Debt Funding in India
Debt Funding in India
Debt Funding in India
February 2019
February 2019
ndaconnect@nishithdesai.com
Contents
GLOSSARY 01
1. INTRODUCTION 03
I. Investment Instruments 04
II. Investment Routes 04
III. Onshore Investment Vehicles 05
3. INVESTMENT ROUTES 06
4. INVESTMENT VEHICLES 15
5. TAXATION 22
I. Taxation 22
II. Tax Treaties And Jurisdictions 24
6. DISPUTE RESOLUTION 25
7. SECURITY ENFORCEMENT 28
ANNEXURE I 32
ANNEXURE II 33
Investment Instruments 33
ANNEXURE III 34
ANNEXURE IV 36
Jurisdiction Comparison 36
ANNEXURE V 37
Types of NBFC 37
ANNEXURE VI 39
ANNEXURE VII 41
Glossary
Si no. Term Explanation
1. A&C Act 1996 The Arbitration & Conciliation Act, 1996
2. AD Banks Authorized Dealer Category-I banks
3. AIF Alternative Investment Fund
4. AIF Regulations Securities and Exchange Board of India (Alternative Investment Funds)
Regulations, 2012
5. ARC Asset Reconstruction Companies
6. Bankruptcy Code The Insolvency and Bankruptcy Code, 2016
7. BEPS Base Erosion and Profit Shifting
8. CBDT Central Board of Direct Taxes
9. CCDs Compulsorily Convertible Debentures
10. CCPS Compulsorily Convertible Preference Shares
11. CRAR Capital to risk weighted assets ratio
12. DDT Dividend Distribution Tax
13. DHCAC Delhi High Court Arbitration Centre
14. ECB External Commercial Borrowing
15. ECB Master RBI Master Direction No.5 dated January 1, 2016 ‘External Commercial Borrowings, Trade
Directions Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other
than Authorised Dealers’
16. FATF Financial Action Task Force
17. FDI Foreign Direct Investment
18. FDI Policy Foreign Direct Investment Policy issued by the Department of Industrial Policy and Promotion
19. FEMA Foreign Exchange Management Act, 1999
20. Foreign Equity Foreign equity owners holding at least 25% shareholding in the Indian entity
Holder
21. FPI Foreign Portfolio Investor
22. FPI Regulations SEBI (Foreign Portfolio Investors) Regulations, 2014
23. FPIs Foreign Portfolio Investors
24. FVCI Foreign Venture Capital Investors
25. FVCI Regulations SEBI (Foreign Venture Capital Investors) Regulations, 2000
26. GAAR General Anti-Avoidance Rules
27. GAAR General Anti Avoidance Rules
28. HUF Hindu Undivided Family
29. ICDR Regulations SEBI (Issue of Capital and Disclosure) Regulations 2009
30. IRP Interim Resolution Professional
31. IRPs Insolvency Resolution Professionals
32. ITA Income Tax Act, 1961
33. ITA Indian Information Technology Act
34. LLP Limited Liability Partnership
35. LLP Act Liability Act, 2008
36. LTCG Long Term Capital Gains
37. MAT Minimum Alternate Tax
38. MLI Measures to Prevent Base Erosion and Profit Shifting
39. NBFC non-banking financial company
40. NBFC Regulation Directions issued by RBI for governance of each kind of NBFC
41. NBFC-D Deposit Accepting or Holding NBFCs
42. NBFC - IFC Infrastructure Finance Company
43. NBFC-ND-NSI Non-Systemically Important Non-Deposit Accepting or Holding NBFCs
44. NBFC-ND-SI Systemically Important Non-Deposit Accepting or Holding NBFCs
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1. Introduction
Investment into companies are generally in the form With banks facing constraints on lending, Indian
of equity investment or debt investment. Equity companies have been looking at alternative modes
instruments provide the investor direct upside from of funding Private debt funds have seen a substantial
the operations of the investee company, along with rise in the Indian debt scenario due to increasing
substantial control rights. On the other hand, debt opportunities. The emergence of these debt
investments provide investors downside protection, platforms can also be attributed to the enactment of
guaranteed returns and security against the sums the Insolvency and Bankruptcy Code, 2016 in India,
advanced. In the last couple of decades alternative which provided creditors with substantial powers
means to bank lending also emerged to cover for the enabling them to ensure that the promoters of the
debt needs of Indian companies. Another paradigm Indian companies do not go rogue.
shift that investments into Indian companies that
The changing dynamics of the Indian regulatory
was noticed was the use of hybrid instruments,
framework has also resulted in debt funds / investors
merging the benefits of debt instruments (such as
being compelled to look at various structures for debt
downside protection and guaranteed returns) as well
investments into India. Some of these regulatory
as of equity instruments (such as upside sharing and
requirements include minimum residual maturity
controlling rights).
for corporate bonds issued to foreign portfolio
The Indian central bank, the Reserve Bank of India investors, concentration norms for foreign portfolio
has undertaken stern measures in the last 2 years to investors investing into Indian corporate bonds,
clean up the non-performing assets in India. In the thin capitalization norms for Indian corporates,
backdrop of these measures, banking institutions applicability of the International Financial
in India have been more cautious in lending to Reporting Standards (IFRS) for Indian companies
companies. Further, a few banks have been put and enactment of the General Anti-Avoidance Rules
under RBI’s Prompt Corrective Action (PCA) plan, under the Indian tax regime. (Refer Annexure I for
thereby restricting the ability of these banks to lend. comparative analysis of debt vs equity). This paper
discusses structures and strategies for offshore debt
investors to invest in India.
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III. Onshore Investment ii. Alternative Investment Fund (“AIF”) means any
fund established or incorporated in India which
Vehicles is a privately pooled investment vehicle which
collects funds from sophisticated investors,
i. Non-Banking Finance Companies (“NBFC”) whether Indian or foreign and invests it for the
means a company incorporated under the benefit of its investors.
Companies Act, 2013, engaged in the business
iii. Asset Reconstruction Companies (“ARC”)
of loans and advances, acquisition of bonds
means a company which purchases bad assets
and marketable securities issued in relation to
or Non-Performing Assets (“NPAs”) from banks
leasing, hire-purchase, insurance business, chit
or financial institutions in exchange for SRs.
business but does not include any institution
Thus, helps banks clean up their balance sheets
whose principal business is that of agriculture
and helps revive the stressed company.
activity, industrial activity, purchase or sale of
any goods (other than securities) or providing
any services and transfer of immovable property.
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3. Investment Routes
a. Optionality: Instruments subscribed to by
I. Foreign Direct Investment foreign investors may contain an optionality
clause (such as a put/call option), subject to a
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h. Production of bio-fuels
b. The investment shall be made in the following
manner:
i. Hotel-cum-convention centres with seating
capacity of more than three thousand
i. at least 66.67% of the investible funds shall
be invested in unlisted equity shares or
equity linked instruments of venture capital
undertakings or investee company;
1. Venture capital undertaking means a domestic company:- (i)
which is not listed on a recognized stock exchange in India at
the time of making investment; and (ii) which is engaged in the ii. up to 33.33% of the investible funds may be
business for providing services, production or manufacture of
article or things, and does not include the following activities
invested by way of:
or sectors: (1) non-banking financial companies, other than
Core Investment Companies (CICs) in the infrastructure sector,
Asset Finance Companies (AFCs), and Infrastructure Finance
Companies (IFCs) registered with Reserve Bank of India; (2) gold
financing; (3) activities not permitted under industrial policy of
the Government of India; and (4) any other activity which may
be specified by the Board in consultation with the Government
of India from time to time.
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§§preferential allotment of equity shares of a iv. Exemptions under the Takeover Code
listed company, subject to a lock-in period
Regulation 10 of the SEBI (Substantial Acquisition
of one year; and
of Shares and Takeovers) Regulations, 2011
iii. the life cycle of the fund shall be disclosed by (“Takeover Code”) provides an exemption from open
the FVCI entity. offer obligations to promoters of a listed company,
acquiring shares of the listed target company, from an
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F. Diversification: (50/20)
E. Considerations
Foreign exchange control regulations currently
FPIs are allowed to purchase instruments of an permit foreign investments into India by way of
Indian company through public offer or private unlisted or listed NCDs. Subscribing to NCDs was
placement, subject to the individual/ aggregate the most preferred route of foreign investment by
limits, and the following conditions: FPIs due to substantial regulatory flexibility with
respect to structuring returns from investment, as
a. In case of subscription by way of public offer,
well as tax planning. FPIs were earlier permitted
the price of the shares issued to FPIs shall not
to hold 100% of the NCDs issued by a borrower,
be less than the price at which shares are issued
whereas investment by FPIs into equity was
to resident investors.
restricted. RBI and SEBI recently issued circulars
which introduced limits on exposure a single FPI
b. In case of subscription by way of private
could take into a single borrower group to 20% of
placement, the price shall not be less than:
the debt portfolio, as well as the maximum extent to
(i) the price arrived at in terms of the Pricing
which a single investor could subscribe in a single
Guidelines (as applicable to FDI investment)
bond issuance which was set at 50% of the relevant
issued by SEBI; or (ii) the fair price worked out
issue. Such test has to analyzed on a group basis and
as per any internationally accepted pricing
hence related FPI entities and investment by FPI into
methodology for valuation of shares, on an
related companies, will have to kept in mind while
arm’s length basis. Such fair price arrived at
calculating the limits and setting up investment
shall be certified by a SEBI registered Merchant
structures. (Refer Annexure VII for our hotline on
Banker or CA, or a practicing Cost Accountant.
the 50/20 diversification)
c. Minimum maturity period of the NCDs shall
be one year. The minimum residual maturity
has been reduced from 3 years to 1 year vide a
IV. External Commercial
recent circular dated April 27, 2018. This change Borrowing
is prospective in nature, and does not impact
NCDs issued before the date of the circular.
A. Introduction
d. If foreign investment by an FPI is made up to
ECBs are commercial loans that are raised by certain
an aggregate limit of 49% of the paid-up equity
eligible Indian companies from eligible non-
share capital of the Indian company, or the
residents. ECBs can be raised as plain vanilla loans,
applicable statutory/sectoral cap, whichever is
capital market instruments (such as floating rate
lower, no government approval or compliance
notes, fixed rate bonds, non-convertible debentures,
with sectoral conditions is required. However,
non-convertible, optionally convertible, or partially
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convertible preference shares and debentures), borrowers are required to send their requests to the RBI
foreign currency convertible bonds, foreign currency through their AD Banks for examination.
exchangeable bonds, buyers’ credit, suppliers’ credit
Individual Limits: The following limits apply to the
and financial lease. RBI regulates the ECB route very
amount of ECB which can be raised in a financial
closely. Hence, Indian entities can undertake the
year under the automatic route, and are further
borrowings by confirming to various parameters
applicable to all three tracks:
such as minimum maturity, permitted and non-
permitted end-uses, maximum all-in-cost ceiling, etc.
a. Up to USD 750 million or equivalent
These parameters apply in totality and not on
for the companies in infrastructure and
a standalone basis. The ECB route comprises
manufacturing sectors, NBFC-IFCs, NBFCs-
of the following three tracks:
AFCs, Holding Companies and CICs
§§Track I: Medium term foreign currency b. Up to USD 200 million or equivalent for
denominated ECB with minimum
companies in software development sector
average maturity of 3/5 years.
c. Up to USD 100 million or equivalent for
§§Track II: Long term foreign currency entities engaged in micro finance activities
denominated ECB with minimum
average maturity of 10 years. d. Up to USD 500 million or equivalent for
remaining entities
§§Track III: Indian Rupee (INR) denominated ECB
with minimum average maturity of 3/5 years. Beyond these aforesaid limits, investments through
the ECB routes would fall under the approval route.
However, it may be noted that NCDs issued to FPIs
Further, when the ECB is raised from direct equity
shall not be construed to be investments routed
holder, these individual limits will also be subject to
through the ECB Route. Investments made by FPIs
the ECB liability: equity ratio requirement (i.e. the
into NCDs in India shall not fall under the ECB Route.
ECB liability of the borrower should not be more
than seven times of the equity contributed by the
All circulars, instructions, etc. in respect of ECB
Foreign Equity Holder). However, an exemption is
transactions have been now compiled in the
provided for this requirement where the total
RBI Master Direction No.5 dated January 1, 2016
of ECBs raised by an entity does not exceed
‘External Commercial Borrowings, Trade Credit,
USD 5 million or equivalent.
Borrowing and Lending in Foreign Currency
by Authorised Dealers and Persons other than
Authorised Dealers’ (which is amended from time to C. Considerations
time) (“ECB Master Directions”).
a. Hedging requirement
B. Routes and Instruments Eligible borrowers of ECBs and RDBs (as outlined
above) are required to have a board-approved
ECBs can be raised under either:
risk management policy, including the policy
of keeping their ECB exposure hedged at 100%
§§The automatic route; or
at all times/ Entities raising ECBs under Tracks
§§The approval route (i.e. where the terms of the I and II are required to follow the hedging
ECB would require a prior approval from the RBI guidelines issued by the concerned sectoral
before the loan can be availed). or prudential regulator.
With respect to the automatic route, each specific case Further, the ECB borrower is required to hedge
is examined by an Authorized Dealer Category-I banks the principal as well as coupon payments. The
(“AD Banks”). For the approval route, the prospective minimum tenor of financial hedge is one year,
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with a periodic rollover such that the exposure §§Eligible borrowers and lenders: Each track
is not unhedged at any time during the currency specifies the persons who can be eligible
of the ECB. borrowers of lenders. Foreign equity owners
holding at least 25% shareholding in the Indian
b. End use restrictions
entity directly are recognized as eligible lenders
(“Foreign Equity Holder”)
The end-use restriction prescribed for each ECB
Track as well as RDBs is very high. Thus, the
§§ Security: Borrowers are free to provide any security,
sectors for while ECBs can be employed are
as it may agree with the lender as a security for
limited, to which extent, foreign investors may
ECB, provided the agreement for the ECB contains
prefer going through the FPI Sector which has
a clause requiring the creating of such security and
opened up maximum sectors for investment,
a no objection certificate from existing lenders
and prescribes very few sector-linked conditions,
in India has been obtained. However, in case of
subject to certain compliances.
immovable property being provided as security, at
the time of enforcement, the sale of the property
c. Eligibility Requirements:
must necessarily be to an Indian resident, and the
The biggest hit to the RDB regime has been the proceeds used to repay the ECB.
restriction placed on related parties of the issuer.
Since the definition of a “related party” under §§Currency: ECB can be raised in any freely
convertible foreign currency as well as in INR.
the Indian Accounting Standards is quire broad,
issuing companies will be restricted from raising
§§Proceeds: ECB proceeds meant for INR
loans in RDBs from their holding, parent or
expenditure should be repatriated immediately
group companies.
for credit to the borrower’s INR accounts with
the AD Banks in India. ECB borrowers are also
d. Prescribed All-in-cost Ceiling:
allowed to park ECB proceeds in term deposits
For Tracks I and II the prescribed ceiling is 450 with AD Banks in India up to a maximum period
basis points over 6-month LIBOR of applicable of 12 months. These term deposits should be kept
currency. If the current rate of USD LIBOR in unencumbered position.
for a 6-month maturity is around 2.5%, the
ECB proceeds meant for only foreign currency
maximum possible return the foreign investor
expenditure can be parked abroad until they are
will be able to make is limited to ~7%. These
utilized. Prior to utilization, they can be invested in
returns are significantly less as compared to
the certain specified liquid assets.
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Some of the features of the route for availing ECB by investors. Investment by recognized investors
way of issuance of RDBs are provided below: is subject to the condition that the eligible Indian
entities cannot issue RDBs to related parties as
a. Eligible Borrowers: Any corporate or body
classified under Indian Accounting Standards.
corporate is eligible to issue RDBs, including SEBI
Under Indian Accounting Standards, the
regulated Real Estate Investment Trusts (REITs)
definition of related party is quite broad and
and Infrastructure Investment Trusts (InvITs).
includes, inter alia: parent entities, holding
Further, Indian banks are also eligible to issue
companies, majority shareholders, persons
RDBs by way of Perpetual Debt Instruments
having significant influence over the entity,
(PDI) which qualify for inclusion as additional
persons who are employed in key managerial
Tier 1 capital, and debt capital instruments
positions of the entity, entities which are
which qualify for inclusion as additional Tier
engaged in a joint venture, and sister concerns.
2 capital, as well as issuing long term RDBs for
financing infrastructure and affordable housing. c. Minimum Maturity: Minimum original
maturity period for Rupee denominated bonds
b. Recognized Investors: RDBs can be issued in,
raised up to USD 50 million equivalent in INR
and subscribed by a resident of a country:
per financial year should be 3 years and for bonds
raised above USD 50 million equivalent in INR
§§which is a member of the Financial
per financial year should be 5 years. The call
Action Task Force (“FATF”) or its regional
and put option, if any, shall not be exercisable
equivalent;
prior to completion of minimum maturity.
§§whose securities market regulator is a Transfer to eligible parties is permitted within
part of the Appendix A signatory to the the minimum maturity. In genuine cases the
International Organization of Securities authority may permit early redemption.
Commission’s (IOSCO’s) Multilateral
d. All-in-cost ceiling: Interest rate offered and
Memorandum of Understanding or is a
paid will be governed by the all-in-cost ceiling.
signatory to the bilateral Memorandum of
The all-in-costs ceiling has been capped at
Understanding with SEBI for appropriate
450 basis points over the prevailing yield for
information sharing arrangements; and
government securities for corresponding
§§ is not a country identified in the public maturity period. The term ‘All-in-Cost’ includes
statement of the FATF as: (i) a jurisdiction rate of interest, other fees, expenses, charges,
which has strategic deficiencies in anti- guarantee fees whether paid in foreign
money laundering or in combating the currency or Indian Rupees (INR) but will not
financing of terrorism (activities to which include commitment fees, pre-payment fees
FATF has suggested counter measures); / charges, withholding tax payable in INR. In
or (ii) a jurisdiction that has not made the case of fixed rate loans, the swap cost plus
progress in addressing the aforementioned spread should be equivalent of the floating rate
deficiencies or has not committed to an plus the applicable spread.
action plan developed in consultation with
e. End-use restrictions: The proceeds from
the FATF to address these deficiencies.
the issuance of the RDBs can be used for any
Related party within the meaning as given purpose, except (i) real estate activities (not
in Ind-AS 24 cannot subscribe or invest in òr being development of integrated townships/
purchase such bonds. affordable housing projects), (ii) investment
into capital markets and equity investments
Further, Multilateral and Regional Financial
domestically; (iii) on-lending activities; (iv)
Institutions of which India is a member
purchase of land; and (v) activities prohibited
country are also considered as recognized
under the foreign direct investment guidelines;
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f. Security: The ECB Master Direction permits g. Hedging: Under the ECB Master Directions,
creation of security for the purpose of securing the investors are permitted to hedge currency
the RDBs. The security creation must be risk through AD Banks in India. Additionally,
required in accordance with the terms of the the investors are also permitted to hedge
lending/ facility agreement. Practically it has the risk offshore through foreign branches
been more favorable to have the security to be or subsidiaries of Indian banks or foreign
created in a debenture trustee in India on the banks which have a presence in India. For all
behalf of the lender, as it reduces the costs at purposes, the exchange rate applicable on the
the time of transfer of RDBs in the future. date of the settlement of the transaction would
be considered as the exchange rate for the
purpose of the RDBs.
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4. Investment Vehicles
Investment
Offshore Fund
Manager Management
Services
Singapore SPV
(FDI + FPI + FVCI)
Offshore
India
Management
Investment Services
NBFC
Manager Onshore
AIF
PORTFOLIO COMPANIES
PROS CONS
Onshore leverage Pricing norms, as per TISPRO, will apply
Listing, repatriation and attendant liquidity Minimum Net Owned Funds of INR 20 million
Security creation - SARFAESI benefits Minimum capital adequacy ratio of 15% to be maintained
NBFC is a resident entity, and accordingly, all instruments Tier I capital shall be minimum 10%
are permitted including loans including loans
Double level of taxation – 30% at the NBFC level and tax of
approximately 20% on dividend distribution
Concentration Norms
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vi. (f) perpetual debt instruments issued by f. Capital risk adequacy ratio means the ratio of
a non-deposit taking non-banking financial the aggregate of Tier 1 and Tier 2 capital to the
company which is in excess of what qualifies risk weighted assets of the company. Assets
for Tier I Capital, are assigned weights as given in the NBFC
Regulations.
c. Owned Fund of a company means the
aggregate of (i) the paid-up equity share capital;
(ii) compulsorily convertible preference shares;
D. Prudential Norms
(iii) free reserves; (iv) the balance in securities
a. No applicable NBFC shall,
premium account; and (v) capital reserve
account, to the extent that it represents the i. (i) lend to - (a) any single borrower exceeding
surplus arising out of the proceeds of sale of 15% of its owned fund; and (b) any single group
assets less (i) accumulated balance of loss; (ii) of borrowers exceeding 25% of its owned fund
deferred revenue expenditure; and (iii) other
ii. (ii) invest in - (a) the shares of another
intangible assets.
company exceeding 15% of its owned
d. Net Owned Fund means Owned Fund less (i) fund; and (b) the shares of a single group of
investment made by the company in shares of companies exceeding 25% of its owned fund
its subsidiaries, group companies, and all other
iii. (iii) lend and invest (loans/investments taken
NBFCs; and (ii) book value of all debentures,
together) exceeding; - (a) 25% of its owned
bonds, outstanding loans and advances
fund to a single party; and (b) 40% of its
(including hire-purchase and lease finance)
owned fund to a single group of parties.
made to and deposits with its subsidiaries and
group companies, to the extent that it exceeds
b. For calculation of the above concentration limits
10% of the owned fund.
(i) investments in shares of; or (ii) book value
of debentures, bonds, outstanding loans and
e. Principal Business: The Act has remained silent
advances (including hire-purchase and lease
on the definition of ‘principal business’ and
finance) made to, and deposits with, subsidiaries
has thereby conferred on the regulator, the
and companies in a group, shall be excluded.
discretion to determine what is the principal
business of a company for the purposes of
regulation. Accordingly, the test applied by RBI E. Acquisition of NBFC
to determine what is the principal business of
For transfer of 26% or more of a paid-up capital of an
a company was articulated in the Press Release
NBFC, prior approval of the RBI would be required.
99/1269 dated April 8, 1999 issued by RBI.A
On a case to case basis in case of intra-group transfers,
company is regarded as an NBFC if it satisfies
NBFC shall submit an application, on the company
the following two requirements: (i) more than
letter head, for obtaining prior approval of the Bank.
50% of the company’s total assets (netted off by
Based on the application of the NBFC, it would be
intangible assets) are financial assets; and (ii)
decided, on a case to case basis, which documents
income from the financial assets is more than
the NBFC requires to submit for processing the
50% of the gross income. The determination
application of the company.
of these factors is to be done basis the last
audited balance sheet of the company, and these
Setting up of an NBFC can take anywhere between 6 to
factors will determine the ‘principal business’ of a
8 months, which is why typically many debt players
company. This test is also referred to as the ’50-
prefer to acquire an existing NBFC. Acquisition process
50 test,’ and any company fulfilling both these
could take up to 3 months and can be rather simpler.
requirements will have to obtain a certificate of
At the time of acquisition diligence of NBFC should be
registration as an NBFC from the RBI.
carefully carried out. .
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ii. Category II AIF - Do not fall in Category I e. The AIF Regulations require that the sponsor/
and III and which do not undertake leverage manager of an AIF shall have a certain
or borrowing other than to meet day-to-day continuing interest in the AIF. For Category
operational requirements I and II AIFs, such interest must be not less
than 2.5% (two and half percent) of the corpus
iii. Category III AIF - employ diverse or complex
or INR 5 crores), whichever is lesser and for
trading strategies and may employ leverage
Category III AIFs, the interest must be not less
including through investment in listed or
than 5% (five percent) of the corpus or INR 10
unlisted derivatives.
crores, whichever is lesser.
PROS CONS
No limitation on the instruments (NCD/ OCD/ RPS 25% of corpus - diversification requirement over the life of
permitted) the fund
Much liberalized concentration limits of 25% of corpus Manager / sponsor has to be an Indian incorporated entity,
as compared to NBFC though foreign ownership of such entity is permitted
Light touch regulations Sponsor commitment of 2.5% of the corpus, or INR 50
million, whichever is lower
Ease of upstreaming with limited tax leakage Leverage at the fund level is not permitted for Category I and
Category II AIFs
Direct foreign investment permitted with ease If sponsor/ manager is not resident owned or controlled,
investments in “capital instruments” by AIF is indirect foreign
investment
No listing regime for AIF
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Investor
Units
India
Sponsor Investment
Trustee Sponsor Units
Trusteeship services Manager
Fund
Management
services
Equity / Debt
Invesments
Portfolio Companies
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5. Taxation
which such start up is set up has been provided for in
I. Taxation Budget for the financial year 2018-2019.
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from the transfer of listed equity shares, units of an test the business purpose of a transaction in order
equity oriented mutual fund, or units of a business to determine whether it is lawful; (c) to determine
trust where such gains exceed INR 100,000. This the features of an artificial transaction, scheme or
tax is applicable on LTCG arising on or after April arrangement that has been entered into solely to
1, 2018 and no indexation benefits can be availed attract a tax advantage.4
of. However, the Finance Act 2018 also introduced
The legislative intent of introducing the GAAR
limited grandfathering in respect of protecting
provisions is explained in the Memorandum
the gains realized on a mark to market basis up to
of the Finance Bill, 2012. This states that GAAR
January 31, 2018 and only an increase in share value
has been introduced to deal with aggressive tax
post this date would be brought within the tax net.
planning and the need for GAAR provisions were
Short term capital gains arising out of sale of listed
to codify the doctrine of ‘substance over form’. To
shares on the stock exchange are taxed at the rate of
prevent situations where the transaction and the
15%, while such gains arising to a non-resident from
structure is seemingly in line with the tax laws
sale of unlisted shares is 40%.
but the transaction has been entered into to attract
a tax advantage or avoid tax consequences. The
E. GAAR real intention of the parties will be considered and
purpose and need for the transaction will be analysed.
India has introduced wide General Anti Avoidance
Rules (“GAAR”) which provide broad powers to the
tax authorities to deny a tax benefit in the context F. Thin Capitalization Norms
of ‘impermissible avoidance arrangements’. GAAR
The FA, 2017 introduced thin capitalization rules
has come into effect from April 1, 2017 and overrides
within the ITA (“Thin Capitalization Norms”) to
tax treaties signed by India. Investments made up to
curb companies from enjoying excessive interest
March 31, 2017 are grandfathered, and GAAR applies
deductions, while effectively being akin to an equity
prospectively, i.e. to investments made after April 1, 2017
investment. This move would have a significant
Further, the Central Board of Direct Taxes (“CBDT”) impact on investments into India through the debt
has clarified that general and specific anti avoidance route – both in respect of CCDs and NCDs which
rules can co-exist and applied as and when necessary are widely used methods for structured finance into
as per the facts of the situation. Although the India. Thin Capitalization Norms provide that where
CDBT has noted that anti-abuse rules in tax treaties an Indian company or PE of a foreign company
may not be sufficient to address all tax avoidance makes interest payments (or similar consideration)
strategies and therefore domestic anti-avoidance to its associated enterprise, such interest shall not be
rules should be applied, it has also clarified that if deductible at the hands of the Indian company / PE
avoidance is sufficiently addressed by Limitation of to the extent of the “excess interest”. Excess interest
Benefits clauses in treaties, i.e. clauses which limit means an interest amount that exceeds 30% of the
treaty benefits to those persons who meet certain EBITDA of the Indian company / PE. In the event the
conditions, GAAR would not apply.3 interest payment payable / paid is less than excess
interest, the deduction will only be available to the
Generally, statutory GAARs across various
extent of the interest payment payable / paid.
jurisdictions are used to achieve one or more of the
following purposes: (a) to target transactions which
seemingly comply with the literal interpretation of
tax legislations, but which generate tax advantages
that the State considers to be against the legislative
intent; (b) to establish economic substance or to
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II. Tax Treaties And The MLI is to be applied alongside existing tax
treaties, modifying their application in order to
Jurisdictions implement BEPS measures. Specifically, the provisions
of the MLI require the mandatory amendment of
India has entered into more than 80 treaties for bilateral tax treaties to allow for certain minimum
avoidance of double taxation. A taxpayer may be taxed standards to be applied in respect of bilateral treaties.
either under domestic law provisions or the tax treaty Importantly, the minimum standards include the
to the extent it is more beneficial. A non-resident denial of treaty benefits, if obtaining such benefits
claiming treaty relief would be required to file tax was one of the purposes of a transaction resulting in
returns and furnish a tax residency certificate issued by the benefit. From a business point of view, this will
the tax authority in its home country. The tax treaties create difficulties for businesses, based on the manner
also provide avenues for exchange of information of its subjective application. These provisions raise
between countries and incorporate measures to curb the level of uncertainty when it comes to structuring
fiscal evasion. Based on analysis of various tax treaties business operations, and their applicability alongside
and its comparison against the Indian Information the recently introduced GAAR may reduce ease of
Technology (“IT)” Act we have prepared the doing business due to the ambiguity on whether both
comparative table in Annexure IV. provisions could potentially be applied at the same
time or to the same transaction. The MLI has come
India has also recently signed the Multilateral
into force on July 1, 2018, following the deposit of the
Convention to Implement Tax Treaty Related
instrument of ratification by a fifth country.
Measures to Prevent Base Erosion and Profit Shifting
(“MLI”), in furtherance of the OECD’s Base Erosion
and Profit Shifting (“BEPS”) project.
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6. Dispute Resolution
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IV. Contract Act and where a contract is broken, the party suffering from the
breach of contract is entitled to receive compensation
Damages from the party who has broken the contract. However,
no compensation is payable for any remote or indirect
Under Indian law, parties can choose to opt for the loss or damage. Section 74 deals with liquidated
remedy of specific performance or damages upon damages and provides for the measure of damages
a breach of contract. The goal of damages in tort in two classes: (i) where the contract names a sum to
actions is to make the injured party whole through be paid in case of breach; and (ii) where the contract
the remedy of money to compensate for tangible and contains any other stipulation by way of penalty. In
intangible losses caused by the tort. The remedy of both classes, the measure of damages is the reasonable
damages for breach of contract is laid down in Sections compensation not exceeding the amount or penalty
73 and 74 of the Contract Act. Section 73 states that stipulated for.
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7. Security Enforcement
Significant changes have taken place in the past the Companies Act, 1956. However, proving
three years in the way in which debt enforcement insolvency of the debtor, and once proved, the
mechanisms work in India. Previously, there were only a process of liquidation, usually took upwards of a
few options to recover debts owed by a defaulting debtor. decade. The liquidator would be from the office
Arbitration under the Arbitration and Conciliation Act, of the government liquidator and would not act
1996, civil suits for recovery of money or enforcement efficiently resulting in wasted leakage of value at
of mortgage, the procedure laid down under the the liquidation stage and further delays.
SARFAESI, or proceedings to wind up a company under
The present government has maintained a strong
the Companies Act, 1956. These options were time
focus on improving India’s rankings in the World
consuming and the changes that have taken place have
Bank’s ease of doing business rankings. This has led
ensured not only speedy recovery of debts, but also
to the government introducing seminal reforms to
control in the hands of the creditor.
improve enforcement of contracts in India, which
The mechanism that existed prior are as follows: has consequently improved security enforcement.
Further, it has been a consistent policy of the
i. The parties could adopt arbitration so as to
government to place offshore investors and domestic
crystalize the debt. However, the arbitration
investors on the same footing. The negative impact
process was protracted there were no obligations
of inefficient debt enforcement mechanisms on
on the arbitrator to comply with a reasonable
India’s sovereign ratings have ensured that it remains
time period to complete the arbitration
a priority in the eyes of the government. These
proceedings. Further, arbitral proceedings often
measures and their impact are:
ended up in protracted court litigation, which
could take upwards of ten years, due to high
degree of court interference. I. Revamped Arbitration
ii. The creditor could file a civil suit in a court of Regime
appropriate jurisdiction for recovery of debts or
for enforcement of mortgage. However, it was a. A new arbitration regime has been introduced
hard for creditors to prove outstanding debts, which provides for fast track arbitration, loser
even if such debts were apparent from the books. pays cost regime, faster enforcement of awards
Further, convoluted court procedures allowed etc. A key feature of the amendment is that
defaulters to extend the litigation, leading to the it introduces a timeline of 12-18 months for
litigation becoming time intensive. completion of arbitration.
iii. Under the SARFAESI Act, 2002, banks, Asset b. There has been a complete change in attitude of
Reconstruction Companies and Financial courts towards arbitration proceedings. The recent
Institutions could recover outstanding debts by series of judgments reflect that the courts take
claiming ownership (for the purposes of sale) hands off approach when dealing with challenges
over assets that were part of the security. Upon to arbitral awards. Furthermore, merely pendency
default, secured creditors could then sell the assets of a challenge in court can no longer be a ground
to satisfy the debt and interest amounts. However, to resist enforcement of an award. This has
the applicability of this Act was restricted to Banks, removed the time lag in enforcement of an
ARCs and specified FIs alone. award. (See Associate Builders v. Delhi Development
Authority, 2014 (4) ARBLR 307(SC); Etizen Bulk A/S
iv. A creditor could file a petition for winding up
v Ashapura Minechem Ltd. and Anr., Civil Appeal
of a company on account of insolvency under
Number 5131-5133 of 2016 (SC);)
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c. There were a number of cases where defaulters c. Upon acceptance, within 15 days, a Committee
or parties reneging from freely entered of Creditors (“CC”) is formed, and an Insolvency
contractual obligations relied upon the Resolution Professional (“IRP”) is appointed
exchange control regulations to defeat claims of to take over the powers of the Board. The CC is
the creditors. However, courts have consistently responsible for coming up with a Restructuring
refused rejected these grounds and allowed for Proposal/Plan, which is to be accepted by
enforcement of foreign arbitral awards in India. 75% of all creditors (by value) before being
(See Cruz City 1 Mauritius Holdings v. Unitech implemented.
Ltd.; POL India Projects Ltd. v. Aurelia Reederei
d. Failure to come up with a Restructuring Proposal,
Eugen Friederich Gmbh; Ntt Docomo Inc vs Tata
or failure for 75% of creditors (by value) to
Sons Limited)
accept a proposal within the time frame of the
d. Further, arbitration proceedings may take place in Bankruptcy Code will trigger mandatory fast
India or abroad, and the award could be enforced track liquidation of the company.
in India as a decree of a court.
e. A priority waterfall or the order in which
subsisting debts will be satisfied has also been
II. Enforcement of laid out under the Bankruptcy Code (Section
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Annexure I
5. The effective rate for domestic companies is 30.9% where income is less than or equal to INR 10 million, 33.063% where income exceeds INR
10 million but is less than or equal to INR 100 million and 34.608% where the income exceeds INR 100 million.
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Annexure II
Investment Instruments
Particulars CCD NCD
Equity Ownership Initially debt, but equity on conversion Mere lending rights; however, veto rights can
ensure certain degree of control.
ECB Qualification Assured returns on FDI compliant Purchase of NCDs by the FPI from the Indian
instruments, or put option granted to an company is expressly permitted and shall not
investor, may be construed as ECB. qualify as ECB.
Coupon Payment Interest is repatriable without any Arm’s length interest pay out should be
restrictions (net of taxes). permissible resulting in better tax efficiency.
Higher interest on NCDs may be disallowed.
Though it is not provided in text, as a market Interest can be required to accrue only out of
practice, interest pay out may be limited to free cash flows.
SBI PLR + 300 basis points as the same Redemption premium may also be treated as
ceiling is applicable in case of payment business expense.
of dividend with respect to compulsorily
convertible preference shares.
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Annexure III
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Management The Trustee is responsible The LLP relies on The board of directors manages
of entities for the overall management the Designated Partner in the company involved. In practice
of the Trust. In practice this this respect. In practice, this this responsibility is outsourced to
responsibility is outsourced responsibility may be out- an investment manager pursuant
to an investment manager sourced to an investment to an investment management
pursuant to an investment manager pursuant to an agreement.
management agreement. investment management
agreement.
Market Almost all funds formed in Only a few funds are There are no clear precedents for
Practice India use this structure. registered under this structure. raising funds in a ‘company’ format.
The Registrar of Companies
The regulatory framework does not favor providing
governing trust structures approvals to investment LLPs.
is stable and allows the
management to write its own As per section 5 of the LLP Act,
standard of governance. 2008, only an individual or a
body corporate is eligible to be
a partner in an LLP.
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Annexure IV
Jurisdiction Comparison
Mauritius Singapore Netherlands
Capital gains tax No local tax in Mauritius No local tax in Singapore Dutch residents not taxed if
on sale of Indian on capital gains. Mauritius on capital gains (unless sale made to non-resident.
securities residents not taxed on gains characterized as business Exemption for sale made
resulting from the transfer of income). Singapore to resident only if Dutch
shares in an Indian company residents not taxed on shareholder holds lesser
acquired prior to April 1, 2017. gains accruing before the than 10% shareholding in
Gains arising to Mauritius date on which the India- Indian company. Local Dutch
residents from alienation of Mauritius Protocol comes participation exemption
Indian shares (acquired after into force. Gains accruing available in certain
April 1, 2017), between April after such time are subject circumstances.
1, 2017 and March 31, 2019 to tax in India. (Please refer
shall be subject to tax at 50% to section on “Investing
of the Indian tax rate. into India: Considerations
from a Singapore-India Tax
Perspective”)
Tax on dividends Indian company subject to DDT Indian company subject Indian company
at the rate of 15% (exclusive of to DDT at the rate of 15% subject to DDT at
surcharge and cess) on a gross (exclusive of surcharge the rate of 15%
basis. and cess) on a gross basis (exclusive of
surcharge and cess)
on a gross basis.
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Annexure V
Types of NBFC
Type of NBFC Eligibility Requirements
Asset Finance §§company which is a financial institution
Company
§§principal business6 includes financing of physical assets which support productive/
economic activity, such as automobiles, tractors, earth moving and material handling
equipments, moving on own power and general purpose industrial machines
Investment Company §§company which is a financial institution
at least 80% of its total assets is in the form of investment in equity shares, preference
§§
shares, debt or loans in group companies
at least 60% of its total assets is invested in equity shares of group companies (including
§§
CCPS/CCDs with a maturity period of maximum 10 years)
it does not trade its investment in shares, debt or loans, except for the purposes of
§§
disinvestment or dilution
it does not carry on any other financial activity except bank deposits, money market
§§
instruments, government securities, loans to and investments in debt issuances of group
companies or guarantees issued on behalf of group companies
6. For this purpose, principal business is defined as aggregate of financing real/physical assets supporting economic activity and income arising
therefrom to be not less than 60% of the company’s total assets and total income respectively
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§§raises resources through rupee or dollar denominated bonds only, with a minimum maturity
of 5 years
loan disbursed to a borrower with a rural household, with annual income not exceeding INR 1
§§
lakh, or to an urban/ semi-urban household with annual income not exceeding INR 1.6 lakh
loan amount does not exceed INR 50,000 in first cycle, and INR 1 lakh in subsequent cycles
§§
for loan amounts in excess of INR 15,000, tenure should be at least 24 months with facility
§§
of prepayment without penalty
aggregate amount of loans, given for income generation, is not less than 50 per cent of the
§§
total loans given by the micro finance institutions
loan repayable on weekly, fortnightly or monthly basis, at the option of the borrower
§§
NBFC – Factors §§non-deposit taking NBFC
§§at least 50% of its total assets should be in factoring business, and income derived from
such business should be at least 50% of its total income
Mortgage Guarantee §§financial institution
Companies
§§at least 90% of business turnover is the mortgage guarantee business, or at least 90% of
gross income is from mortgage guarantee business
§§NOFHC permitted to hold the bank and other financial services companies, regulated by the
RBI or other regulatory bodies, to the extent applicable
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Annexure VI
§§preference shares (other §§preference shares (other than §§preference shares (other
than CCPS) CCPS) than CCPS)
§§general provisions and loss §§general provisions and loss §§general provisions and loss
reserves reserves reserves
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Capital Capital Risk Adequacy Ratio Capital Risk Adequacy Ratio must Capital Risk Adequacy Ratio
Adequacy must be 15% be 15% must be 15%
Requirements Provided that, Tier II Capital Provided that, Tier II Capital shall Provided that, Tier II Capital
shall not exceed 100% of Tier not exceed 100% of Tier I Capital shall not exceed 100% of Tier I
I Capital Capital
Credit NBFC-D cannot: Not applicable NBFC-ND-SI which accepts
Concentration public funds will have the credit
Requirements §§Lend to: concentration requirements as
applicable to NBFC-D
A single borrower in excess
§§
of 15% of Owned Funds
§§Invest In:
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Annexure VII
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issued 50 NCDs, and it would not be permitted to make §§If the exposure of a FPI is more than 20% of the
any further investments in the issuance. debt portfolio of the FPI to a single corporate
group, the FPI shall not undertake any fresh
Another important aspect to be considered is what
exposure in such entity or any related entity, till
the RBI means by a single ‘issuance’. If a borrower
the 20% limit is met.
issues multiple tranches of NCDs under a single
prospectus (termed a ‘shelf prospectus’), would §§New FPIs (i.e. FPIs registered after April 27, 2018)
each tranche refer to a single issuance, or would all shall be required to comply with the 20% limit
tranches collectively be referred to a single issuance? within 6 months from being registered as an FPI.
While the text is not abundantly clear at this stage, §§Circular 2 clarifies that related entities would
considering that the intent of RBI is to limit an FPI’s have the meaning ascribed to them under the
exposure to 50%, it would be safe to assume that the Companies Act, 2013.
RBI would want to consider these limits strictly for
each issuance.
ii. Analysis
The definition of ‘related FPIs’ under Circular 2
The requirement for having multiple investments
seems to be vague, and incoherent with the existing
seems to stem from RBI’s insistence on diversifying
FPI Regulations. Under the definition provided
the risk for investors in FPIs. By having a maximum
under Circular 2, if a single investor invests through
of 20% exposure to a single corporate entity (along
multiple FPIs which are set up by different entities,
with its related entities), FPIs would be mandatorily
the investments would not be clubbed. This does not
required to look for more investment opportunities
seem to be a logical interpretation of the intent. The
and invest in multiple corporate entities.
RBI / SEBI may refer back to the ultimate beneficial
ownership test applicable for FPIs currently, where The concentration norms as provided for FPIs are similar
if an investor has investments through multiple FPIs, to those imposed on Alternative Investment Funds in
the limits would be clubbed for all purposes. India. However, one notable change in the FPI regime
is that new FPIs are required to comply with the 20%
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from this regulatory arbitrage, unless a time bound is USD 274 million, as opposed to net inflows of USD
obligation is imposed on the existing FPIs. 320 million as of April 22, 2018 (as per information
available on NSDL’s website)). As mentioned earlier,
while the changes seem to bring in diversification
III. Conclusion and expansion of the debt market, the implications
seem to be far excessive and unnecessary.
While RBI’s intent of Circular 1 and Circular 2 is to
encourage companies to mobilize resources through The concentration norms have been enacted and
public issuance of NCDs, the concentration norms successfully implemented in other financial services
seems to be unnecessary and excessive, considering sectors to avoid systemic risk in the financial markets
the growth of the investor interest in the corporate by encouraging diversification among investors, but
debt markets. The impact can be observed in the limits on investment into issuances seems to be far
net investment by FPIs in the debt segment being excessive, and may prove to be the death knell for
negative in the month of May already (net outflows not only the debt segment for FPIs, but an important
as of May 22, 2018 in the debt segment avenue for fund raising for Indian corporates.
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About NDA
At Nishith Desai Associates, we have earned the reputation of being Asia’s most Innovative Law Firm – and
the go-to specialists for companies around the world, looking to conduct businesses in India and for Indian
companies considering business expansion abroad. In fact, we have conceptualized and created a state-of-the-
art Blue Sky Thinking and Research Campus, Imaginarium Aligunjan, an international institution dedicated to
designing a premeditated future with an embedded strategic foresight capability.
We are a research and strategy driven international firm with offices in Mumbai, Palo Alto (Silicon Valley),
Bangalore, Singapore, New Delhi, Munich, and New York. Our team comprises of specialists who provide
strategic advice on legal, regulatory, and tax related matters in an integrated manner basis key insights carefully
culled from the allied industries.
As an active participant in shaping India’s regulatory environment, we at NDA, have the expertise and more
importantly – the VISION – to navigate its complexities. Our ongoing endeavors in conducting and facilitating
original research in emerging areas of law has helped us develop unparalleled proficiency to anticipate legal
obstacles, mitigate potential risks and identify new opportunities for our clients on a global scale. Simply put, for
conglomerates looking to conduct business in the subcontinent, NDA takes the uncertainty out of new frontiers.
As a firm of doyens, we pride ourselves in working with select clients within select verticals on complex matters.
Our forte lies in providing innovative and strategic advice in futuristic areas of law such as those relating to
Blockchain and virtual currencies, Internet of Things (IOT), Aviation, Artificial Intelligence, Privatization of
Outer Space, Drones, Robotics, Virtual Reality, Ed-Tech, Med-Tech & Medical Devices and Nanotechnology with
our key clientele comprising of marquee Fortune 500 corporations.
The firm has been consistently ranked as one of the Most Innovative Law Firms, across the globe. In fact, NDA
has been the proud recipient of the Financial Times – RSG award 4 times in a row, (2014-2017) as the Most
Innovative Indian Law Firm.
We are a trust based, non-hierarchical, democratic organization that leverages research and knowledge to deliver
extraordinary value to our clients. Datum, our unique employer proposition has been developed into a global
case study, aptly titled ‘Management by Trust in a Democratic Enterprise,’ published by John Wiley & Sons,
USA.
A brief chronicle our firm’s global acclaim for its achievements and prowess through the years –
§§Chambers and Partners Asia Pacific 2019: Band 1 for Employment, Lifesciences, Tax and TMT
§§IFLR1000 2019: Tier 1 for Private Equity and Project Development: Telecommunications Networks.
§§AsiaLaw 2019: Ranked ‘Outstanding’ for Technology, Labour & Employment, Private Equity, Regulatory and
Tax
§§Asia Mena Counsel’s In-House Community Firms Survey 2018- Only Indian Firm for Life Science Practice
Sector
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§§Legal 500 2019: Tier 1 for Dispute Resolution, TMT (Technology, Media & Entertainment and Telecom,) Tax,
Investment Funds, Employment Law and Corporate M&A.
§§IDEX Legal Awards 2015: Nishith Desai Associates won the “M&A Deal of the year”, “Best Dispute
Management lawyer”, “Best Use of Innovation and Technology in a law firm” and “Best Dispute Management
Firm”
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Please see the last page of this paper for the most recent research papers by our experts.
Disclaimer
This report is a copyright of Nishith Desai Associates. No reader should act on the basis of any statement
contained herein without seeking professional advice. The authors and the firm expressly disclaim all and any
liability to any person who has read this report, or otherwise, in respect of anything, and of consequences of
anything done, or omitted to be done by any such person in reliance upon the contents of this report.
Contact
For any help or assistance please email us on ndaconnect@nishithdesai.com or
visit us at www.nishithdesai.com
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The following research papers and much more are available on our Knowledge Site: www.nishithdesai.com
February 2019
© Copyright 2019 Nishith Desai Associates www.nishithdesai.com February 2019 July 2018 February 2018
March 2018
February 2019
NDA Insights
TITLE TYPE DATE
Blackstone’s Boldest Bet in India M&A Lab January 2017
Foreign Investment Into Indian Special Situation Assets M&A Lab November 2016
Recent Learnings from Deal Making in India M&A Lab June 2016
ING Vysya - Kotak Bank : Rising M&As in Banking Sector M&A Lab January 2016
Cairn – Vedanta : ‘Fair’ or Socializing Vedanta’s Debt? M&A Lab January 2016
Reliance – Pipavav : Anil Ambani scoops Pipavav Defence M&A Lab January 2016
Sun Pharma – Ranbaxy: A Panacea for Ranbaxy’s ills? M&A Lab January 2015
Reliance – Network18: Reliance tunes into Network18! M&A Lab January 2015
Thomas Cook – Sterling Holiday: Let’s Holiday Together! M&A Lab January 2015
Jet Etihad Jet Gets a Co-Pilot M&A Lab May 2014
Apollo’s Bumpy Ride in Pursuit of Cooper M&A Lab May 2014
Diageo-USL- ‘King of Good Times; Hands over Crown Jewel to Diageo M&A Lab May 2014
Copyright Amendment Bill 2012 receives Indian Parliament’s assent IP Lab September 2013
Public M&A’s in India: Takeover Code Dissected M&A Lab August 2013
File Foreign Application Prosecution History With Indian Patent Office IP Lab April 2013
Warburg - Future Capital - Deal Dissected M&A Lab January 2013
Real Financing - Onshore and Offshore Debt Funding Realty in India Realty Check May 2012
48
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Research @ NDA
Research is the DNA of NDA.In early 1980s, our firm emerged from an extensive, and then pioneering, research
by Nishith M. Desai on the taxation of cross-border transactions. The research book written by him provided the
foundation for our international tax practice. Since then, we have relied upon research to be the cornerstone of our
practice development. Today, research is fully ingrained in the firm’s culture.
Our dedication to research has been instrumental in creating thought leadership in various areas of law and pub-
lic policy. Through research, we develop intellectual capital and leverage it actively for both our clients and the
development of our associates. We use research to discover new thinking, approaches, skills and reflections on ju-
risprudence, and ultimately deliver superior value to our clients. Over time, we have embedded a culture and built
processes of learning through research that give us a robust edge in providing best quality advices and services to
our clients, to our fraternity and to the community at large.
Every member of the firm is required to participate in research activities. The seeds of research are typically sown
in hour-long continuing education sessions conducted every day as the first thing in the morning. Free interactions
in these sessions help associates identify new legal, regulatory, technological and business trends that require
intellectual investigation from the legal and tax perspectives. Then, one or few associates take up an emerging trend
or issue under the guidance of seniors and put it through our “Anticipate-Prepare-Deliver” research model.
As the first step, they would conduct a capsule research, which involves a quick analysis of readily available
secondary data. Often such basic research provides valuable insights and creates broader understanding of the
issue for the involved associates, who in turn would disseminate it to other associates through tacit and explicit
knowledge exchange processes. For us, knowledge sharing is as important an attribute as knowledge acquisition.
When the issue requires further investigation, we develop an extensive research paper. Often we collect our own
primary data when we feel the issue demands going deep to the root or when we find gaps in secondary data. In
some cases, we have even taken up multi-year research projects to investigate every aspect of the topic and build
unparallel mastery. Our TMT practice, IP practice, Pharma & Healthcare/Med-Tech and Medical Device, practice
and energy sector practice have emerged from such projects. Research in essence graduates to Knowledge, and
finally to Intellectual Property.
Over the years, we have produced some outstanding research papers, articles, webinars and talks. Almost on daily
basis, we analyze and offer our perspective on latest legal developments through our regular “Hotlines”, which go
out to our clients and fraternity. These Hotlines provide immediate awareness and quick reference, and have been
eagerly received. We also provide expanded commentary on issues through detailed articles for publication in
newspapers and periodicals for dissemination to wider audience. Our Lab Reports dissect and analyze a published,
distinctive legal transaction using multiple lenses and offer various perspectives, including some even overlooked
by the executors of the transaction. We regularly write extensive research articles and disseminate them through
our website. Our research has also contributed to public policy discourse, helped state and central governments
in drafting statutes, and provided regulators with much needed comparative research for rule making. Our
discourses on Taxation of eCommerce, Arbitration, and Direct Tax Code have been widely acknowledged.
Although we invest heavily in terms of time and expenses in our research activities, we are happy to provide
unlimited access to our research to our clients and the community for greater good.
As we continue to grow through our research-based approach, we now have established an exclusive four-acre,
state-of-the-art research center, just a 45-minute ferry ride from Mumbai but in the middle of verdant hills of
reclusive Alibaug-Raigadh district. Imaginarium AliGunjan is a platform for creative thinking; an apolitical eco-
system that connects multi-disciplinary threads of ideas, innovation and imagination. Designed to inspire ‘blue
sky’ thinking, research, exploration and synthesis, reflections and communication, it aims to bring in wholeness
– that leads to answers to the biggest challenges of our time and beyond. It seeks to be a bridge that connects the
futuristic advancements of diverse disciplines. It offers a space, both virtually and literally, for integration and
synthesis of knowhow and innovation from various streams and serves as a dais to internationally renowned
professionals to share their expertise and experience with our associates and select clients.
We would love to hear your suggestions on our research reports. Please feel free to contact us at
research@nishithdesai.com
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tel +65 6550 9856 tel +91 11 4906 5000
tel +91 22 6159 5000 fax +91 11 4906 5001
fax +91 22 6159 5001
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