Infrastructure & Project Finance

Regulatory Framework on FDI in E-Commerce

Regulatory Framework on FDI in E-Commerce

  • Introduction

With the stated aim of clarifying the foreign direct investment (‘FDI’) regime for e-commerce activities, the Department of Industrial Policy and Promotion (‘DIPP’) has issued Press Note No. 3 (2016 Series) on March 29, 2016 (‘Press Note’). Prior to the Press Note, the Consolidated Foreign Direct Investment Policy issued by DIPP (‘FDI Policy’) allowed 100% FDI under the automatic route (i.e. without requiring prior approval of the Government of India) in business to business (B2B) e-commerce activities, but did not permit FDI in multi-brand retail trade activity through online e-commerce. In such a regulatory landscape, the ‘marketplace’ model became popular; under the marketplace model, the marketplace entity provided a technology platform to connect buyers and sellers and did not itself undertake any trading activity. Such entities received FDI without any prior approvals from the Government of India. The regulatory framework for e-commerce has now been altered by the Press Note in the manner discussed below.

  • Salient Features

i. FDI up to 100% under the automatic route is now permitted in the ‘marketplace’ model (definition discussed below in paragraph (iv) of the section on New Definitions), subject to certain conditions, including those described below.

ii. FDI is not permitted in the ‘inventory-based’ model (definition discussed below in paragraph (iii) of the section on New Definitions).

iii. Subject to the conditions in the FDI Policy applicable to the services sector and applicable laws / regulations, security and other conditionalities, FDI up to 100% is also permitted, under the automatic route, in entities engaged in the sale of services through e-commerce.

iv. Other noteworthy aspects of the new framework for e-commerce include:

        a. the inclusion of goods coupled with services within the purview of e-commerce;

        b. the clarification that marketplace entities are permitted to provide ancillary services such as delivery, logistics etc.;

        c. marketplace entities not being permitted to have sales of more than 25% from one seller / vendor; and

        d. marketplace entities being restricted from directly or indirectly influencing the sale price of goods/ services and being required to maintain a level playing field.

  • New Definitions

The Press Note has introduced the following new definitions:

i. E-commerce: E-commerce means “buying and selling of goods and services including digital products over digital & electronic network”.1 The definition of e-commerce includes buying and selling of goods and services (including digital products) within its purview. At the same time, paragraph 3.0 of the Press Note suggests that the services sector is outside the purview of the Press Note and continues to remain eligible for 100% FDI under the automatic route. The interplay of the definition of e-commerce read with paragraph 3.0 of the Press Note suggests that the Press Note may not apply to entities merely providing services including digital products, except where they are buying and selling both, goods and services.

ii. E-commerce Entity: An e-commerce entity has been defined to mean “a company incorporated under the Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2(42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of the Foreign Exchange Management Act, 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.”

It is not clear why the Government felt the need to include, within the definition of e-commerce entity, a foreign company or a branch or agency in India, when the conditions in the Press Note are applicable only to FDI investment, which is a very specific route of investment in an Indian incorporated entity under the Foreign Exchange Management Act, 1999 and the rules and regulations notified thereunder ( ‘FEMA Regulations’).

An office or branch of a foreign company is merely a form of presence of the foreign company itself, the establishment and operation of which is separately regulated under FEMA Regulations. This kind of presence i.e. a foreign company or an office, branch or agency of a foreign company in India does not actually receive FDI, and therefore inclusion of these kinds of entities in the Press Note (which is intended to govern conditions for FDI in the e-commerce sector) is unclear. Also, given that the definition is restricted to companies and does not specifically include limited liability partnerships (‘LLP’), it is not clear if it is intended to exclude LLPs from the purview of the Press Note, implying that an LLP cannot conduct permissible e-commerce activities.

iii. Inventory Based Model of E-commerce: This model has been defined under the Press Note to mean “an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly”. The Press Note does not permit FDI in entities that operate under an inventory based model of e-commerce.

iv. Marketplace Based Model of E-commerce: The Press Note defines this model as “providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.” This is the model that is popular in the market and which has been adopted by various aggregation platforms, more prominently for online hotel / room reservations, taxi booking services and online shopping.

  • Relaxations Provided for the Marketplace Model

i. Marketplace entity allowed to provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services: This clarification is very welcome. Even before the Press Note was issued, a marketplace entity could have engaged in all these activities. However, the specific clarification included in the Press Note brings in more transparency in implementing the policy. The ability for e-commerce entities to provide these kinds of services could result in greater efficiencies as services ancillary to marketplace operations are commonly housed in different legal entities. We expect marketplace entities to be more optimistic about consolidating these functions within a single entity in light of this clarification.

ii. Express Recognition of Marketplace Model: There has been an increasing trend amongst investors to be a little more cautious about investing or increasing their investments in the Indian e-commerce space. While profitability has been a commercial issue and may continue to be an issue in the foreseeable future, there has also been some circumspection that has resulted from the absence of an express policy statement regarding FDI in the e-commerce sector, negative publicity around FDI in e-commerce and queries that have previously been raised by the regulators.

As the Government’s policy is now expressly stated, it will address concerns raised by various trade associations in their petitions before multiple judicial forums, where it is being argued that the marketplace model is not recognized under the FDI Policy and therefore not eligible for FDI. In our view, this argument was flawed since the FDI Policy cannot be expected to positively list every business model or opportunity that emerges in this fast moving technology rich environment. On the contrary, paragraph 6.2 of the FDI Policy specifically clarifies that FDI is allowed up to 100% under the automatic route in sectors and activities not listed in the FDI Policy. Hence, merely because the marketplace model was not expressly mentioned in the FDI Policy, did not imply that such activity was not eligible to receive FDI prior to the Press Note. If each of its ingredients were eligible for FDI investment, such sector/activity was always eligible to receive FDI.

  • Restrictions on the Marketplace Model

i. Marketplace entity cannot exercise ownership over the inventory (goods purported to be sold), as ownership of the goods would result in an inventory based model: While it is clear that ownership of goods by a marketplace entity is not permitted under the Press Note, the scope of the term ‘exercise ownership’ used in paragraph 2.3(iv) of the Press Note is unclear.

ii. Not more than 25% of the sales from one vendor/ its group companies: This condition may affect the business model of certain e-commerce entities, where a significant percentage of sales are often made by one large reseller. Marketplace operators may now have to limit sales made by these resellers to ensure compliance with the Press Note. Such large resellers are therefore impacted despite the Press Note not being applicable to them. While the Press Note does not expressly clarify as to how and when the 25% limit on sales is to be computed, we expect that such compliance will be reviewed on an annual basis. Similar annual checks at the end of the financial year are prescribed in the FDI Policy on wholesale trading where the wholesale entity cannot sell more than 25% of its wholesale turnover to a group company.

iii. Post sales, delivery of goods and customer satisfaction to be seller’s responsibility: There seems to be an inconsistency between this obligation of the seller and the ability of the marketplace entity to provide ancillary support services. On the one hand, the Press Note permits a marketplace entity to provide logistics and ancillary services, while on the other it requires that following the sale, delivery of goods will be the seller’s responsibility. It is likely that the Press Note intended to clarify that the responsibility for all post-sale obligations is that of the seller, and not the marketplace entity. However, contractually, the seller should be free to provide such services in the manner it deems fit (including through an agreement with the marketplace entity, in which case the marketplace entity would be contractually liable to the seller for such services).

iv. Warranty/ guarantee of goods and services sold to be seller’s responsibility: This condition appears to stem from the requirement that goods/ services not be owned by the marketplace entity. This condition seems more in the nature of a clarification rather than a change in the legal position given that a marketplace entity would not usually provide any warranty / guarantee in respect of goods/ services; which warranties / guarantees are usually extended by the manufacturer / service provider.

v. Marketplace entity will not directly or indirectly influence the sale price of goods/ services and will maintain a level playing field: This condition is one of the key changes introduced by the Press Note and is likely to have a significant impact on marketplace entities and their business models. Popular marketplaces invest meaningfully to promote their platform to make it attractive for customers and sellers. Unlike brick and mortar stores which are able to promote their marketplace / shops in numerous ways that can be seen and felt by a customer, there are only a limited number of ways in which an online marketplace entity can promote its virtual presence. The broad language of the Press Note makes it even more difficult for a marketplace entity to promote its platform.

With regard to the obligation to maintain a ‘level playing field’, more than one interpretation may be possible. One school of thought is that this requirement is intended to apply to the sellers on the e-commerce platforms inter-se, such that the marketplace is not built around a single large / dominant seller, which seller is then accorded preferential treatment over other sellers by the marketplace entity. Another reading of this provision could be that the requirement is intended to apply to sellers on the e-commerce platforms vis-à-vis brick and mortar stores, such that brick and mortar stores are not unduly disadvantaged by e-commerce platforms through the actions of such e-commerce platforms, such as through offering discounts / incentives / promotional pricing on goods sold through such platforms. It is however difficult for a marketplace entity to ensure a level playing field with respect to brick and mortar stores, particularly given the inherent differences between the two mediums.

  • Conclusion

The Press Note is a step in the right direction by the Government and has introduced much needed and anticipated clarity on FDI in the e-commerce sector.

The conditionalities and restrictions imposed by the Press Note (which states that it shall take immediate effect) are prospective in nature and are not stated to apply to FDI already received by entities engaged in e-commerce activities. Any marketplace e-commerce entities which now intend to receive FDI would need to ensure that such FDI is received in compliance with all conditions of the Press Note. Likewise, any entities with existing FDI (received prior to the issuance of the Press Note) but which intend to receive additional FDI, would need to ensure that the conditions prescribed by the Press Note are complied with going forward. To this end, it may serve well for all existing e-commerce companies to revisit their business models and ensure that their business models are aligned to the Press Note as soon as possible.




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The Dirty Dozen – first off the block

The Dirty Dozen – first off the block


Electrosteel Steels Limited was one of the twelve large stressed accounts directed by the Reserve Bank of India (‘RBI’) to be placed into the corporate insolvency resolution process of the Insolvency and Bankruptcy Code and has now become the first to be resolved under that process. The National Company Law Tribunal yesterday (i.e. April 17, 2018) approved the resolution plan submitted by Vedanta Limited. News reports suggest that the haircut taken by lenders is in the region of 55%. Vedanta awaits clearance from the Competition Commission of India before it can complete the acquisition. Many of the other ‘dirty-dozen’ are in the closing stages of their corporate insolvency resolution process and the next few weeks will see more resolutions and in some cases objections and litigation. The litigation in this space may settle some of the issues that lenders and acquirers fret about.

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Amendments to FEMA 20

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

RBI has, by way of a series of notifications, amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (‘FEMA 20’). The key amendments pursuant to these notifications have been summarized below.

i. Issuance of Convertible Notes by Startups: RBI notification dated January 10, 2017 (‘January Notification’) provides for the issuance of convertible notes by Indian startup companies[1] (‘startups’). A ‘convertible note’ has been defined to mean “an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument”.

The newly introduced Regulation 6D of FEMA 20 sets out the relevant provisions, which provide that:

a. A person resident outside India (other than an individual who is a citizen of, or an entity registered / incorporated in, Pakistan or Bangladesh), may purchase convertible notes issued by startups for an amount of Rs. 2,500,000 (approximately US$ 39,000) or more in a single tranche;

b. Startups engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with Government approval;

c. Issue of shares against convertible notes will be as per Schedule 1 of FEMA 20;

d. Startups issuing convertible notes to a non-resident must receive the consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / escrow account maintained as per the Foreign Exchange Management (Deposit) Regulations, 2016 and closed upon the earlier of the requirements having been completed or within a period of six months;

e. Non-resident Indians may acquire convertible notes on non-repatriation basis as per Schedule 4 of FEMA 20;

f.  A person resident outside India may acquire or transfer, by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the pricing guidelines as prescribed by RBI; and

g. Startup issuing convertible notes are required to furnish reports as prescribed by RBI.

ii. Foreign Investment in Infrastructure Companies: The January Notification also amends conditions relating to foreign direct investment (‘FDI’) under Schedule 1 of FEMA 20 in commodity exchanges, which have been combined with those relating to infrastructure companies in the securities market (namely stock exchanges, commodity derivative exchanges, depositories and clearing corporations). The key revisions introduced by the January Notification are:

a. FDI, including by foreign portfolio investors (‘FPI’), in commodity exchanges will now be subject to guidelines prescribed by RBI in addition to those issued by the Central Government (‘GoI’) and SEBI;

b. FDI in other infrastructure companies in securities market will now be subject to guidelines by GoI and RBI, in addition to those issued by SEBI;

c. the earlier condition permitting FIIs / FPIs to invest in commodity exchanges or infrastructure companies only through the secondary market has been removed; and

d. the restriction on investment by a non-resident in commodity exchanges to a maximum of 5% of its equity shares has been removed.

The Consolidated Foreign Direct Investment Policy dated June 7, 2016 (‘FDI Policy’) has also been amended, by way Press Note 1 of 2017 dated February 20, 2017, to align it with the January Notification.

iii. FDI in LLPs: Pursuant to notification dated March 3, 2017, RBI has amended Regulation 5(9) and Schedule 9 of FEMA 20 to further liberalize FDI in Limited Liability Partnerships (‘LLPs’). Companies having FDI can now be converted into LLPs under the automatic route provided that the concerned company is engaged in a sector where: (a) 100% FDI is permitted under the automatic route; and (b) no FDI linked performance conditions exist. Previously, conversion of companies with foreign investment was only permitted under the approval route. The erstwhile ‘Other Conditions’ stipulated under Schedule 9 of FEMA 20 have been completely omitted resulting in the following key changes:

a. Previously, the designated partner of a LLP having FDI had to satisfy the condition of being “a person resident in India”. Also, a body corporate other than a company registered in India under CA 2013 was not permitted to be a designated partner of a LLP with FDI. These conditions have been removed. Consequently, a LLP having FDI will have to comply only with the provisions of the LLP Act, 2008 for appointment of designated partners;

b. Earlier, designated partners were responsible for compliance with FDI conditions for LLPs and liable for all penalties imposed on a LLP for any contraventions. This condition has now been deleted from Schedule 9 but no corresponding provision has been included in the revised Schedule 9; and

c. Express prohibition on LLPs availing External Commercial Borrowings (‘ECB’) has been removed. However, the extant ECB guidelines have not yet been amended to permit LLPs to avail ECBs. Therefore, LLPs will not be able to avail ECBs until the extant ECB guidelines are amended.

iv. FDI in E-commerce: The Department of Industrial Policy and Promotion had, by way of Press Note 3 of 2016 dated March 29, 2016 (‘Press Note 3’), prescribed that no FDI is permitted in an inventory based model of e-commerce and 100% FDI under the automatic route is permitted in the marketplace model of e-commerce subject to compliance with the guidelines prescribed thereunder. A summary of the key changes introduced through Press Note 3 have been captured in the April 2016 edition of Inter Alia. RBI has, by way of a notification dated March 9, 2017, amended FEMA 20 in line with the changes introduced through Press Note 3. However, RBI has introduced a minor change to Press Note 3 by clarifying that the threshold of 25% of sales emanating from one vendor or their group companies will be computed based on the sale value during the relevant financial year.

[1]     Being a private company incorporated under CA 2013 and recognized as such as per Notification G.S.R. 180(E) dated February 17, 2016 issued by the Department of Industrial Policy and Promotion.


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Amendment to SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014

Published In:Inter Alia - Quarterly Edition - January 2017 [ English Chinese japanese ]

Pursuant to the meeting of the SEBI board held on September 23, 2016, SEBI has amended the SEBI (Real Estate Investment Trusts) Regulations, 2014 and the SEBI (Infrastructure Investment Trusts) Regulations, 2014. Some of the key amendments include:

i. The minimum holding of the mandatory sponsor in the infrastructure investment trust (‘InvIT’) has been reduced from 25% to 15%;

ii. The existing limit of three sponsors has been removed from both regulations;

iii. The permissible investment limit for investment by real estate investment trusts (‘REIT’) in ‘under construction’ assets has been increased from 10% to 20%; and

iv. InvITs and REITs are allowed to invest in a two-level SPV holding structure, through a holding company.

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Meeting of the SEBI Board

Published In:Inter Alia - Quarterly Edition - October 2016 [ English Chinese japanese ]

The SEBI Board met on September 23, 2016 and took the following decisions:

i.  Currently, FPIs are required to transact in securities through stock brokers registered with SEBI, while domestic institutions such as banks, insurance companies, pension funds etc. are permitted to access the bond market directly (i.e. without brokers). SEBI has decided to extend this privilege to Category I and Category II FPIs.

ii.  In order to facilitate the growth of Investment Trusts (“InvIT”) and Real Estate Investment Trusts (“REIT”), SEBI has decided to amend the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”). The key amendments will include:

a.  InvITs and REITs will be allowed to invest in the two level SPV structure through the holding company subject to sufficient shareholding in the holding company and other prescribed safeguards. The holding company would have to distribute 100% cash flows realised from the underlying SPVs and at least 90% of the remaining cash flows.

b.  The minimum holding of the mandatory sponsor in the InvIT has been reduced to 15%.

c.  REITs have been permitted to invest upto 20% in under construction assets.

d.  The limit on the number of sponsors has been removed under the REIT Regulations.

iii.  The SEBI Board has approved amendments to the SEBI (Portfolio Managers) Regulations, 1993, to provide a framework for the registration of fund managers for overseas funds, pursuant to the introduction of section 9A in the Income Tax, 1961.

iv.  The SEBI Board has decided to grant permanent registration to the following categories of intermediaries: merchant bankers, bankers to an issue, registrar to an issue & share transfer, underwriters, credit rating agency, debenture trustee, depository participant, KYC registration agency, portfolio managers, investment advisers and research analysts.

v.  The Securities Contracts (Regulation) (Stock Exchanges and Cleaning Corporations) Regulations, 2012 have been amended to increase the upper limit of shareholding of foreign institutional investors mentioned in the Indian stock exchanges from 5% to 15% and to allow an FPI to acquire shares of an unlisted stock exchange through transactions outside of recognised stock exchange including allotment.

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Foreign Investment in Units Issued by REITs, InvITs and AIFs

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

Salient features of foreign investment permitted by RBI, pursuant to its circular dated April 21, 2016, in the units of investment vehicles for real estate and infrastructure registered with the SEBI or any other competent authority are as under:

i. A person resident outside India (including a Registered Foreign Portfolio Investor (‘RFPI’) and NRIs may invest in units of real estate investment trusts (‘REITs’);

ii. A person resident outside India who has acquired or purchased units in accordance with the regulations may sell or transfer in any manner or redeem the units as per regulations framed by SEBI or directions issued by RBI;

iii. An Alternative Investment Fund Category III with foreign investment can make portfolio investment in only those securities or instruments in which a RFPI is allowed to invest; and

iv. Foreign investment in units of REITs registered with SEBI will not be included in ‘real estate business’.

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Guidelines for Public Issue of Units of Infrastructure Investment Trusts

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

SEBI has, on May 11, 2016, issued Guidelines for Public Issue of Units of Infrastructure Investment Trusts (‘Guidelines’), which amend the provisions of the SEBI (Infrastructure Investment Trusts) Regulation, 2014 (‘SEBI InvIT Regulations’).

The Guidelines set out the procedure to be followed by an infrastructure investment trust (‘InvIT’) in relation to a public issue of its units, which includes the appointment of a lead merchant banker and other intermediaries, procedure for filing of offer documents with SEBI and the stock exchanges, the process of bidding and allotment. Further, the allocation in a public issue is required to be in the following proportion: (i) not more than 75% to institutional investors; and (ii) not less than 25% to other investors; provided that the investment manager has the option to allocate 60% of the portion available for allocation to institutional investors and anchor investors (which includes strategic investors), subject to certain conditions. Further, the investment manager, on behalf of the InvIT is required to deposit and keep deposited with the stock exchange(s), an amount equal to 0.5% of the amount of the units offered for subscription to the public or Rs 5 crores (approximately US$ 7,45,000), whichever is lower. The price of units can be determined either: (i) by the investment manager in consultation with the lead merchant banker; or (ii) through the book building process. However, differential prices are not permitted.

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Government Notifies the MMDR (Amendment) Act, 2016

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

The Central Government has notified the Mines and Minerals (Development and Regulation) Amendment Act, 2016 (‘2016 Amendment’) on May 9, 2016. By virtue of amendments to the Mines and Minerals (Development and Regulation) Act, 1957 (‘MMDR Act’) in 2015, transfer of only those mineral concessions granted by auction was allowed. By virtue of the 2016 Amendment, where a mining lease: (i) has been granted otherwise than through auction; and (ii) the mineral from such mining lease is being used for captive purpose, such mining lease can be transferred subject to compliance with such terms and conditions and payment of transfer charges as may be prescribed. The term ‘used for captive purpose’ has been defined under the 2016 Amendment to mean use of the entire quantity of mineral extracted from the mining lease in a manufacturing unit owned by the lessee.

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Government Notifies the Minerals (Transfer of Mining Lease Granted Otherwise than Through Auction for Captive Purpose) Rules, 2016

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

Pursuant to the 2016 Amendment, the Central Government has notified the Minerals (Transfer of Mining Lease Granted Otherwise than through Auction for Captive Purpose) Rules, 2016 (‘ML Transfer Rules’) on May 30, 2016, which set out the procedure for transfer of mining leases granted otherwise than through auction and for captive purpose (‘ML’). The salient features of ML Transfer Rules are as below:

i. Deemed approval for transfer of ML, if the State Government does not reject the application within 90 days from the application;

ii. Transferee to make an upfront lumpsum payment of 0.5% of the value of estimated resources of the ML upon receipt of approval and execute the mine development and production agreement with the State Government;

iii. Transferee to provide performance security to the State Government for an amount equivalent to 0.5% of the value of estimated resources, to be adjusted every five years to correspond to 0.5% of the reassessed value of estimated resources;

iv. Transferor and transferee to jointly submit a duly registered transfer deed for ML to the State Government within the specified period; and

v. State Government to execute a mining lease deed with the transferee upon registration of the deed of transfer of ML.

The ML Transfer Rules also stipulate that whenever royalty is payable in terms of the second schedule to the MMDR Act, the transferee is to pay to the State Government an amount equal to 80% of the royalty, in addition to the royalty payable, simultaneously with payments of royalty, which will be adjusted against the upfront payment mentioned under (ii) above.

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Participation by Strategic Investor(s) in InvITs and REITs

Published In:Inter Alia - Quarterly Edition - March 2018 [ English Chinese japanese ]

Pursuant to SEBI’s circular dated January 18, 2018 (‘SEBI Circular’), a Real Estate Investment Trust (‘REIT’) / Infrastructure Investment Trust (‘InvIT’) may invite subscriptions from strategic investors subject to inter alia the following:

i. The strategic investors can, either jointly or severally, invest not less than 5% and not more than 25% of the total offer size.

ii. The investment manager or manager is required to enter into a binding unit subscription agreement with the strategic investors proposing to invest in the public issue, which agreement cannot be terminated except if the issue fails to collect minimum subscription.

iii. The entire subscription price has to be deposited in a special escrow account prior to opening of the public issue.

iv. The price at which the strategic investors have agreed to buy units of the InvIT/ REIT should not be less than the public issue price. In case of a lower price, the strategic investors should bring in the additional amounts within two working days of the determination of the public issue price, and in case of a higher price, the excess amount will not be refunded and the strategic investors will be bound by the price agreed in the unit subscription agreement.

v. The draft offer document or offer document, as applicable, will disclose details of the unit subscription agreement, including the name of each strategic investor, the number of units proposed to be subscribed etc.

vi. Units subscribed by strategic investors, pursuant to the unit subscription agreement, will be locked-in for a period of 180 days from the date of listing in the public issue.

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Standardisation of Environment Clearance Conditions by MOEF

Published In:Inter Alia - Quarterly Edition - September 2018 [ English Chinese japanese ]

The Ministry of Environment, Forest and Climate Change (‘MOEF’) had notified the Environmental Impact Assessment Notification, 2006 (‘EIA Notification’) imposing certain restrictions on proposed projects or on the expansion / modernization of existing projects based on their potential environmental impacts. Projects seeking environmental clearance are appraised by the relevant authorities pursuant to a screening, scoping, public consultation and appraisal process by relevant authorities, which then make categorical recommendations to the applicable regulatory authority for grant or rejection of the application for environmental clearance.

By way of an office memorandum dated August 9, 2018 (‘Office Memo’), the MoEF has now prescribed certain standard conditions for consideration by the Expert Appraisal Committee (’EAC’) in relation to 25 specified industrial sectors including, inter alia, integrated iron and steel plants, sponge iron plants, integrated cement plants, coal mines (both open cast and underground), pharmaceutical and chemical industries, off-shore and on-shore oil and gas exploration, development and production and industrial estates, at the time of appraisal of proposals seeking environment clearance. The EAC, after due diligence, can modify, delete and add conditions based on the project specific requirements. The Office Memo has been issued by the MOEF to bring uniformity across various projects and sectors and as a general guidance to the EAC as well as project proponents.

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Amendments to Specific Relief Act, 1963

Published In:Inter Alia - Quarterly Edition - September 2018 [ English Chinese japanese ]

The Central Government has, by way of a notification dated August 1, 2018, introduced the Specific Relief (Amendment) Act, 2018 (‘Amendment Act’), which amends the Specific Relief Act, 1963 (‘1963 Act’). However, the date on which the provisions of the Amendment Act will come into effect has not yet been notified.

The 1963 Act provides for, inter alia, parties to a contract to seek specific performance when aggrieved by the non-performance of such contract. Some of the key amendments introduced by the Amendment Act have been set out below:

i.  Specific performance: The 1963 Act provided that specific performance is a limited remedy, which may be granted by a Court, at its discretion, subject to certain conditions. The Amendment Act empowers the Court to grant specific performance as a general rule, subject to the certain exceptions. A brief comparison of the conditions, pre and post amendment of the 1963 Act, under which Courts would not grant specific performance are:

Pre-amendmentPost amendment
A contract for the non-performance of which compensation is an adequate reliefThis condition does not apply
A contract which runs into such minute or numerous details or which is so dependent on the volition of the parties or otherwise from its nature is such that the court cannot enforce specific performance of its material termsThese conditions do not apply
A contract which is so dependent on the personal qualification of the parties that the court cannot enforce specific performance of its material termsThis condition is still applicable
A contract which is in its nature determinableThis condition is still applicable
A contract, the performance of which involves the performance of a continuous duty which the court cannot superviseThis condition is still applicable


ii.  Substituted performance: The Amendment Act gives an affected party the option to arrange for performance of the contract by a third party or by his own agency (substituted performance), and costs for such substituted performance may be recovered from the defaulting party. After obtaining substituted performance, specific performance cannot be claimed. However, the affected party’s right to claim compensation will not get affected.

iii. Infrastructure projects: A schedule has been added pursuant to the Amendment Act which broadly describes the infrastructure projects which would be under the purview of the 1963 Act. These projects can be categorized as follows: (i) transport; (ii) energy; (iii) water and sanitation; (iv) communication (such as telecommunication); and (v) social and commercial infrastructure (such as affordable housing).

iii.  Injunctions: The Amendment Act prevents Courts from granting injunction in respect of contracts relating to infrastructure projects, if such an injunction would hinder or delay the progress or completion of the infrastructure project.

iv.  Special Courts: The Amendment Act requires that State Government will, in consultation with the Chief Justice of the relevant High Court, designate one or more Civil Courts as Special Courts to deal with cases under the 1963 Act, in relation to infrastructure projects. Such cases must be disposed off within 12 months, which period can be extended by six months, of the date of service of summons to the defendant.

v.  Experts: The Amendment Act inserts a new provision which empowers the Courts to engage experts in suits where expert opinion may be needed. Such expert may be examined in the Court in relation to the expert’s findings, opinions, etc.

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NCLAT Dismisses the Appeal Filed by the Cement Companies and Upholds INR 63 billion Fine Levied by CCI

Published In:Inter Alia Special Edition Competition Law October 2018 [ English ]

On July 25, 2018, National Company Law Appellate Tribunal (‘NCLAT’) pronounced its judgment in upholding the order of the Competition Commission of India (‘CCI’) dated August 31, 2016 finding 10 cement companies[1] and their trade association, Cement Manufacturers Association (‘CMA’), guilty of fixing prices and limiting supply in contravention of Section 3(3) of the Competition Act (‘Act’).

As evidence of an ‘agreement’ between the cement companies, NCLAT found that the companies used the CMA as a platform for exchanging ‘pricing and sensitive information relating to production, capacity, dispatch etc.’ Reviewing the minutes of CMA’s Managing Committee between 2007 and 2009 and three High Powered Committee meetings in 2011, NCLAT found CMA to have provided a platform to collect prices in minimum and maximum ranges for different regions in India. NCLAT also considered (i) ACC and Ambuja’s withdrawal from CMA activities; and (ii) CMA’s amendments to its regulations post initiation of the CCI investigation, as further proof that CMA provided a platform to coordinate amongst its members. Per NCLAT, CMA’s collection of business sensitive information further to directions of the Department of Industrial Policy and Promotion (‘DIPP’) was not adequate justification for such conduct. While DIPP requested information relating to retail and wholesale prices from different centers, NCLAT held CMA’s process of providing DIPP this information by collecting this information through its members, such that cement companies were able to access each others sensitive price and non-price information, may not be said to have been sanctioned by the government. Finding that “information exchange can constitute concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion,” NCLAT concluded that there was a meeting of minds between cement companies to fix the sale price of cement and regulating production and supply.

To determine whether the ‘agreement’ resulted in fixing prices or reduction in production or supply, NCLAT reviewed the data on record. On the basis of price charts, NCLAT found there existed price parallelism on the basis of absolute changes in cement prices in each state. This, NCLAT held, indicated that cement companies hiked prices without justification in departure from “normal trends over the previous years”.

NCLAT also found dispatch and production coordination amongst cement companies on the basis of reduced production and dispatch of cement despite increased demand over corresponding months (November – December 2010) and a subsequent increase in prices (January – February 2011). Relying on statements made by third party cement distributors, NCLAT concluded that this coordination amongst cement companies resulted in reduction in supplies. NCLAT also noted that while installed capacity increased in 2009-10 and 2010-11, production growth and capacity utilization decreased in 2010-11, along with corresponding price increases across all regions- south, central, north and eastern, while this was not the case in 2009-10.

Notably, NCLAT clarified the standard of evidence for cartel cases as being one of ‘balance of probabilities’ as distinguished from ‘beyond reasonable doubt’, unlike criminal law.

The NCLAT also referred to the Supreme Court (‘SC’) decision in Competition Commission of India v. Coordination Committee of Artistes and Technicians of West Bengal Film Television & Ors.[2] (‘WBFT Case’) which held that it was necessary to delineate the relevant market in which competition may be said to be affected, and “in particular for determining if undertakings are competitors or potential competitors and when assessing the anti-competitive effect of conduct in a market”. Relying on the SC decision in the WBFT Case, NCLAT held that as market power analysis was key, it was necessary to delineate a relevant market in this case as well. Reviewing the price and non-price data collected and relied on by CCI, NCLAT clarified that CCI identified the relevant market as ‘all regional markets for cement.’[3]

Finally, observing that CCI had imposed “mere minimum penalty,” NCLAT held there was no need to interfere with CCI’s penalty computation. On this basis, NCLAT dismissed the appeals filed by the cement manufacturers.

[1] ACC Ltd. (ACC),  Ambuja Cement Ltd. (Ambuja), Binani Cement Ltd. (Binani) , Century Textiles & Industries Ltd. (Century Cement),  India Cement Ltd. (India Cement), JK Cement Ltd. (JK Cement) , Nuvoco Vistas Corporation Limited (Lafarge), Ramco Cements Ltd, (Ramco), Ultra Tech Cement Ltd. (Ultra Tech) and Jaiprakash Associates Limited.
[2] (2017) 5 SCC 17
[3] We request our readers to note that by way of an order dated 7 May 2018 pursuant to a review application filed by CCI in the WBFT Case, the Supreme Court clarified that the “determination of ‘relevant market’ is not a mandatory pre-condition for making assessment of the alleged violation under Section 3 of the Act.”

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CCI Dismisses Allegations of Price Fixing and Abuse of Dominance against Arthur Flury AG Switzerland and PPS International, Delhi.

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English ]

On August 27, 2018, CCI dismissed information filed by the Central Organisation for Railway Electrification (‘CORE’) under Section 19(1)(a) of the Act, alleging violations of Section 3 and 4 of the Act by PPS International, Delhi (‘PPS’).[1] CORE operates under the Ministry of Railways, Government of India and is concerned with railway electrification of the entire network of the Indian railways. To carry out its functions, CORE procures Short Neutral Section Assembly (‘SNS Assembly’/ ‘phase break’) from the authorised Indian distributors of Research Design and Standards Organisation (‘RDSO’),  an original equipment manufacturer namely, Arthur Flury AG Switzerland (‘Arthur’).

As per the information, PPS was alleged to have imposed unfair conditions and artificially increased the prices for sale of SNS Assembly in contravention of Section 4(2)(a)(i) and Section 4(2)(a)(ii) of the Act. It was also alleged that the price increase was pursuant to a concerted decision between Arthur and PPS, in violation of Section 3(3)(a) of the Act. CCI in its assessment at the outset dismissed allegations of violation of Section 3(3)(a) since Arthur (manufacturer) and PPS (distributor) were operating at different levels of the production chain in different markets and Section 3(3) is only applicable to concerted actions between competitors (enterprises active in the same market). As regards allegations of abuse of dominance, CCI identified the relevant market as the ‘market for supply of SNS Assembly in India’ given the specific physical characteristics of SNS Assembly and the geographic scope of homogenous competitive conditions. In the concerned market, CCI observed that PPS was a dominant enterprise since it was the only distributor for Arthur (and Arthur was the only RDSO approved original equipment manufacturer for SNS Assembly). However, as regards allegations of abuse, CCI observed that a case for violation of Section 4(2)(a)(i) was not made out. As regards excessive pricing, CCI analysed the prices charged by PPS over the period of 2006-2018 and observed that the price increase was not continuous and in fact decreased in 2016. For the above reasons, CCI dismissed the allegations of abuse of dominance as well.

[1] Central Organisation for Railway Electrification v. M/s PPS International, Case No. 05 of 2018 (Order dated August 27, 2018)

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CCI Orders Investigation against Ministry of Railways and Online Ticketing Operations of Indian Railways – IRCTC regarding Abuse of Dominance in the Market for Sale of Tickets by Railways in India

Published In:Inter Alia Special Edition Competition Law November 2018 [ English ]

On November 9, 2018, CCI ordered investigation into the information alleging violation of Section 4 of the Act, filed by Mr. Meet Shah and Mr. Anand Ranpara against Ministry of Railway (‘MoR’) and Indian Railway Catering and Tourism Corporation Limited (‘IRCTC’).[1] The informants in this case alleged that the MoR and IRCTC, according to their pricing policy, round off the base fare of the railway ticket to the next higher multiple of ₹ 5 (as per Circular no. 6 of 2013, the Ministry of Railways, with effect from January 22, 2013). This act of rounding off is an unfair and discriminatory condition imposed on the informants and merits examination of abuse of dominance by the MoR and IRCTC.

In order to determine the alleged abuse of dominant position, CCI held the relevant market to be ‘market for sale of tickets by railways in India’. CCI relied on its earlier decisions in Shri Sharad Kumar Jhunjhunwala v Union of India[2], Shri Ismail Zabiulla v  Union of India[3] and Shri Yaseen Bala v Union of India[4], where MoR and IRCTC were collectively considered as a ‘group’ for the purpose of the Act and dominant in the market of transportation of passengers through railways across India including ancillary segments like ticketing, catering on board, platform facilities, etc. provided by the Indian Railways. On the basis of this decision, CCI held that MoR and IRCTC are dominant in the defined relevant market in the present case.

MoR and IRCTC submitted that the rounding off was done to reduce transaction time and serve passengers expeditiously. CCI was of the opinion that this rationale does not stand with respect to online sale of tickets where the transaction can take place to one paisa precision electronically. CCI also held that MoR and IRCTC had been unable to explain why rounding off is done separately for each passenger even when more than one ticket are booked through one account at the same time for a journey.

CCI found the practice of rounding off actual base fares to the next higher multiple of ₹ 5 by MoR and IRCTC prima facie amount to imposition of unfair conditions in the relevant market. CCI directed the Director General to conduct an investigation into the contravention of Section 4, more particularly Section 4(2)(a)(i) of the Act for unfair or discriminatory pricing or conditions.

[1] Case No. 30 of 2018.
[2] Case No. 100 of 2013
[3] Case No. 49 of 2014
[4] Case No. 89 of 2014

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CCI Approves Acquisition of 26% by Shell Gas B.V. in Hazira LNG and Hazira Port from Total Gaz Electricité

Published In:Inter Alia Special Edition Competition Law February 2019 [ English ]

On December 6, 2018, pursuant to a share purchase agreement signed on November 6, 2018, CCI approved acquisition of 26% shares by Shell Gas B.V. (‘Shell’) in Hazira LNG Private Limited (‘HLPL’) and Hazira Port Private Limited (‘HPPL’) from Total Gaz Electricité Holdings France (‘Total’). The combination increased Shell’s shareholding in HLPL and HPPL from 74% to 100% and changed Shell’s control in HLPL and HPPL (from joint control to sole control). [1]

Shell is a Dutch company with businesses including oil and natural gas exploration, production and marketing, manufacturing, and marketing and shipping of oil products and chemicals. Shell group companies are engaged in India in the activities of: (i) exploration and production of oil and natural gas; (ii) supply of liquid natural gas (‘LNG’) into India; (iii) provision of LNG regasification (and related storage) services; (iv) wholesale and downstream supply of natural gas; (v) provision of port facilities to LNG terminals; and (vi) supply of fuel products.

HLPL and HPPL are joint venture companies set up by Shell and Total. HLPL provides LNG regasification services (and related storage) to large LNG importers and also has activities in the wholesale and downstream sale of natural gas in India. It operates and manages the re-gasification terminal at the Hazira Port, Gujarat. HPPL owns and manages the Hazira port used for unloading and receipt of LNG and receives a fee from HLPL for access to the facilities at Hazira port and other allied activities.

In its competitive assessment, CCI observed that HLPL is primarily engaged in LNG regasification (and related storage) services and Shell does not have any presence in the product segment other than through HLPL. As regards the activities of HLPL relating to wholesale and downstream supply of natural gas, CCI observed that Shell has independent presence but the extent of presence of HLPL is not significant enough to cause any change in competition dynamics. CCI further observed that HPPL is engaged in provision of port facilities at LNG terminals and Shell does not have any presence in previously mentioned product segment other than through HPPL.

In light of the above, CCI approved the combination as it is not likely to have any appreciable adverse effect on competition (‘AAEC’) in India in any of the markets catered to by HLPL and HPPL.

[1] Combination Registration Number C-2018/11/615.

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