Law and policy

Policies and practices

What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

Primarily, since 1991, India has sought to liberalise its economy and has continuously opened up most of its industrial and business sectors to foreign investment. In particular, the Indian government has sought to attract foreign investment into the country by undertaking steps towards enhancing the ease of doing business in India, as it has the effect of establishing long-term economic relationships with India.

Foreign investment in India is principally governed by the Foreign Exchange Management Act 1999 (FEMA) and the regulations framed thereunder, which consolidate the law relating to foreign exchange in India. To regulate foreign investment, the Reserve Bank of India (RBI) had published the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (TISPRO 2000) and thereafter the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 (TISPRO 2017) (as amended from time to time), under the FEMA was published on 7 November 2017. Additionally, in 2010, the Department for Promotion of Industry and Internal Trade (DPIIT) (earlier known as the Department of Industrial Policy and Promotion (DIPP)) had put in place a policy framework that consolidated the sectoral requirements and other conditions that must be complied with by foreign investors investing in Indian entities (FDI Policy). The FDI Policy used to be updated every year and amended from time to time and the consolidated FDI policy of 2017 is the last policy framework issued by the DPIIT (Consolidated FDI Policy).

On 15 October 2019, the central government notified, inter alia, certain amendments to the FEMA, pursuant to which, the central government, rather than the RBI, has been granted the power of specifying all permissible non-debt instruments capital account transactions and the RBI has been granted the power of specifying all debt instruments capital account transactions. The central government separately, on 16 October 2019, also notified the following instruments that shall be considered as ‘non-debt instruments’, inter alia, namely: (i) all investments in equity in incorporated entities (public, private, listed and unlisted); (ii) capital participation in limited liability partnerships (LLPs); (iii) all instruments of investment as recognised in the FDI Policy as notified from time to time; (iv) investment in units of Alternative Investment Funds (AIFs) and Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs); and (v) investment in units of mutual funds and Exchange-Traded Funds (ETFs) that invest more than 50 per cent in equity.

Pursuant to these amendments to the FEMA, the central government, on 17 October 2019, notified the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (Rules 2019) and the RBI notified the Foreign Exchange Management (Debt Instruments) Regulations, 2019 (Regulations 2019) and Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (Reporting Regulations 2019), that have superseded the TISPRO 2017 (as amended from time to time) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. In the past year, the trend for liberalisation has continued, with relevant changes being made to the Indian foreign exchange laws in this regard, for example:

  • Rules 2019, dated 17 October 2019: 100 per cent foreign investment (via automatic route up to 49 per cent and government route beyond 49 per cent) has been permitted in the single brand product retail trading for the products to be sold under same brand used internationally and to undertake retail trading through e-commerce for single brand trading entities operating through brick-and-mortar stores in India; and
  • Rules 2019, dated 17 October 2019: the definition of an ‘investment vehicle’ has been amended to include mutual funds that invest more than 50 per cent in equity.

Further, Rules 2019 contain sectoral requirements that must be complied with by foreign investors for the purposes of investing in particular sectors in India and also by Indian companies that receive foreign investments in India. They also classify sectors that fall under the approval route and those that fall under the automatic route. Further, there are also certain limited sectors and industries in which foreign investment is prohibited. Except for those sectors and subject to conditions for foreign investment (performance conditions) or government approval in certain sectors; by and large, there are no preconditions for making foreign investment into other sectors in India.

Additionally, the Securities and Exchange Board of India (SEBI) (Foreign Portfolio Investors) Regulations 2019 (FPI Regulations), read with Schedule II of Rules 2019, permits foreign portfolio investors (FPIs) to invest in equity instruments of an Indian company and specifies the form and manner in which such investment by FPIs in Indian entities can be categorised as foreign portfolio investment or foreign direct investment (FDI). As per the Rules 2019, the total holding by each FPI is required to be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (individual limit) and the total investment of all the FPIs put together in an Indian company (including any other direct or indirect foreign investments) is required to not exceed 24 per cent of the paid-up equity share capital on a fully diluted basis or the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (aggregate limit). Further, as per the FPI Regulations, in the event that the investment by a FPI exceeds the individual limit of 10 per cent, such investment will qualify as FDI. Further, Regulations 2019, read with the FPI Regulations, also permit FPIs to invest in any debt securities, shares, debentures and warrants of listed companies or companies whose securities are likely to be listed on a stock exchange in India.

Therefore, foreign investment in India can broadly be classified into investments in debt instruments and investments in non-debt instruments.

Main laws

What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The key legislation that directly or indirectly regulates and governs acquisitions and investments by foreign nationals is the FEMA (along with rules and regulations thereunder, in particular, the Rules 2019 and Regulations 2019), as well as other notifications, circulars and directions pertaining to foreign investments issued by the central government and the RBI from time to time.

Until 2010, the regulatory framework for foreign investment in India consisted of the FEMA; the regulations framed thereunder, the press notes and press releases issued by the DPIIT; and the notifications, circulars and directions issued by the RBI. After April 2010, the press notes and press releases issued by the DPIIT were consolidated into the FDI Policy; however, the DPIIT continues to issue press notes and press releases each year and the changes proposed in such press notes and press releases come into effect after being incorporated in the relevant regulations framed under FEMA.

In addition to complying with the Indian foreign exchange laws, rules, regulations and policies, foreign investors are also required to comply with the relevant sector-specific and state-specific (local laws) legislation applicable to a particular industry or sector.

Scope of application

Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

Under the present laws, except for a few sectors, for example, lottery, gambling and betting, chit funds, nidhi companies and trading in transferable development rights, where foreign investment is prohibited, foreign investment is allowed in almost all sectors either under the automatic route or under the approval route.

There is a percentage threshold prescribed for foreign investment in some sectors (such as petroleum refining by public sector undertakings, terrestrial broadcasting FM, uplinking of news and current affairs TV channels, print media, scheduled air transport service and regional air transport service, private security agencies, multi-brand retail trading, banking, infrastructure companies in securities markets) and, except for some prohibited sectors, foreign investment overall is allowed in almost all sectors under the automatic route up to 100 per cent of the equity shareholding, though, in some cases, with certain performance conditions, such as minimum capitalisation norms and exit conditions, among others.

India has consistently liberalised and eased the norms for foreign investments in India. For foreign investment in any automatic route sector, there is no need for prior approval and only certain post facto filings are required. There have been significant liberalisation and simplification efforts made in recent years through amendments in the FEMA and regulations framed thereunder; for example, important filings such as Form FC-TRS (reporting of transfer of shares between residents and non-residents) and Form FC-GPR (reporting of issuance of shares by an Indian investee company) have been made available online and subsumed into a single master form (SMF) for reporting the total investment in an Indian company. The online filing of an SMF can be done through a designated website portal at from 1 September 2018. The SMF facility provides for an online reporting platform to Indian companies with investments from people resident outside India including in an investment vehicle. Subsequently, pursuant to the Rules 2019, it is required that any Indian entity or investment vehicle making downstream investment in another Indian entity shall be considered as indirect foreign investment and shall, in accordance with the Reporting Regulations, 2019, be required to file Form DI with the RBI within 30 days from the date of allotment of the equity instruments.

Furthermore, a person or entity who has delayed the filing of the SMF can regularise that by paying a late submission fee, subject to the delay being condoned by the RBI.

However, in sectors where foreign investments are permitted with the prior approval of the sector-specific competent authority (eg, the Ministry of Information and Broadcasting in relation to foreign investment in the broadcasting sector; and the Department of Industrial Policy and Promotion in relation to foreign investment in the single and multi-brand retail trading sectors) (competent authority), the government reserves the right to oversee, control, permit or prohibit investments, and mainly these sectors are considered sensitive (such as print media and multi-brand retail trading).


How is a foreign investor or foreign investment defined in the applicable law?

The term ‘foreign investment’ is defined under the Rules 2019 to mean: ‘any investment made by a person resident outside India on a repatriable basis in equity instruments of an Indian company or to the capital of a LLP’. Furthermore, a person resident outside India is permitted to hold foreign investment as either FDI or FPI investment in a particular Indian company.

The Rules 2019 do not define the term ‘foreign investor’. However, they provide the entry routes, eligible instruments and mechanism whereby a ‘person resident outside India’ can undertake foreign investment in India. The term ‘person resident outside India’ is explained under the FEMA to mean: (i) a person who is residing in India for fewer than 182 days during the course of the preceding financial year; and (ii) any person or body corporate not registered or incorporated in India. Essentially, Indian foreign exchange law allows any set-up that is an association of persons, foundations, trusts, bodies corporate, companies or entities to make FDI in India.

Special rules for SOEs and SWFs

Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

While the Rules 2019 do not define SOEs or SWFs, the Consolidated FDI Policy (in Annexure 6) defines a SOE or SWF as a government investment vehicle that is funded by foreign exchange assets and that manages those assets separately from the official reserves of monetary authorities. This term has also been referred to in the FPI Regulations, wherein a sovereign wealth fund is construed as a category I FPI (Regulation 5(a)(i), FPI Regulations). Therefore, the total holding of an SWF in an Indian company shall be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (individual limit), exceeding which, such investment will be regarded as FDI. Further, the total investment for all the FPIs put together in an Indian company (including any other direct or indirect foreign investments) shall not exceed 24 per cent of the paid-up equity share capital on a fully diluted basis or the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (aggregate limit).

Additionally, with effect from 1 April 2020, the applicable aggregate limit for an SWF (and any other FPI) would be the sectoral cap or statutory ceiling as prescribed in the Schedule I of Rules 2019. However, an Indian investee company is permitted to decrease such aggregate limit to a lower threshold limit of 24 per cent or 49 per cent or 74 per cent as deemed appropriate, by passing a resolution at the meeting of its board of directors followed by a special resolution at the shareholders’ meeting, before 31 March 2020. Further, such an Indian investee company that has decreased its aggregate limit to 24 per cent or 49 per cent or 74 per cent, is permitted to increase the same, once, up to 49 per cent or 74 per cent or the statutorily prescribed sectoral cap as under Schedule 1 of Rules 2019, by passing a resolution at the meeting of its board of directors followed by a special resolution at the shareholders’ meeting, after which such Indian investee company cannot reduce the same to a lower threshold.

Relevant authorities

Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

Subject to satisfying the assets and turnover thresholds prescribed under the Competition Act 2002 (Competition Act), the regulations and notifications thereunder, and the non-applicability of any of the exemptions available to the transacting parties, investments that involve an acquisition of shares, assets, voting rights or control, or a merger or amalgamation (together referred to as ‘combinations’) must be notified to the Competition Commission of India (CCI). The CCI is empowered to prohibit or modify transactions that are likely to cause an appreciable adverse effect on competition (AAEC) in India.

Further, there are specific regulators that review mergers or acquisitions of companies within certain industries and sectors (eg, the Insurance Regulatory Development Authority for insurance companies and the Telecom Regulatory Authority of India for telecom companies).

Previously, the Foreign Investment Promotion Board (FIPB) was the governmental body that offered a single-window clearance for proposals on FDI in India that are not allowed access through the automatic route. However, regarding O.M No. 01/01/FC12017 FIPB dated 5 June 2017, the government of India has abolished the FIPB, and mandated that where FDI is only permitted through the approval route, the sector-specific competent authorities (such as the Ministry of Information and Broadcasting for activities in the broadcasting and print media sector; the Ministry of Mines for activities in the mining sector; the Department of Space for activities related to satellites; the Department of Pharmaceuticals, the Ministry of Chemicals and Fertilizers for activities in the pharmaceuticals sector, etc) must be approached for approval. However, in case of doubt as to which competent authority is to be approached, the DPIIT is mandated to identify the competent authority concerned and to this effect, the DPIIT has established a Foreign Investment Facilitation Portal (FIFP).

Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The competent authorities have the discretion to approve, reject or defer a proposal for foreign investment where such proposals have come via the approval route after having sought the concurrence of the DPIIT. Apart from the discretion of the competent authorities, the proposed investment would also have to be in line with sectoral laws and regulations and, where necessary, applications for approval from the sectoral regulators would have to be given. If any sector-specific approval is required from any other sector regulator, it must be obtained from the relevant regulatory authority. Again, these authorities reserve the discretion to reject any applications made to them without specifying the reasons.

Further, the CCI’s discretion is limited to a qualitative assessment of whether the notified transaction causes or is likely to cause an AAEC within the relevant market in India. The CCI also has the power to direct modifications to the terms of a transaction, or even prohibit it, if it is of the view that such transaction is likely to cause an AAEC in India.


Jurisdictional thresholds

What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

Where the proposed foreign investment is to be made via the approval route, the jurisdiction of the competent authorities is triggered, as they have the authority to review the proposed applications. FDI transactions of more than 50 billion rupees need the prior approval of the Cabinet Committee on Economic Affairs. Further, any investment or payment made into India must be reported to the RBI either through authorised dealers or directly to the RBI, depending on the nature of investment or payment made into India.

Under the Competition Act, a combination will need to be mandatorily notified to the CCI if it satisfies any of the following assets and turnover thresholds, and is unable to take the benefit of any of the available exemptions:




Either the acquirer or the target or both have

20 billion rupees


80 billion rupees

The group to which the target will belong has

80 billion rupees


240 billion rupees




Either the acquirer or target or both have

In the case of a merger, the enterprise after a merger or created as a result of the merger, has

US$1 billion, including assets of at least 10 billion rupees in India


US$3 billion, including turnover in India of more than 30 billion rupees

A group has

US$4 billion, including assets of at least 10 billion rupees in India


US$12 billion, including turnover in India of more than 30 billion rupees

National interest clearance

What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

Foreign investments are permitted in India through the automatic route and the approval route depending on the sector. No prior approval is required for activities falling under the automatic route, subject to compliance with the applicable performance conditions. However, areas or activities that do not fall within the automatic route and are under the approval route require the prior approval of the competent authority (see questions 3 and 6). Further, foreign investment in some sectors, such as the pharmaceuticals sector, is permitted up to a certain threshold via the automatic route, and beyond such threshold via the approval route. To obtain approval, the investor company or investee company (the applicant) must submit a single online application on the website of the FIFP along with such information as required, which, inter alia, includes:

  • a summary of the foreign investment proposed;
  • certificate of incorporation and memorandum of articles of the investor and investee company (and in the case of a joint venture, of the joint venture company);
  • diagrammatical representations of the cash flow;
  • foreign inward remittance certificates evidencing the fund flows; and
  • a copy of the board resolution of the investee or issuing company in the case of a fresh issue of shares. Certain categories of foreign investors, such as investment funds, are required to provide additional documentation pertaining to the investment managers and contributors to such funds.

If the online application is not digitally signed, the DPIIT will direct the applicant to submit a physical copy of the application to the concerned competent authority within five days of such direction being given to the applicant. There is no fee for filing an online application.

Further, all notifiable combinations must be notified to the CCI in the format prescribed under the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (Combination Regulations). The Ministry of Corporate Affairs of the Indian government issued a notification on 29 June 2017 that does away with the erstwhile requirement to necessarily notify a combination within 30 calendar days of an event triggering a notification requirement. However, the requirement to file a notice with the CCI is still mandatory and the suspensory regime (ie, requirement to receive CCI approval prior to consummating a notifiable transaction in any way or form) still applies. Subject to the extent of market shares in overlap markets, the transaction may be notified in the shorter form (Form-I) or a more detailed form (Form-II). Recently, the CCI, by way of a gazette notification dated 13 August 2019 (2019 Amendment), has amended the Combination Regulations and revised the scope of information that has to be provided under Form I. Subsequent to filing the application, the CCI reviews the combination to ascertain if the combination causes or is likely to cause any AAEC, before passing its final order.

The 2019 Amendment also introduced a ‘green channel’ clearance option for transactions with no overlaps. Under the green channel, transactions between parties that are not engaged in identical or similar business and are not vertically linked or engaged in complementary business activities will be ‘deemed’ approved on notification to the CCI. A Form I being filed under the green channel must be accompanied by a declaration that shows both:

  • the lack of overlaps between transacting parties and their respective groups; and
  • the proposed transaction is not causing an AAEC.

Notably, if the CCI subsequently concludes that a transaction notified to it under the green channel did not, in fact, meet the requirements for such a filing or that the declaration by the notifying party(ies) in this regard was incorrect, the notice and the ‘deemed approval’ will be void ab initio and the CCI shall deal with the combination ‘in accordance with the provisions of the Competition Act’. Before reaching a conclusion, the CCI must give parties an opportunity to be heard.

Which party is responsible for securing approval?

The approval of the competent authority is required if the investment is made under the approval route and either of the parties, being the foreign collaborator or foreign investor, or the Indian company, can secure approval from the competent authority. Further, where an investment involves an acquisition of shares, assets, voting rights or control, the acquirer will be responsible for notifying the combination to the CCI. In the case of a merger or amalgamation, all the parties are jointly responsible for notifying the combination to the CCI.

Review process

How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

Within two days of submission of the online application, the DPIIT is required to e-transfer the application to the competent authority concerned and also circulate the application to the RBI, the Ministry of Home Affairs (MHA) (in case the proposed foreign investment is in a sector requiring security clearance) and the Ministry of External Affairs. The concerned ministries are required to upload their queries regarding the application on the FIFP website within four weeks of online receipt of the application. If security clearance is required from the MHA, the aforesaid timeline can be extended to six weeks (Stage 1). Within one week of the completion of Stage 1, the competent authority may pose queries to the applicant. The applicant must respond to the queries of the competent authority within one week of the date of receipt of queries (Stage 2). Within two weeks from the completion of Stage 2, the competent authority must process the application and convey its decision to the applicant. The above timelines are subject to variation in the event that the application is subject to receipt of security clearance from the MHA or because of other administrative reasons. The status of the application can be tracked on the FIFP website.

As far as the CCI is concerned, the overall prescribed statutory time period to review the combination and pass a final order is 210 calendar days from the date of filing of the notification, and in limited situations, where remedies may be warranted, 270 days to disapprove or approve the transaction. The Combination Regulations further provide that the CCI shall endeavour to pass its final order within 180 calendar days of filing the notification. Further, the CCI must form a prima facie opinion on the likelihood of the combination resulting in an AAEC within 30 working days of filing the notification. This is subject to ‘clock stops’ on account of requests from the CCI for additional information, extensions sought by parties and such like. The extent of overlaps relating to the combination, the sensitivity of the government towards the sector to which the combination relates and the existence or likelihood of the combination resulting in an AAEC, are some of the factors that may determine the timeline for clearance. In a majority of cases, the CCI has approved transactions within the 30-working-day timeline (excluding clock stops).

There are four broad categories of exemptions under the merger control regime that the parties to the combination can analyse and benefit from, namely:

  • Statutory exemption: the requirement of mandatory notification to the CCI prior to the closing of the transaction do not apply to any financing, acquisition or subscription of shares undertaken by FIIs, or venture capital funds registered with the SEBI, public financial institutions and banks pursuant to a covenant of an investment agreement or a loan agreement. However, these entities are required to provide details of the acquisition, including control, circumstances for exercising such control and consequences of default arising out of such loan agreements or investment agreements to the CCI within seven days of the date of closing.
  • Categories of transactions ‘normally’ exempt from mandatory notification: Regulation 4 read with Schedule 1 of the Combination Regulations treats certain categories of transactions as being ordinarily not likely to cause an appreciable adverse affect on competition in India, and hence provides that a pre-notification need not normally be filed for such transaction.
  • Target-based exemption (de minimis exemption): further to the thresholds notification, any transaction where the enterprises (ie, the enterprises whose shares, voting rights, assets or control are being acquired or are being merged or amalgamated) either has assets not exceeding 3.5 billion rupees in India or has a turnover not exceeding 10 billion rupees in India, are currently exempt from the mandatory pre-notification requirement.
  • Exemptions for specific sectors: on 10 August 2017, the government of India issued a notification (under section 45 of the Banking Regulation Act 1949) exempting certain regional rural banks (governed by the Regional Rural Banks Act 1976) from the merger control provisions for five years (that is, until 10 August 2022). On 30 August 2017, the exemption from the merger control provisions was also extended to all mergers and acquisitions involving nationalised banks, under the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act 1980, for 10 years (that is, until 30 August 2027). On 22 November 2017, all mergers and acquisitions involving central public sector enterprises operating in the oil and gas sectors under the Petroleum Act 1934 have been exempted from the merger control provisions for five years (that is, until 22 November 2022).
  • There are no expedited or ‘fast-track’ options for the review process; however, occasionally the government of India considers proposals for the fast-track single-window clearance of foreign investment on jurisdictional basis. With respect to Competition Act, as stated above, if a transaction is able to avail the green channel route (after satisfying all conditions for a green channel filing), then such transaction will be ‘deemed’ approved upon notification to the CCI.

Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

Where investment is through the approval route, prior approval must be obtained before the transaction is completed. If the parties complete the transaction before obtaining the relevant approvals or in a manner that contravenes the FEMA (or rule, regulation, notification, direction or order issued in exercise of the powers under the FEMA) or contravene any condition subject to which an authorisation is issued by the RBI, the parties shall, upon adjudication by the designated authorities of the Enforcement Directorate (Directorate), be liable to a penalty of up to three times the sum involved where such amount is quantifiable, or up to 200,000 rupees where the amount is not quantifiable. A penalty of 5,000 rupees will be incurred for every day after the first day on which the contravention continues. Further, under section 14 of the FEMA, in the event of non-payment of the penalty within 90 days from the date the notice for payment of such penalty is served, the parties shall be liable to civil imprisonment.

Every notifiable combination requires the approval of the CCI prior to its consummation. If a notifiable combination is not notified, or if the parties take any step to implement the combination (or a part thereof) prior to the receipt of the CCI’s approval, the CCI may impose penalties extending up to 1 per cent of the total turnover or assets (whichever is higher) of the combination. In the past, the CCI has imposed penalties of up to 50 million rupees. To date, the CCI has not exercised its power to impose the highest allowable penalty under the Competition Act.

Involvement of authorities

Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

Formal or informal guidance from authorities such as the competent authority or the DPIIT can be obtained prior to a filing being made or during the time that the application is in process. An applicant can submit a clarification to the DPIIT listing its query in the prescribed form. The CCI has also put in place a mechanism for pre-filing informal merger consultations, but it is not binding.

When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

Experts and specialists are involved at the stage when policy decisions are being made for the purposes of receiving recommendations. Lobbying does not formally prevail in India. There is no informal procedure or mechanism available to facilitate clearance of any proposal. The process of granting approval is transparent and is solely considered on the basis of the Rules 2019. The applicant must meet all the legal requirements as prescribed for the approval to be granted. Applicants can track the status of their applications on the FIFP website on both a daily and a weekly basis. In the past, economists have been engaged by parties for certain complex merger control filings to the CCI.

What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

The DPIIT and the RBI may review, challenge and unwind an approved transaction. In Bycell Telecommunication India P Ltd v Union of India and Ors, the FIPB, having previously granted approval to the petitioner, revoked it - after the Ministry of Home Affairs withdrew the security clearance of the petitioner - on the grounds that even if the petitioner had complied with requirements under the laws relating to foreign investment, lack of a security clearance is a valid ground to revoke an application. Further, under the provisions of the FEMA, the central government, by an order published in the Official Gazette, may appoint as many officers of the central government as it likes as the adjudicating authorities for holding an inquiry into the person alleged to have committed contravention of the FEMA. The Directorate is a specialised financial investigation agency under the Department of Revenue, Ministry of Finance, which has, under the central government, been accorded powers and is mandated with the task of enforcing the provisions under the FEMA.

The CCI may also review, challenge or unwind those combinations, where the transactions that met the assets or turnover thresholds prescribed under the Competition Act were not notified to the CCI, on account of the availability of any exemption or otherwise. Such power of review exists for a period of one year post the closing of the transaction. However, this limitation period of one year is not applicable to proceedings initiated by the CCI for not filing an otherwise notifiable (ie, not exempt) combination.

Substantive assessment

Substantive test

What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

The online application submitted on the FIFP website is reviewed in totality by the relevant ministries, the RBI and the concerned competent authority, and to impart greater transparency to the approval process, guidelines have been issued that govern the consideration of FDI proposals by the FIFP. The onus of compliance with the sectoral or statutory caps on foreign investment and attendant conditions, if any, shall be on the company receiving foreign investment.

The substantive test for clearance adopted by the CCI is whether the combination causes or is likely to cause an AAEC within the relevant market in India. To conduct an AAEC assessment, the CCI considers a number of factors:

  • actual and potential level of competition through imports in the market;
  • extent of barriers to entry into the market;
  • level of combination in the market;
  • degree of countervailing power in the market;
  • likelihood that the combination would result in parties to the combination being able to significantly and sustainably increase prices or profit margins;
  • extent of effective competition likely to sustain in a market;
  • extent to which substitutes are available or are likely to be available in the market;
  • market share, in the relevant market, of the persons or enterprises in a combination, individually and as a combination;
  • likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
  • nature and extent of vertical integration in the market;
  • possibility of a failing business;
  • nature and extent of innovation;
  • relative advantage, by way of the contribution to the economic development, by any combination having or likely to have AAEC; and
  • whether the benefits of the combination outweigh the adverse impact of the combination, if any.

If the CCI forms a prima facie opinion that the combination has caused or is likely to cause an AAEC within the relevant market in India, the onus of demonstrating the absence of any AAEC is on the party or parties notifying the transaction.

To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

There is no obligation imposed by any statute or regulation on the authorities regulating or reviewing foreign investment to consult officials in other countries.

The CCI has entered into cooperation arrangements with several overseas competition regulators including the European Commission, CADE (Brazil), the Federal Anti-Monopoly Service (Russia), the Federal Trade Commission and the Department of Justice (the United States), and the Ministry of Commerce (China).

Cooperation with such foreign competition regulators inter alia extends to coordination to curb anticompetitive activities within their territories, which have an adverse effect on their respective relevant markets. To this end, the CCI can exchange information about parties that is not confidential, and does not harm the parties’ interest, after seeking prior approval from the parties concerned.

Other relevant parties

What other parties may become involved in the review process? What rights and standing do complainants have?

The review of an application process is an internal process of the government and the competent authority or the DPIIT may itself consult the relevant government departments while considering any application before it. No other party, including the applicant, is given a hearing as a matter of process. However, the competent authority can seek clarifications or further information from the applicant while considering any application.

The CCI has the discretion to reach out to third parties (competitors, customers, suppliers, experts, etc) during the initial 30-business-day period as well as after forming a prima facie opinion that the combination has caused or is likely to cause an AAEC. In instances where the CCI reaches out to third parties, the initial 30-business-day period may be extended by an additional 15 business days.

Prohibition and objections to transaction

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Pursuant to the provisions of section 37 of the FEMA, the Directorate has been mandated to enforce the investigative and punitive provisions of the FEMA. The Directorate has jurisdiction under the provisions of the FEMA as well as the Prevention of Money Laundering Act 2002, and draws its personnel from other investigative entities such as customs and central excise, income tax authorities and the police, among others, on deputation, as well as through direct recruitment of personnel. Further, under section 13 of the FEMA, the RBI can impose penalties if any person contravenes the provisions of the FEMA or rules and regulations made under it (section 13(1)) or in the case of a contravention of any condition subject to which an authorisation has been issued by the RBI (section 13(1)). Upon adjudication, the monetary penalty that can be imposed for the instances described above is three times the sum involved in the contravention, if such amount is quantifiable, or a penalty of up to 200,000 rupees if it is not quantifiable. Further, if the contravention is ongoing, an additional penalty can be imposed of up to 5,000 rupees for every day the contravention continues (section 13(1)).

As indicated above, the CCI may modify or even prohibit a transaction if it determines that such transaction causes or is likely to cause an AAEC in the relevant market in India. Until date, the CCI has not prohibited any transaction.

Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

There are no specific guidelines or rules pursuant to which a transaction can be remedied or an objection avoided by submitting undertakings. However, we have seen instances where the RBI has directed Indian companies to provide an undertaking and declarations from their chartered accountants with respect to the confirmation on the pricing of the shares being transacted or confirmation on the investment being in compliance with the Rules 2019 and Regulations 2019.

The CCI can propose both structural and behavioural modifications where it believes that the combination has, or is likely to have, an AAEC, but can be eliminated through suitable modifications to the transaction. According to the amendments to the Combination Regulations dated 9 October 2018, the parties can now offer remedies during the CCI’s 30-business-day review period. Once the CCI initiates its detailed investigation into the transaction, the parties can suggest amendments to the modification which can only be proposed by the CCI. If the CCI accepts the counterproposal, it approves the combination. However, if it does not accept the counterproposal, the parties are given time to accept the modifications proposed by the CCI.

Challenge and appeal

Can a negative decision be challenged or appealed?

If the online application submitted on the FIFP website is rejected by the competent authority, the applicant may write to the competent authority requesting reconsideration of the proposal. The CCI’s decision to approve or reject a combination is subject to appeal before the National Company Law Appellate Tribunal, with a subsequent right of appeal to the Supreme Court of India.

Confidential information

What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

The applicant can, in its online application submitted on the FIFP website, insist that the information submitted is confidential. The CCI treats any information as confidential if disclosure of the same will result in disclosure of trade secrets or destruction or appreciable diminution of the commercial value of the information or can be reasonably expected to cause serious injury. An application to maintain confidentiality over information being submitted to the CCI is required to accompany a notification and all subsequent submissions. Confidentially is typically granted by the CCI for no more than three years.

Recent cases

Relevant recent case law

Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

A notable transaction recently approved by the CCI was in the case of Schneider Electric India Pvt Ltd, MacRitchie Investments Pte Ltd and Larsen & Toubro (L&T). The transaction entailed an acquisition by Schneider of the electrical and automation business of L&T and was approved pursuant to a Phase II (detailed) review by the CCI. The CCI observed that the 29 overlapping products that were produced by the parties were not used on a standalone basis and were complementary or supplementary to the other products used in a switchboard.

Accordingly, one or more of these products could be grouped in one or more clusters based on their functionality or utility. The CCI noted that the transaction would have resulted in an increased concentration across 15 markets and provided the entity with dominance in various markets, given that Schneider and L&T were major close competitors. The parties were considered to be undisputed market leaders in two of the products, as the combined market share of the parties was in the range of 55 to 60 per cent.

More importantly, the CCI noted that there was a strong consumer preference for use of products belonging to the same brands across a low-voltage electrical panel. Accordingly, a large player, such as the combined entity providing a portfolio of products, was at an inherent advantage.

To alleviate the likely the anticompetitive effects arising out of the transaction, the CCI had recommended divestments; however, it approved the transaction based on the following alternative behavioural remedies that were proposed by the parties, without directing any divestments:

  • White labelling: the parties offered to strengthen existing low-voltage manufacturers (except Siemens and ABB, which were their biggest competitors) by offering them products under a white labelling arrangement for a period of five years from the date of closing of the proposed combination.
  • Transfer of technology on a non-exclusive basis: at the end of the five-year term of the white labelling remedy, Schneider would provide a mutually acceptable, non-transferable, non-sub-licensable, royalty-bearing non-exclusive technology licence for a period of five years to a single third party that had availed white labelling.
  • Removing exclusivity of distribution network: Schneider undertook to amend the distributorship agreement and commercial policy to remove any barriers that encourage de facto exclusivity (ie, deletion of termination clause, discontinuation of loyalty rebates).

(Combination Registration No. C-2018/07/586.)

Updates & Trends

Key developments of the past year

Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

Key developments of the past year24 Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

In the past few years, the regulatory landscape for foreign investment has advanced progressively in India towards making it foreign-investor-friendly. Recently, the central government introduced certain key amendments to the FEMA as per which the central government has been granted the power to make regulations with regard to non-debt capital account transactions, as opposed to the RBI. Pursuant to these amendments, the central government shall be the rule-making authority for regulating the foreign investment regime in India.

Further to these amendments, the central government has introduced the Rules 2019 and the RBI has introduced the Regulations 2019 and Reporting Regulations 2019. Additionally, in the Rules 2019, the Central Government has been referred to, for the purposes of consultation in various rules, inter alia, Rule 3 (Restriction on investment by a person resident outside India), Rule 4 (Restriction on receiving investment), Rule 9 (Transfer of equity instruments of an Indian company by or to a person resident outside India) (ie, in relation to entry routes, pricing guidelines, sectoral caps, etc) and Rule 13 (Transfer of Equity Investment by NRI/OCI), among others, as opposed to the earlier regime under which the RBI had the sole authority of making these rules. In addition to these changes, the definition of an ‘e-commerce entity’ under the Rules 2019, no longer includes a foreign company covered under section 2(42) of the Companies Act, 2013 or an office, branch or agency in India owned or controlled by a person resident outside India and conducting the e-commerce business. It has been amended to only mean a company incorporated under the Companies Act, 1956 or the Companies Act, 2013.

Further changes in the foreign investment regime in India include the revamping of the regulations for FPIs by the introduction of FPI Regulations 2019. As per these new regulations, the key changes brought forth are, inter alia, as follows:

  • Category III of FPIs has been removed under this new framework - therefore, under the present regime, only two categories of FPIs exist, namely, Category I and Category II;
  • ‘broad basing criteria’ as per which there was a requirement of reaching the threshold of at least 20 investors in order to establish a fund, has been removed under the new framework;
  • permissible limits for investment by FPIs in debt securities has also been amended, that is, separate categories for listed and unlisted non-convertible debentures/bonds have been replaced with ‘any debt securities or other instruments as permitted by the RBI’;
  • obligation and responsibility of the designated depository participants to ensure that the FPI does not have opaque structure(s) has been removed; and
  • central banks that are not members of the Bank for International Settlements are now allowed to register as FPIs in India.

Additionally, the government constituted a Competition Law Review Committee (CLRC) on 1 October 2018 to review the existing competition law framework and make recommendations to further strengthen the framework to, inter alia, meet new economy challenges. The CLRC released its detailed report (Report) in July 2019 comprising recommendations for overhauling the competition law regime in India. The recommendations broadly include all aspects of the competition law regime, including the structure and nature of the CCI, and, inter alia, suggest the following changes.

The CLRC has recommended in its Report that the terms ‘foreign institutional investor’ and ‘venture capital fund’ be replaced with ‘foreign portfolio investor’ and ‘alternative investment fund falling within Category I of the Securities and Exchange Board of India (Alternate Investment Funds) Regulations 2012’, respectively. The proposed recommendation is because the regulations framed by the SEBI that relate to foreign institutional investors and venture capital funds have been repealed and are no longer in force.

Notably, the CLRC has suggested the introduction of deal value-based thresholds for notification of transactions. This recommendation primarily aims to enable the CCI to assess transactions involving the digital markets, which are not notified because these transactions do not generally meet the jurisdictional thresholds.

One of the Report’s recommendations - the introduction of the green channel regime for notification of transactions - has already been implemented by the CCI pursuant to the 2019 Amendment. Further, 18 November 2019 marked the beginning of the winter session of the Indian parliament where the Competition (Amendment) Bill 2019, among the 30-odd Bills, has been listed for consideration and passage. This Bill would largely consist of the recommendations made by the CLRC, including the setting up of regional offices of the CCI across India.

The position of law as discussed above is based on the law prevailing as at 24 November 2019.