Indian Legal Landscape for Cross Border Businesses · 4/27/2016 · company, which is owned or controlled by non‐residents, into another Indian company. ¾Debt vs. Equity debate

Indian Legal Landscape for Cross Border BusinessesCross Border Businesses

G Raghu Babu

AUSTRALIA INDIA TAT CAPITAL EXPO 2016

gCo‐founder & Mentor, Samisti Legal

AUSTRALIA INDIA TAT CAPITAL EXPO 2016ON APRIL 27 ‐ 29, 2016

T‐HUB, HYDERABAD, INDIA

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DISCUSSION POINTS

Investing in IndiaInvesting in IndiaLegal System of IndiaLegal System of India1 2 ggg yg y

M & A in IndiaM & A in IndiaPresence in IndiaPresence in India3 41 23 4

Capital Markets in IndiaCapital Markets in India5 pp5Employment Issues in IndiaEmployment Issues in IndiaTaxation in IndiaTaxation in India6 7Environmental Laws in IndiaEnvironmental Laws in IndiaIntellectual Property in IndiaIntellectual Property in India8 9

6 78 9

Trade with IndiaTrade with IndiaResolution of Disputes in IndiaResolution of Disputes in India10 11Confidential and Privi lege Communication

10 11

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LEGAL SYSTEM OF INDIA

Delegated LegislationConstitution

Quasi‐FederalFederal in character, Unitary in spiritUnion, State & Concurrent ListsU ifi d j di i F d l i t t

Additionally, 'delegated legislation‘recognises the exercise of legislative powerby a Govt. agency, that is subordinate to theL i l tUnified judiciary; Federal appointments Legislature

Fields of Legislation Court SystemFields of Legislation Court System

97 entries for Federal Govt.66 entries for States

Supreme Court, highest appellate Court24 State High Courts; adjudicate on appealsfrom lower Courts & Writ Petitions47 for both; Federal Govt. to prevail from lower Courts & Writ PetitionsLower Civil & Criminal Courts

Confidential and Privi lege Communication

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INVESTING IN INDIA

3 Facts About: Deciding on India, for Investment

Review economic & political environment in IndiaUnderstand the ability of investor to carry out operations in1 y y pIndia, location of customers and workforce

Exchange Control Laws Corporate Laws Sector Specific Laws

2Sector Specific Laws

Indian Tax LawsInternational Tax Treaties India has entered into3


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INVESTING IN INDIA (Cont’d)

Foreign Direct Investment in India

There is a short list of prohibited sectors in India; including Atomic Energy,Lottery Business Gambling & Betting and Manufacture of cigars and tobacco1 Lottery Business, Gambling & Betting and Manufacture of cigars and tobaccoproducts

Most other foreign investment may be made into an Indian Company generally

1

Most other foreign investment may be made into an Indian Company, generallywithout seeking any prior approval of the Reserve Bank of India (RBI) or theForeign Investment Promotion Board of India (FIPB); however, some investmentsmay require a prior approval

2

may require a prior approval


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Sector Issues

Partial Auto, Partial Govt.

100% foreign investment permitted for most sectors

Automatic Route

Telecom Services; beyond 49%Broadcasting carriage services; beyond 49%sectors

Some sectors have threshold requirements;insurance (49%), commodity exchange (49%)

Broadcasting carriage services; beyond 49%Defence; automatic up to 49% and beyond49% under government route

Government Approval Route Other

terrestrial broadcasting (49% under Minimum capitalisation norms for foreigngovernment route), satellite establishmentand operation (100% under governmentroute)

investment in certain industries like Non‐Banking Financial Services & Developmentof Townships, Housing, Built‐upInfrastructure


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Additional Procedural Requirements

FDI may be direct or indirect, and FDI norms apply to both investments. IndirectFDI investment is referred to as downstream investment made by an Indiancompany, which is owned or controlled by non‐residents, into another Indiancompany, which is owned or controlled by non residents, into another Indiancompany.

Debt vs. Equity debatePricing guidelines for share transfer to non‐residentPricing guidelines for share transfer to non‐residentPartly paid share /debenture issued to non‐residents, allowedFIRC, key documentKYC, key requirementKYC, key requirementUIN, key number (30 day filing requirement)Shares to be issued within 180 days


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Other Foreign Investment Options

NRI

SEBI registered Foreign Venture CapitalInvestors, allowed to invest in Indian

FVCI

Investments made by Non‐Resident Indianson non‐repatriable basis treated at par withInvestors, allowed to invest in Indian

Companies, including CIC's in theInfrastructure Sector, AFC's and IFC's.Benefits include, free entry & exit pricing; lock‐in exemption.

on non repatriable basis treated at par withdomestic investments

lock in exemption.

FII, FPI & QFI POEM

SEBI registered Foreign Institutional The Black Money Act, 2015 deals withInvestors, Foreign Portfolio Investors andQualified Non‐residents, exempted from FDIrestrictions, to a great extent.

undisclosed foreign income and assets ofpersons who are tax residents of India.Ramifications on foreigners and foreigncompanies who are Indian 'tax residents'.


Test of 'place of effective management'applied.

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A PRESENCE IN INDIA

Unincorporated & Incorporated

Liaison OfficeBranch Office

Private Limited CompanyPublic Limited CompanyBranch Office

Project OfficePartnershipTrust

Public Limited CompanyLimited Liability Partnership


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A PRESENCE IN INDIA (Cont’d)

3 Other Facts About: Indian Company Law

Consent of Board / Shareholders required for Related Party T ti S d d fi iti b d1 Transactions. Scope and definitions broad.

Companies with a net worth of INR 5 Billion+ or net profits ofCompanies with a net worth of INR 5 Billion+, or net profits ofINR 50 Million+, required tospend at least 2% of average net profits made during the last3 years towards its corporate social responsibility obligations

23 years towards its corporate social responsibility obligations

Cl f b / d i i i i diClass of members / depositors may initiate proceedingsagainst the Company, its Directors, Auditors, Experts,Advisors or Consultants – Class Action

3


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A PRESENCE IN INDIA (Cont’d)

Issue of Securities

Debentures

Compliance with Companies (Share Capital and Debenture) Rules, 2014. Some practical

Options

Secured or unsecured debt instrumentECB Guidelines to be followedand Debenture) Rules, 2014. Some practical

limitations on issuance of various securitiesECB Guidelines to be followed

Equity Shares Returns

Common stock; typically carry voting and Dividend declarationdividend rightsFully and compulsorily convertible preference shares and debentures treated at par with equity

Share buyback / Put OptionsShare redemptionIPO


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MERGER & ACQUISITION IN INDIA

Share Purchase (and Sale) of existing or new securities (via

Asset Acquisition of wholeor part of the assets,existing or new securities (via

subscription)or part of the assets,tangible / intangible of acompany


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MERGER & ACQUISITION IN INDIA (Cont’d)

M & A Laws in India

Listing Agreement

Sections 230 to 232National Company Law Tribunal; Fast track

Companies Act

Disclosure of scheme of merger / amalgamation / reconstruction one monthNational Company Law Tribunal; Fast track

M&AMerger of Indian company with company incorporated in notified jurisdictions, is allowed; subject to RBI approval.

amalgamation / reconstruction one month before filing with Court

allowed; subject to RBI approval.

Takeover Code Insider Trading

5% threshold for disclosure of interest Connected personOpen offer obligations at 25% of the voting rights

Access to unpublished price sensitive information (UPSI)Prohibition of communication of UPSI & trading in securities


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M & A Laws in India

ODI

Competition Act, 2002 & CCIAnti‐Competitive Agreements

Anti‐Trust

Overseas Direct Investment by Indians isgoverned by the Foreign ExchangeAnti Competitive Agreements

Abuse of Dominant PositionsCombinations (M&A)

governed by the Foreign ExchangeManagement (Transfer or Issue of any ForeignSecurity) Regulations, 2004

Combination Thresholds Exchange Control

Assets : INR 15 Billion (India) & $ 750 Million overseas (at least INR 7.5 Billion in India) or

If a foreign entity is involved FDI regulations need to be complied with.

INR 60 Billion (India) & $ 3 Billion overseas (at least INR 7.5 Billion in India)Turnover : INR 45 Billion (India) & $ 2,250 Million overseas (at least INR 22.5 Billion in


India) or INR 180 Billion (India) & $ 9 Billion overseas (at least INR 7.5 Billion in India)

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M & A – Taxes

Stamp DutyAmalgamationAsset sale, itemized or slump sale

Corporate TaxInsufficiently stamped document not admissible as evidence in India

Share transferDemerger / Spin‐Off

State specified stamp duty, for transfer of propertyPayable on Merger / Demerger of Companies

Sales Tax / VAT Others

Payable, on purchase of movable assets or goods, by the seller

Service Tax


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CAPITAL MARKETS IN INDIA

Indian Securities Market

1. IPO / Further Public Offering ‐ ICDR Regulations, Companies Act & SCRR2. Eligibility for IPO ‐ Assets, Profits, Net worth, Size of Issue & 'No Name Change'3. Minimum Offer Requirements4. Promoters Contribution5 Lock‐in Restrictions ‐ Promoters contribution & Lock‐in5. Lock in Restrictions Promoters contribution & Lock in6. Offer for Sale7. Credit Rating8 P i i8. Pricing9. Disclosure Requirements10. Filing of Offer Document11. Listing on Exchanges Outside India12. Foreign Companies Listing in India13. SME Listing


3. SM isting

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TAXATION IN INDIA

Direct Tax Considerations

1. Corporate Tax (and personal Income Tax)2. Dividend & Share Buy‐Back3. Capital Gains4. Interest, Royalties & Fees for Technical Services5 Withholding Taxes5. Withholding Taxes6. Wealth Tax7. DTAA's8 GAAR8. GAAR9. Authority for Advance Rulings


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TAXATION IN INDIA (Cont’d)

Indirect Tax Considerations

1. Central Sales Tax2. Value Added Tax3. CENVAT4. Service Tax5 Customs Duty5. Customs Duty


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EMPLOYMENT ISSUES IN INDIA

Employing People

Non‐CompeteAbout 20 odd legislations (Federal & State) apply to any establishment

Employment LawsPost employment restrictive covenants are difficult to enforce

Some are general, some industry specificCompliance varies

Employee Documentation Stock Options

Employment AgreementNDA / Ancillary Agreements

ESOP’sForeign Company ESOP’s possible to grant,

Employee Handbook / Policies RBI requirement


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INTELLECTUAL PROPERTY IN INDIA

CopyrightsBerne ConventionUniversal Copyright Convention

Convention & TreatiesIn original literary, dramatic, musical orartistic works, cinematograph films, and

Paris ConventionPCTMadrid Protocol

sound recordingsRegistration not essentialEmployer first owner of employee work productp

Patents Trademarks

Invention ‐ Novelty, Non‐Obviousness (inventive step) & Industrial application

NICE classification of goodsService marks protected

Inventor or Assignee may file for PatentParallel importsDesign protection under Design Act, 2000

Domain name serves the same functionas a trademark'No trade secret protection (only via contract)


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ENVIRONMENTAL LAWS IN INDIA

Municipal AuthoritiesEnvironment (Protection) Act, 1986Environmental Impact Assessment (EIA)

LawsStates legislate on land and water issues, therefore, laws may vary from state to

Air & Water ActCoastal Regulation Zone

state

Hazardous Substances Penalty

Various rules govern handling and management of hazardous substances

National Green Tribunal, for cases relating to environmental protection and conservation

Compliance with Public Liability Insurance Act, 1991 – strict liability in case of accident


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RESOLUTIONS OF DISPUTES IN INDIA

Recourse to Litigation

Specific ReliefTerritorial jurisdictionPecuniary jurisdiction

JurisdictionIndividual civil rights may be enforced under the Specific Relief Act, 1963;

Subject matter jurisdictionOriginal & Appelate jurisdiction

including specific performance of an enforceable contract

Interim Relief Damages

Prima facie caseIrreparable injury

Section 73 & 74, Contract ActCompensation may not be for remote or

Balance of convenience indirect loss / damagePrinciple of mitigation & restitution appliedLiquidated Damages recognized


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RESOLUTIONS OF DISPUTES IN INDIA (Cont’d)

Arbitration Option

EnforcementArbitration & Conciliation Act, 1996, based on the UNCITRAL Model Law

LawLimited options to challenge a duly constituted arbitration, and its

New York Convention on the Recognition & Enforcement of Arbitral Awards, of 1958Limitation Act, 1963

subsequent award

Arbitration Foreign Judgements

Institutional arbitration; ICC, LCIA, AAA, SIAC, HKIAC, as also FICCI, ICAR, etc.

'Reciprocating Territory' judgements executed in India under Section 44A, CPC

Statutory arbitration; under certain statutesForeign arbitration; BALCO judgement, and after

Other foreign judgements enforced by filing a suit under Section 13, CPCUSA is not notified as a reciprocating territory


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Indian Legal Landscape for Cross Border Businesses · 4/27/2016 · company, which is owned or controlled by non‐residents, into another Indian company. ¾Debt vs. Equity debate