In 2021, about 40 Indian startups raising funds across the world were granted unicorn status and there were several large cross-border transactions in 2021 and 2022, in which JSA was a legal adviser. To boost foreign investment, the government has put in place various incentive schemes and reforms, especially for projects in sectors such as health, electric vehicles, IT and electricity-based services. ‘computer science.
FOREIGN INVESTMENT LAWS
In India, inward and outward investment is regulated and governed by the Foreign Exchange Management Act 1999, Foreign Direct Investment Policy of the Government of India as amended from time to time and regulations adopted by the Reserve Bank of India (RBI ). Foreign investments in India are also subject to reporting and periodic compliance requirements prescribed by the RBI.
FDIs and the terms or regulatory implications relating to such investments depend on the industry in which the issuing entity operates. In most sectors, investments are allowed in India under the automatic route (i.e. without requiring government clearance) while some other investments require government approval. In a few sectors FDI is not allowed (e.g. lottery, gambling)
Some key issues and challenges:
- In one of the transactions, a foreign entity wanted to acquire 100% of the capital of the Indian company, but part of the consideration had to be paid in the form of an earn-out over the next four years. Under RBI regulations, the deferral of consideration for the purchase of shares by a foreign entity beyond 18 months and 25% is subject to RBI approval, which may take time and may not not be guaranteed. Therefore, the transaction is structured such that the Indian sellers receive another instrument at the Indian entity level, after making the appropriate valuation adjustments.
- Licensed dealer banks (which are appointed to facilitate foreign exchange transactions) have in recent years taken a contested view of valuation requirements in the event that a foreign owned or controlled entity incorporated in India acquires shares from resident sellers and non-residents in an equity purchase transaction. Due to RBI’s interpretation, shares of resident sellers had to be purchased at or above the fair market value of the shares and shares of non-resident sellers had to be purchased at fair market value or below, which effectively means that the stock price can only be the fair market value of the stock. The parties’ business intention was to acquire all of the shares at a price above fair market value. This issue was brought to the attention of the acquirer and the solution was for the foreign parent company of the foreign owned or controlled Indian entity to acquire the shares from the sellers and thereby achieve the intended business purpose.
- The Government of India has recently introduced the requirement to obtain approval for investments where the beneficial owner of the investing entity is a citizen or resident of a country sharing land borders with India (e.g. China). This requirement means that even entities incorporated in other countries but having significant investments therein from persons who are citizens or residents of any country sharing a land border with India may be affected by these regulations. In a recent transaction, the Chinese investor wanted to invest more in its existing Indian subsidiary, but that would have required prior government approval. The transaction has been structured in such a way that it does not fall within the scope of “investment”
Direct investments outside India include investments by equity contribution or subscription to the memorandum of a foreign entity or by purchase of existing shares of a foreign entity either by purchase in the market or by private placement or by scholarship.
For outbound investments, JSA assists clients in ensuring investments comply with applicable regulations, such as net worth requirements and other related compliances. JSA also works closely with foreign law firms to ensure that Indian investments in their jurisdiction comply with their local laws.
JSA advises on legal issues regarding inbound and outbound investments, strategic alliances and joint venture collaborations. The firm regularly advises on policies, laws and regulations relating to foreign investment in India. Some of the key areas in which JSA specializes and which are of utmost importance to foreign investors investing in India or seeking to establish themselves in India include:
- Mergers and acquisitions, private equity or venture capital investments and other foreign investments. JSA is a market leader in advising and representing clients in foreign investment matters. The M&A practice collaborates with other practices, including competition, compliance, environmental, labor and social benefits, so that a holistic approach is taken to manage the transaction. We also undertake extensive due diligence on target entities and including aspects such as ethics, compliance and environmental, social and governance perspective.
- Licensing, Technology Transfer and Other Commercial Agreements. JSA assists its clients in complex business transactions relating to licensing, technology transfer and franchise agreements. The firm has helped several Fortune 500 companies secure such deals with local players in industries such as hospitality, consumer goods, alcoholic beverages, and automotive or automotive components.
- Implementation of greenfield and employment projects. Two critical aspects for setting up factories or greenfield projects or operations in India are real estate and employment or human resources. JSA’s real estate practice is capable of providing nationwide legal assistance and provides advice that takes into account various local nuances of land laws in India for setting up greenfield projects. On the employment side, JSA has a team of experienced employment law specialists who work with clients from a wide range of industries, to resolve local and cross-border employment law issues, contentious and non-contentious. .
- Entity training and compliance. Leveraging JSA’s extensive experience in Indian law and practice, tailor-made advice is provided to foreign companies to decide on the most favorable entity structure or entry route to establish themselves in the country. The firm also has a corporate secretarial practice that provides end-to-end support on entity formation as well as ongoing routine compliances. Foreign companies find some of the processes cumbersome, even for minor issues like obtaining an admin ID or digital signature certificates.
- Tax laws. JSA’s tax law experts assist the M&A team in structuring foreign investments in India and on a wide variety of issues including entity selection and capitalization instrument selection. The firm also assists clients on a variety of other matters such as transfer pricing regulation, tax treaty benefit analysis, and income and permanent establishment characterization issues. Therefore, the firm’s tax practice helps clients assess tax risk and make decisions based on a clear understanding of the tax impact on the client.
PRACTICE IN KOREA
JSA has advised several major Korean companies on their India-related investments and projects. The firm has a dedicated desk made up of a few identified partners who have been working in the Indo-Korean space for several years. Therefore, JSA is familiar with and experienced in working with Korean customers and has a deep appreciation of Korean culture and working style.
JSA works closely with various Korean companies either directly or on the recommendation of Korean law firms, such as Kia, LG, Samsung, Hyundai, etc. This work includes advising on foreign investment strategies and local post-investment compliances. We also have the ability to engage Korean legal advisors in India to provide effective assistance to Korean clients investing or operating in India.
ABOUT THE CABINET
JSA is a full-service Indian law firm with over 350 lawyers and seven offices across India. For more than three decades, JSA has provided legal representation, advice and services to leading international and domestic clients. JSA’s team of corporate lawyers is trained in multiple disciplines across all seven offices. As a full-service law firm, its diverse attorneys provide cutting-edge specialist advice on matters relating to corporate law, financing, real estate, capital markets and litigation to help clients achieve their desired business purposes within the parameters of the applicable legal regime. .
The company has been recognized and ranked year after year by a multitude of national and international rankings, publications and ranking agencies.
- Upendra Nath Sharma (Partner)
- Kartik Jain (Partner)
- Debottam Chattopadhyay (Senior Partner)