transaction is chargeable to Securities Transaction Tax (“ STT”) under Chapter VII of the Finance (No.2) Act, 2004 (the “Tax Exemption”)