SECTION 1: Market outlook
1.1 What is the outlook for US investment into your
jurisdiction over the next 12 months, given the new US
administration's protectionist focus?
In the absence of specific tax or regulatory changes, the
outlook remains positive, although this may change rapidly
depending on such change and market sentiment.
1.2 Are there any industries in particular that you think
are more likely to be affected by the US's new economic
Both the IT and pharma sectors may be impacted though the
impact is difficult to accurately quantify. New immigration
restrictions and more aggressive Food and Drug Administration
(FDA) involvement may both have an impact, although these may
be offset by currency fluctuations and increased domestic
SECTION 2: Approving foreign investments
2.1 Explain the foreign investment approval process and
Foreign investments can be made into India as foreign direct
investment (FDI) or portfolio investment.
FDI is regulated by way of government policy (FDI policy),
which frequently changes. There are two regimes for FDI: the
automatic route and the approval route.
If the FDI proposal is within the limits prescribed by the
FDI policy for the automatic route in that particular sector
and the investment satisfies certain specified conditions, a
foreign investor does not have to obtain any prior consent to
make an investment, unless the sector specific guidelines
specify otherwise (eg broadcasting, single-brand retail).
If the FDI proposal is outside the sector specific limits
prescribed by the FDI policy for the automatic route and/or the
investment proposal fails to satisfy any conditions set out in
the FDI policy, the investment must be approved. In addition,
where an Indian company is engaged in an industry sector with
foreign investment limits, prior approval will be required for
any action that would result in the aggregate foreign equity
interest increasing beyond 50% and/or non-Indian residents
acquiring control of that entity (control being defined as the
power to appoint a majority of the board of directors or to
control the management or policy decisions).
The regulatory authorities which regulate FDI are the
Reserve Bank of India (RBI), which is the central bank of
India, and (post the abolition of the Foreign Investment
Promotion Board, which took place in June of this year) certain
administrative ministries (Competent Authority) have been
designated for processing the approval for FDI.
Downstream investments are also required to comply with same
norms as applicable to direct FDI in respect to sectoral
conditions and investment caps.
The Department of Industrial Policy and Promotion (DIPP) has
released a standard operating procedure (SOP) which will
regulate the procedure for processing FDI proposals. It
prescribes a time frame of eight to 10 weeks. However, since
this is a recent amendment the market practice will now
In addition to the above, foreign investment can also be
made by portfolio investors and foreign venture capital
investors. We have focused here on the regulatory regime
governing FDI into India.
2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?
Currently, there remain only a handful of industry sectors
in which no FDI is permitted – these tend to be
sensitive industries, either for security reasons, such as
atomic energy, or for political reasons, such as agriculture
(except certain permitted activities), lottery, chit funds
(types of savings scheme), tobacco, real estate, railway
operations and gambling.
There are certain sectors which are partially under the
approval route; or where certain conditions for FDI have been
provided for. For example, FDI above 49 % in the insurance
sector requires government approval. In sensitive sectors such
as defence, broadcasting and civil aviation sector, FDI is
subject to security clearances. FDI in print media, telecom,
broadcasting and private security agencies is subject to
compliance with sector specific conditions.
For sectors under the approval route, the government has the
right to grant approval subject to such conditions as it may
deem fit on a case by case basis.
2.3 Which authority oversees competition clearance and give
a brief overview of the merger clearance process?
The Competition Commission of India (CCI) established under
the Competition Act, 2002 (Competition Act) is the statutory
authority that regulates combinations (acquisitions, mergers,
amalgamations and de-mergers) in India and assesses whether or
not they cause or are likely to cause an appreciable adverse
effect on competition within the relevant market(s) in
Any acquisition, merger or amalgamation that exceeds the
financial thresholds prescribed under the Competition Act
amounts to combination, which is reportable to the CCI unless
expressly exempted under the Competition Commission of India
(Procedure in Regard to the Transaction of Business Relating to
Combinations) Regulations, 2011 (Combination Regulations) or by
government notification. A merger, amalgamation or acquisition
is exempt from the requirement to notify if the target i.e.,
the relevant portion or division or business which is being
acquired, has assets in India of not more than INR3.5 billion
($55 million); or turnover in India of not more than INR10
billion. If a combination does not benefit from any of the
exemptions, the parties are obligated to file a notice with the
CCI and cannot consummate the transaction before receiving it
or if no order is passed within 210 calendar days from the date
Upon completion of the review, a non-confidential version of
the final order passed by the CCI is published on its website.
In addition, the CCI also provides for informal, oral and
non-binding pre-notification consultation, which may relate to
procedural or substantive issues. The CCI neither discloses the
parties' query nor its opinion on its website or otherwise.
2.4 Are there further approval requirements that foreign
investors should be aware of?
All FDI proposals with total foreign equity inflow in excess
of INR5,000 crore (INR50 billion) need to be approved by the
Cabinet Committee of Economic Affairs (CCEA). Additionally,
approvals may be required depending on the structure of the
transaction (eg transfer or issue of shares which are not in
compliance with pricing guidelines). For FDI under the
automatic route, certain post investment filings are
SECTION 3: Investment techniques
3.1 What are the most common legal entities used for US
investment in your jurisdiction?
The FDI regulations contemplate multiple forms for a foreign
presence in India: a liaison office (LO); branch office (BO);
project office (PO); the establishment of a company; or a
limited liability partnership firm (LLP) in India. Important
considerations for the type of investment vehicle include the
nature of the proposed business in India, liability, tax
treatment, intellectual property and employment issues.
a) LO: An LO acts as a representative of the
foreign parent company in India. It is not permitted to do any
business in India or undertake any revenue-earning activities.
Therefore, LOs are used where the operation in India is limited
only to marketing activities or to procure business for the
b) BO: Branches of foreign companies are
permitted to undertake limited activities. These activities
include export/import of goods and promoting technical or
financial collaborations between Indian companies and parent or
overseas group company.
c) PO: Foreign companies are permitted to
establish offices in India to execute projects they have
secured in India, subject to meeting certain specified
d) Company: Large scale business activity
with FDI (from countries including US) is usually conducted
through a company incorporated in India. Such a company may
either be a private company or a public company or a listed
company. The company can be a wholly-owned subsidiary in
sectors where 100% FDI is permitted, or, in other sectors, a
foreign investor will have to enter into a joint venture with
an Indian counterparty.
The investment in a company can be through
equity, convertible preference shares and convertible
debentures, partly paid shares and warrants. There are,
however, certain restrictions on convertible debentures and
convertible preference shares issued to foreign investors.
e) LLP: An LLP is a legal entity separate
from that of its partners, and enjoys perpetual succession. FDI
is permitted through the automatic route in LLPs operating in
sectors where 100% FDI is permitted under the automatic route
with no FDI-linked performance conditions (subject to meeting
certain specified conditions). LLPs with FDI are also permitted
to make downstream investments in companies or LLPs.
3.2 What are the key requirements for establishment and
operation of these legal entities?
The key requirements for the establishment of such legal
entities are discussed below:
a) BO/ LO/ PO: The RBI has
delegated its powers to the authorised dealer category-I bank
(AD Bank) for considering applications for setting up of a BO/
LO/ PO in sectors in which 100% FDI is permitted under the
automatic route. However, applications made by persons from
certain specified countries or for establishing a BO/ PO/ LO in
certain specified sectors will require prior permission of the
b) Company The Government of
India regulates all Indian companies through the Ministry of
Corporate Affairs (MCA). The administrative function of the MCA
is discharged by regional registrars of companies (ROCs), who
are responsible for registering companies incorporated within
their jurisdictions and ensuring that companies comply with
statutory requirements under Companies Act 2013 and the rules
and regulations framed thereunder (Indian Companies Act).
The regulatory framework applicable to all
companies is primarily set out in the Indian Companies Act. The
Indian Companies Act was notified on August 30 2013, replacing
the erstwhile Companies Act 1956. The incorporation of a
company under the Indian Companies Act is a relatively
straightforward process and can be completed in approximately
one to two weeks. Broadly, the major steps
involved in incorporating a company include: applying for a
unique director identification number for each proposed
director; applying to the relevant ROC for a name for the
proposed company; and submitting the constitutional documents.
As a part of its efforts to provide speedy
incorporation services in line with global practices, the MCA
has introduced a new simplified electronic incorporation
process called SPICe (Simplified Proforma for Incorporating
c) LLP The
incorporation of an LLP is primarily regulated by the Limited
Liability Partnership Act, 2008 along with the various rules
and regulations framed thereunder (LLP Act). Broadly, the major
steps involved in the incorporation of an LLP include
preparation of the partnership agreement providing for details
such as the name, proposed business and registered office of
the LLP, names and addresses of the partners and designated
partners of the LLP. The partnership agreement must be filed
with the ROC along with a prescribed fee.
The key requirements for the operation of such legal
entities will include compliance with the Indian regulatory
framework. The regulatory framework applicable to a company is
mainly found in the Indian Companies Act. A listed company, in
addition to compliance with the Indian Companies Act, is
required to comply with certain continuous listing obligations
which are prescribed in the Sebi (Listing Obligations &
Disclosure Requirements) Regulations, 2015.
SECTION 4: Dispute resolution
4.1 How effective are local courts' enforcement and dispute
resolution proceedings, and what should US investors be
particularly aware of?
Litigation in India tends to be cumbersome, lengthy, and
expensive. Suits admitted by Indian courts can take up to 20
years to be concluded with parties making interim applications
and appeals at multiple levels. The High Courts and Supreme
Court are experiencing backlogs of 10 to 15 years. It is for
this reason that alternative dispute resolution methods are
In an attempt to expedite the Indian judicial system, the
High Courts and the district courts have established special
commercial divisions for expediting hearings of commercial
disputes valued over INR10 million. The arbitration application
and appeals relating to commercial disputes will also be taken
up by such specialised courts. It is hoped that these courts
will expeditiously deal with commercial disputes.
In addition to the courts, various specialised tribunals
have exclusive jurisdiction over specified subject matters
(such as the National Company Law Tribunal, Securities and
Exchange Board etc.)
Arbitration is a well-settled mode of resolving commercial
disputes. However, the Indian courts have been known to
interfere with the arbitration process and this has contributed
to delay and increased costs. Recently, there appears to be a
shift in the attitude and the courts seem to be adopting a less
4.2 Does your jurisdiction have a bilateral investment
protection treaty with the US and is that commonly used by
At present, India does not have a bilateral investment
protection treaty (BIPT) with the US and negotiations are
ongoing. Like US, India also has adopted a revised model BIPT
in the year 2015.
India and US have entered into a double taxation avoidance
4.3 Do local courts respect foreign judgments and are
international arbitration awards enforceable?
Enforcement of foreign judgments
A foreign judgment is considered conclusive regarding the
matter adjudicated upon between the same parties, except where
a) has not been pronounced by
a court of a competent jurisdiction;
b) is not on the merits of the
c) appears on the face of the
proceedings to be founded on an incorrect view of international
law or a refusal to recognise applicable Indian law;
e) where the proceedings in
which the judgment was obtained are opposed to natural
f) has been obtained by fraud;
g) sustains a claim founded on
a breach of Indian law.
Conclusive judgments of courts of a notified reciprocating
country can be enforced like a decree of an Indian court.
Judgments given by other foreign courts can be enforced only by
instituting a fresh suit in a court in India and the judgment
of foreign court can merely be adduced as evidence.
The US is not a notified reciprocating territory. Therefore,
if a judgement passed by a US court needs to be enforced
against a party in India, an entirely new proceeding will need
to be started in India and the judgement of the courts in US
can merely be adduced as evidence. The US is a notified
Enforcement of international arbitration awards
A foreign arbitral award is an award issued in relation to
an agreement covered under the New York Arbitration Convention
on the Recognition and Enforcement of Foreign Arbitral Awards
or the Geneva Convention on the Execution of Foreign Arbitral
Awards which is final, pertains to a commercial dispute and is
passed in a notified reciprocating country.
The grounds to challenge enforcement of such foreign
arbitral award are limited and the courts are not otherwise
permitted to re-examine the award on the merits of the
Awards not covered under these conventions cannot be
enforced in India as arbitral awards.
SECTION 5: Forex controls and local operations
5.1 What foreign currency or exchange restrictions should
foreign investors be aware of?
The RBI has been granted authority under the Foreign
Exchange Management Act (Fema) for implementing and enforcing
foreign exchange regulations. Transfers of INR and non-INR
currencies from and to India are subject to RBI regulations
that specify the purposes for which such transfers can be
undertaken, and the limits applicable thereto. The Indian Rupee
is not a freely convertible currency and restrictions apply to
the sale, purchase and transfer of foreign currency by or to
resident individuals in India.
Fema also prescribes certain pricing requirements which must
be adhered to while undertaking transactions between an Indian
resident (IR) and a non-resident (NR). Therefore, a transfer of
shares of an Indian company from an IR to an NR cannot take
place at a price lower than the fair market value of the
shares; and from an NR to an IR cannot take place at a price
higher than the fair market value of the shares. The fair
market value is determined by a chartered accountant or
merchant banker registered with Sebi using any internationally
accepted valuation methodology.
Section 6: Tax implications
It is recommended that detailed tax advice should be
6.6 Do you think that the introduction of new rules and
regulations in the US, such as the Bring Jobs Home Act, is
likely to have an impact on investment into your country?
A very popular practice adopted by US companies has been to
outsource jobs to other countries including India. The primary
trigger for such practice has been substantial savings in terms
of costs when such jobs are performed out of India. The Bring
Jobs Home Act aims to provide tax benefits to those companies
which discontinue outsourcing jobs and relocate such jobs back
to US. However, while such a move will create job opportunities
in the US, we believe it will not significantly affect the FDI
flow into India.
Partner, Talwar Thakore &
T: + 91 22 66136900
F: + 91 22 66136901
Feroz Dubash spent eight years at Linklaters in the
project finance and corporate departments and was a
founding member of the India Group before helping set
up TT&A in 2007. He has a wide range of experience
advising clients on transactions including
joint-ventures, public and private acquisitions and
disposals, banking and project financing. He has
focused on corporate transactions in the financial
sector since he moved to TT&A.
Counsel, Talwar Thakore &
T: + 91 22 66136900
F: + 91 22 66136901
Shruti Zota is a counsel with a wealth of experience
advising international banks and financial institutions
and other regulated intermediaries on licensing,
governance, compliance and regulatory issues. She has
advised clients on confidentiality requirements and
data protection legislation. While focusing on the
financial regulatory practice, she has also been
closely involved in advising a variety of clients on
mergers, acquisitions, joint-ventures, disposals
(public and private) and private equity
Associate, Talwar Thakore &
T: + 91 22 66136900
F: + 91 22 66136901
Kanwardeep Singh is an associate who has advised a
variety of clients on general corporate and regulatory
issues. While focusing on corporate transactions, he
has also been involved in advising domestic and
international banks and financial institutions on
various issues relating to banking and finance law.