A Legal Guide to...
Investing In INDIA
over the past few years, India has emerged as one of the most attractive countries in the world for investors. despite the on-going uncertainty continuing to be felt across the globe, India has continued to present a positive performance, receiving increases in capital inflows, foreign direct investments and overseas entities’ participation. to find out more about the benefits and legal issues surrounding investment in India currently, Lawyer Monthly speaks to Karan Singh, Partner, and anirudh agarwala, associate, at Indian law firm, trilegal.
What are the most complex legal cases you have dealt with regarding investment in India?
We have dealt with a variety of complex M&a and private equity transactions in real estate, banking, power, infrastructure and microfinance sectors. Each of these transactions required analysis of and expertise over a complex regulatory framework owing to a variety of sector specific regulations.
What, in your experience, are the main issues to arise in cross border M&as? How do you help your clients navigate these issues?
cross border M&a transactions in India are subject to a regulatory and tax framework which can be complex and sometimes unpredictable.
as the objectives of the parties differ in every cross border M&a transaction, based on parameters such as deal certainty, timelines, minimization of tax incidence etc., there are various issues (including on account of tax structuring) that arise in these transactions. these issues are required to be resolved within the complex regulatory framework governing such transactions.
In the past, we have actively
engaged with the clients and their tax advisors to determine the best possible structuring solutions to these issues.
Based on the regulatory regime that governs the off-shore investor, there are other issues that also arise from case to case. For example, if the acquirer has operations in the US or the UK, issues relating to compliance by the Indian counter party with international anti-corruption
standards including the Foreign corrupt Practices act and the UK Bribery act also have to be considered.
the Indian M&a market is doing very well, is this something you would agree with? What recent M&a transactions have you been involved in? How many of these are cross-border M&as?
the Indian M&a markets have done very well. However, we have been recently observing a slowing down of M&a activity due to the increasing uncertainty in government policies (including on taxation) and the conflict between the Indian judiciary and the government.
We have been involved in various M&a transactions, of which approximately 80% are cross border transactions.
What are the main legal issues foreign investors should be aware of when looking to invest in India?
Foreign investors consider various factors when looking to invest in India such as certainty in the taxation policies and consistency in the government policies. the proposed amendment to the tax law that seeks to retrospectively impose capital gains tax on off-shore transfer of shares in tax efficient jurisdictions (which derive their value from Indian assets), which were hitherto exempt, has adversely affected investor confidence on taxation policies. Instances such as the cancellation of the 128 2G telecom licenses awarded in 2008, have also adversely affected investor confidence on state run mechanisms for procuring public assets. these issues have
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the potential to significantly erode the value of any investment and therefore, foreign investors are reconsidering the cost – benefit analysis of investing in India.
What, in your opinion, are the incentives and restrictions of foreign investment in India?
Foreign investment in India is driven by the growing consumer market and its corresponding long term growth opportunities. While, in the past, the government had been taking various policy measures to incentivize foreign investment, there has been a degree of policy inaction in the recent past.
Karan Singh Partner