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15 February, 2018
Liberalisation of the Foreign Direct Investment (FDI) Policy: The Department of Industrial Policy and Promotion (“DIPP”) has published the new consolidated Foreign Direct Investment Policy, 2017 (“2017 FDI Policy”). Several changes have been introduced to the existing legal framework including liberalisation of various sectors. Read more… (See Rider 1)
RBI issues new foreign exchange control regulations: The Reserve Bank of India (“RBI”) issued the Foreign Exchange Management (Transfer and Issue of Security by a Person Resident Outside India) Regulations, 2017 (“2017 FEMA Regulations”) replacing the earlier regulations governing investments by non-residents in Indian companies, LLPs and partnership firms. The 2017 FEMA Regulations consolidate all earlier amendments and seek to address various procedural and interpretational issues. Read more… (See Rider 2)
ODI issuances by FPIs: The Securities and Exchange Board of India (“SEBI”) has amended the existing regulations to allow foreign portfolio investors (“FPIs”) to invest in unlisted debt securities and securitised debt instruments of Indian companies. SEBI has also updated the definition of offshore derivative instruments (“ODIs”) to include any instrument issued by FPIs with unlisted debt securities and securitised debt instruments as the underlying security. This plugs a loophole in the current regulations and now all counter-parties to the ODI transaction are subject to eligibility and reporting requirements under the ODI regulations.
Implementation of the insolvency and bankruptcy code: The Insolvency and Bankruptcy Code, 2016 (“Bankruptcy Code”) has been implemented and the government has issued various regulations, amendments and clarifications during the year to operationalise and update the Bankruptcy Code. Key updates include barring defaulters from taking over companies in insolvency, fast track insolvencies for small companies, prescribing framework for information utilities and investigative powers. Read more… (See Rider 3)
Key regulatory and policy reforms introduced to deal with non-performing and stressed assets in the Indian financial sector: In the last three years the Indian government and the RBI have introduced several financial restructuring reforms and modified the existing regime to help banks and financial institutions deal with stressed assets and non-performing asset portfolios. The focus of these reforms and policy measures has been to create an enabling framework that will assist banks in disposing of stressed asset (by giving them the option to convert debt to equity or replace the management of the debtor with lender nominees) or allow banks to restructure the existing loan portfolio. Read more… (See Rider 4)
Masala Bonds need RBI approval: RBI has amended the framework for issuance of rupee denominated bonds overseas i.e., ‘Masala Bonds’. All issuers are now required to obtain prior approval from the RBI to issue Masala Bonds. Other changes relate to maturity period, all-in-cost ceiling and recognised investors. Read more… (See Rider 5)
RBI issues directions for operating peer to peer lending platforms in India: The RBI designated all non-banking institutions engaged in the business of operating a peer to peer lending platform as non-banking financial companies (“NBFC-P2P”) and has issued detailed directions for governing the establishment and operations of NBFC-P2Ps in India.
SEBI issues a new circular on schemes of arrangement by listed entities: Listed companies are required to submit any draft scheme of arrangement (“Scheme”) that they propose to undertake or be involved in to the stock exchanges for consent prior to filing the scheme before the National Company Law Tribunal (“NCLT”). SEBI has now issued a new circular (the “2017 Circular”) prescribing the procedural requirements to be complied with in this regard which supersedes the earlier circular (the “2015 Circular”). The 2017 Circular lays down detailed requirements that listed entities need to comply with while undertaking schemes of arrangements. Read more… (See Rider 6)
Mergers of Indian companies with foreign entities: The Ministry of Corporate Affairs (“MCA”) has brought into force provisions of the Companies Act, 2013 (“Companies Act”) which allow Indian companies to merge with foreign entities (companies or bodies corporate incorporated outside India) or vice versa subject to certain conditions. Previously, foreign companies could merge into Indian companies but not vice versa. Such mergers can now be carried out with approval of the RBI. Read more… (See Rider 7)
Investments by PE funds in Indian insurance companies: The Insurance Regulatory and Development Authority of India (“IRDA”) has issued guidelines relating to investment by private equity funds (“PE Funds”) in Indian insurance companies. The guidelines distinguish between PE Funds investing as investors and as promoters and prescribe conditions for each type of investment. Read more… (See Rider 8)
Delhi High Court enforces the foreign arbitral award in the Tata-Docomo dispute: The Delhi High Court has upheld enforcement of a foreign arbitral award in favour of NTT Docomo Inc. (“Docomo”) and permitted Tata Sons Limited (“Tata”) to pay Docomo for the shares transferred to it pursuant to the put option exercised by Docomo. Read more… (See Rider 9)
Real Estate Regulation Act brought into force: Over 2016 and 2017, the Indian government brought into force the Real Estate (Regulation & Development) Act, 2016 (the “RERA”) and commenced its implementation. The RERA is a comprehensive legislation governing real estate development in India with an aim to promote transparency and protect buyers. It requires each project to be registered with a specialised regulatory authority set up under the RERA and also prescribes strict duties and compliance requirements for developers with stringent penalties for any breach.
CCI passes first leniency decision and amends Leniency Regulations to address stakeholder concerns: In January 2017, the Competition Commission of India (“CCI”) issued its first decision in a leniency case. The case was initiated based on information from the Central Bureau of Investigation, alleging a cartel and bid-rigging by Pyramid Electronics, Kanwar Electricals and Western Electric & Trading Company, with respect to tenders floated by the Indian Railways for supply of electrical items. Read more… (See Rider 10)
Liberalisation of Indian merger control regime: The Government of India, through a number of measures, has made significant changes to liberalise India’s merger control regime: jurisdictional thresholds which trigger merger notification have been increased, the 30 calendar-day deadline for notifying a merger has been removed; the scope of the de minimis target exemption has been widened; and reorganisations of state-owned banks and oil/gas companies in India have been exempted from the CCI’s merger review.
Year to Come – Indian Law in 2018
Liberalisation of FDI in Single Brand Retail: The Indian government has announced liberalisation of FDI in the single brand retail sector by allowing 100% FDI in single brand retail entities under the automatic route and relaxing the mandatory local sourcing requirements. The government has also announced liberalisation of other sectors as well as various business friendly changes to the 2017 FDI Policy. These changes to the 2017 FDI Policy are expected to be notified in 2018.
Liberalisation of FDI in Private Banks: The RBI, along with the Ministry of Finance, is in discussions with various stakeholders to permit up to 100% FDI in private banks. It is currently proposed that various conditions will be applicable to such investments including conditions regarding eligible promoters, corporate and holding structure for setting up the bank and control.
The Financial Resolution and Deposit Insurance Bill, 2017: While the Bankruptcy Code provides for resolution and liquidation of non-financial firms, the Financial Resolution and Deposit Insurance Bill proposes to establish a similar special resolution regime to deal with insolvency issues of banks, insurance firms, and other financial sector entities. This bill is proposed to be introduced in the upcoming session of the Indian parliament.
Amendments to the Companies Act: The government has passed the Companies (Amendment) Act 2017 which amends the Companies Act with an aim to make the insolvency process more effective. The amendments have not yet been brought into force and are expected to be notified in 2018. The amendments, among others, (i) put restrictions on managerial remuneration when a company has defaulted on its dues, (ii) allow issuance of shares at a discount to the creditors in cases where debt is converted into shares pursuant to a resolution plan under the Bankruptcy Code or a debt restructuring scheme, and (iii) bar registered valuers from undertaking valuation of any asset in which it has direct or indirect interest for a period of three years before or after his appointment.
RBI Regulation on cross-border mergers: The provisions relating to cross-border mergers between an Indian and a foreign entity under the Companies Act were brought into force in 2017. Such cross-border mergers require approval of the RBI. The RBI has issued a draft of Foreign Exchange Management (Cross Border Merger) Regulations which set out additional conditions for such cross-border mergers. These regulations are still at a consultative stage and may be enacted in the upcoming year.
SEBI asks depositories to record NDUs: The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 require promoters of a company to disclose details of their encumbered shares including non-disposal agreements/non-disposal undertakings (“NDUs”) as they are covered within the scope of disclosures of 'encumbrances'. Currently, there is no framework to capture the details of NDUs in the depository system as these occur outside the depository system and are not reflected in the records of the depositories. In order to enable the shareholders to record the NDUs in the depository system, SEBI has issued a circular asking the depositories to develop a separate transaction type in their system for capturing and recording the NDUs. The depositories are expected to set up this system in 2018.
SEBI committee on corporate governance: SEBI had formed a committee to examine corporate governance issues of listed companies. The committee has submitted its report with various recommendations such as separation of roles of the chairman and MD, increase in board strength including number of independent directors, minimum remuneration for directors and setting up independent risk and IT committees. The Finance Ministry, the MCA and other regulatory authorities have expressed reservations on many of the recommendations on varied grounds including that they are in conflict with existing laws and that they would increase costs for companies. After discussions, SEBI is likely to implement at least some of the recommendations in 2018 for listed companies.
Data protection regime in India: The Supreme Court of India has held that the “right to privacy” is a fundamental right guaranteed under the Indian constitution. Pursuant to this, the Ministry of Electronics and Information Technology (“MEITY”) has constituted a committee of experts to study and identify key data protection issues and recommend methods for addressing them. The committee has released a White Paper of the Committee of Experts on a Data Protection Framework for India. This paper highlights various data protection issues, such as consent, purpose of data collection, big data analytics, data controllers and data protection authorities. The process is currently at the consultative stage, after which we may see the government take steps towards formulating a comprehensive data protection regime in India.
Code on Wages: The Code on Wages Bill, 2017 (“Wage Code”) is proposed to be taken up by the Parliament this year. The Wage Code will subsume four existing central labour legislations — (i) The Minimum Wages Act, 1948; (ii) The Payment of Wages Act, 1936; (iii) The Payment of Bonus Act, 1965; and (iv) The Equal Remuneration Act, 1976. The Wage Code aims to consolidate and amend the laws relating to wages and bonus and connected matters. One of the key highlights of the said code is that it proposes a ‘universal minimum wage’ for the entire working population, including the unorganised sector workers.
For further information, please contact:
Philip Badge, Partner, Linklaters
philip.badge@linklaters.com
