mARCH 2012 www.lawyer-monthly.com Legal Focus Foreign Investment in India

As the growth story of India continues, foreign investment is an increasingly frequent occurrence in the country. To find out about the issues raised and what investors should be aware of, Lawyer Monthly speaks to Delano Furtado, partner at Indian law firm, Trilegal. Trilegal is a leading law firm with offices in four of India’s major cities – Mumbai, New Delhi, Bangalore and Hyderabad.

Q

Please give me an overview of foreign investment in your jurisdiction currently.

Over recent years, there has been a continuing increase in the liberalisation of the foreign investment policy of India – this has boded well for foreign investment. In fact, despite the waning economic climate, foreign investment in India has showed quite a strong performance in the past year. There was a massive surge in activity in the infrastructure and energy sector in 2011 – a change from the usually favoured technology and media sectors. Other sectors drawing a sizable share of foreign investments includes services (both financial and business), healthcare, engineering and construction and real estate.

M&A activity is likely to remain

sluggish for the first quarter of 2012 owing to the impact of the European debt crisis. Nevertheless, there could be a surge in foreign investments in the subsequent quarters as there may be a better understanding of the extent of the crisis.

As part of Trilegal’s corporate practice group, my primary practice areas are M&A, joint ventures, private equity, venture capital and corporate advisory. Typically, I work with multinational corporations, domestic companies, private equity investors and venture capital funds in the context of both inbound and outbound investment transactions. I regularly advise clients in connection with their acquisitions, their financial investments in listed and closely held Indian companies as well as the Indian law issues impacting their entry and exit strategies.

Q

what are the key types of cases you deal with?

A key challenge is the regulatory and policy uncertainty in India. The changing stances of regulators on the enforceability of put and call options makes this popular exit mechanism a problematic issue. Similarly, enforcement of certain investor rights/provisions (i.e. indemnity, guarantee) may be subject to governmental/RBI approval increasing the uncertainty of a non-resident investor on the protection of its investments in India. Also, private equity investors and strategic investors have been viewed as promoters in companies by the capital market regulator in India subjecting them to lock-in provisions typically intended for promoters.

Q Q

what are your opinions on the recent decision by the Indian Supreme Court in favour of Vodafone, a decision that will allow the company to pursue its plans for its initial public offering in India?

The Vodafone decision is a landmark decision which can be viewed as a watershed on the judiciary’s position on the taxability of offshore transactions. The Supreme Court’s recognition of the distinction between tax avoidance and tax evasion, the adoption of the ‘look at’ approach rather than the ‘look through’ approach, the rationalising of the common practice of transaction structuring through holding structures, and the stress placed on the need for certainty in tax principles are the key highlights of the decision. One of the distinctive aspects of the Supreme Court’s decision is the emphasis on the need for an environment conducive to foreign investments which is very

what are the main challenges you face?

encouraging for the investment climate in India.

This decision goes a long way in

demonstrating the independence and strength of the Indian judiciary and we do not expect this landmark victory to renew the confidence of foreign investors in the Indian market. In addition, this should provide the much needed clarity to a host of transactions kept in abeyance due to the uncertainty of the taxation aspects as well as those which are currently under the scrutiny of the tax authorities. LM

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Contact Details:

Delano Furtado Partner Corporate Trilegal

One Indiabulls Centre 14th Floor, Tower One Elphinstone Road Mumbai – 400 013 India

Tel: +91 22 4079 1000 Dir: + 91 22 4079 1007

Email: delano.furtado@trilegal.com