Welcome to The Firm audiocast. I’m Menaka Doshi and today’s we’re talking competition law.

The Competition Commission of India has just notified amendments to its Merger Control Regulations. This is the 4th amendment in 4 years. CCI’s goal was to crunch timelines and make filing requirements simpler. but some of the final amendments may have the opposite effect. Shweta Shroff Chopra, Partner, Shardul Amarchand Mangaldas & Co joins me to talk about the key changes…




NEW MERGER CONTROL REGULATIONS: THE GOOD, BAD & UNEXPECTED!

Welcome to The Firm audiocast, I’m Menaka Doshi. Last week FIPB cleared Kotak Mahindra Bank’s proposal to hike FPI stake from 49% to 55%. In giving Kotak approval the FIPB also offered a resolution to the ongoing confusion in the insurance business. It indicated that even if foreign portfolio investment in the parent company exceeds 49%...the parent will not be  considered as foreign owned and controlled and hence its investment in the downstream insurance business will not be considered as foreign investment. This was good news for the insurance business, especially for HDFC’s and ICICI Bank’s insurance subsidiaries. Soon thereafter the a government notification proposed an amendment to the February 2015 Foreign Investment Rules for insurance. Does this notification finally put the insurance ownership and control controversy to rest? Anuj Sah, Partner, Khaitan joins me to talk about this…

Background…

As per the 19 Feb 2015 notification issued by Ministry of Finance (MOF), a requirement was imposed that the promoter of an Insurance company should also be Indian owned and controlled. This requirement came as a surprise to industry and such condition didn’t exist before;

A Ministry of Finance notification dated 3 July 2015 (which is yet to be published in official gazette to become effective) has clarified that the computation of foreign ownership of Indian promoter shall be as per IRDA (Registration of Companies ), Regulations 2000 (IRDA Regulations).

The notification amends Rule 2 clause (l) …

FOREIGN INVESTMENT RULES, 2015

(l) “Indian Ownership” of an Indian Insurance Company means more than 50 per cent. of the equity capital in it is beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens;

AMENDMENT: Provided that the manner of computation of foreign holding of such Indian promoter or Indian investors company shall be in accordance with clause (p) of rule 2

Rule 2 (p) “Total Foreign Investment” in an Indian Insurance Company would be the sum total of direct and indirect foreign investment by Foreign Investors in such company, calculated in accordance with the Insurance Regulatory and Development Authority (Registration of Companies) Regulations 2000 read with Para 4.1.4 of the Consolidated FDI policy of the Government of India.

IRDA, 2000

Manner of calculation of 26% equity capital  held by a foreign company

Explanation: …account need not be taken of the holdings of equity in an Indian promoter company, held by foreign institutional investors, other than the foreign promoters of the applicant and their subsidiaries and nominees…



GOOD NEWS FOR FDI IN INSURANCE!

WELCOME TO THE FIRM AUDIOCAST.  ON JULY 16TH THE GOVERNMENT ANNOUNCED CHANGES TO THE FDI POLICY TO INTRODUCE COMPOSITE CAPS. THAT MEANS PORTFOLIO INVESTORS CAN INVEST UPTO THE SECTORAL CAP. BUT ON READING THE FINE PRINT IT SEEMS THAT THERE IS NO CHANGE WHATSOEVER. CNBC TV18’S MENAKA DOSHI TALKS TO VAIBHAV KAKKAR, PARTNER, LUTHRA & LUTHRA AND AN EXPERT ON REGULATORY MATTERS, TO DECODE THE  POLICY ANNOUNCEMENTS.


COMPOSITE CAPS: WHERE’S THE CHANGE???

Welcome to The Firm Audiocast. Over the weekend, India was purged of internet porn. 857 porn sites have been blocked and ISP (internet service providers) have reportedly done so after receiving a notice from the Department of Telecommunications (DoT). Why is DoT going after internet porn? Is the notice legal? And why should those who don’t watch porn care about the mass block? CNBC TV18’s Aayush Ailawadi talks to Pranesh Prakash, Policy Director at the Centre for Internet and Society about today’s top trending topic online, the #PornBan… 


This Porn Site Has Been Blocked!

Welcome to The Firm Audiocast. On August 5th the Indian Government took strong retaliatory action that raises questions about the future of India-EU trade talks.
Disappointed by the EU ban on 700 pharmaceutical products, clinically tested at the GVK Biosciences lab, the Indian government has decided to defer proposed talks between chief negotiators on the India-EU Broad-based Investment and Trade Agreement. India’s Commerce Ministry said in its announcement ‘the Indian government has engaged on the issue with various EU regulators over past 8 months’ and that it ‘will examine all options in this regard’. The Commerce Ministry also said that ‘it is pertinent to mention that most of these drugs are already in EU market for many years without any adverse pharmaco-vigilance  report from any member state.’ 
Is this retaliatory action by the Indian government justified? To talk us through the issue of the EU ban and subsequent events CNBC TV18’s Menaka Doshi talks to Murali Neelakantan, a well known lawyer with I-P expertise. Murali was the former Global General Counsel at Cipla and is now Founder & Principal at Amicus.


EU Pharma Ban = No Trade Talks?

IT’S A DECISION THAT COULD SPELL RELIEF FOR MANY MAURITIUS BASED INVESTORS. THIS WEEK THE PUNJAB & HARYANA HIGH COURT HAS RE-ITERATED THAT A MAURITIAN TAX RESIDENCY CERTIFICATE IS SUFFICIENT TO AVAIL TREATY BENEFITS. SENIOR ADVOCATE PORUS KAKA TELLS CNBC TV18'S  MENAKA DOSHI THAT THIS RE-ITERATION IS IMPORTANT GIVEN THE CONTINUOUS LITIGATION REGARDING INDIAN-MAURITIUS TAX TREATY BENEFITS

 

In 2011 Blackstone Mauritius sold 66.29% & Barclays Mauritius sold 12.75% of equity in SKR BPO to Serco. SKR owned 100% of BPO service provider Intellenet and 20% of another BPO Sparsh.

Blackstone & Barclays applied to AAR  seeking an advance ruling on the taxability of the transaction in India and whether Serco was to withhold tax before making the purchase payment. The premise was that since both sellers were Mauritius based entities they would be exempt from Indian capital gains tax under the India-Mauritius double tax avoidance treaty.

After a 3 year delay AAR declined to give a ruling on the basis of a prima-facie finding that the transaction was designed for avoidance of income tax.

The matter then went to the Punjab & Haryana High Court where Revenue argued that the entire transaction was nothing but a device for taking advantage of the DTAC between India and Mauritius. It was a case of treaty shopping. That Blackstone Mauritius and Barclays cannot be considered to be residents of Mauritius as they have absolutely no business interest in Mauritius. That the Residency Certificate issued in favour of Black Stone Mauritius and Barclays are irrelevant.

But The High Court disagreed. It set aside the AAR ruling and declared that no capital gains tax was payable by Barclays Mauritius and Blackstone Mauritius. Nor was there any withholding tax liability on Serco.

The High Court decision reiterates 2 important views – that ‘it is incumbent upon the authorities in India to accept the certificates of residence issued by the Mauritian authorities.’ And on treaty shopping it said ‘entering into a treaty and terms and conditions thereof are the sovereign functions involving important aspects of policy’

To be clear – these views of the P&H HC are not new precedent. The HC has re-iterated the Supreme Court’s views in the famous Azaadi Bachao Andolan case. But its an important re-iteration. Senior advocate Porus Kaka explains why…he represented  Serco in the matter


Relief For Mauritius Based Investors!

The National Advisory Committee on Accounting Standards (NACAS) has recommended to the Government that India defer its adoption of the Indian Accounting Standard 115 on Revenue Recognition. This standard was one of the 10 standards notified by the Government earlier this year as India converges with IFRS starting next year. India was slated to be an early adopter of the IFRS Revenue Recognition standard. But since the global standard itself is under review, NACAS recommended a deferral of the Indian standard as well. CNBC TV18’s Menaka Doshi spoke to NACAS Chairman Amarjit Chopra to find out more…


WHY HAS INDIA DEFERRED INDIAN ACCOUNTING STANDARD 115 ON REVENUE RECOGNITION?

The FDI policy bonanza continues! This week the government permitted 100% foreign investment under the automatic route in alternate investment funds, REITs & INVITs. It has also relaxed certain guidelines on downstream investments by Indian funds raising foreign investment. To understand the scope of changes and their impact, CNBC-TV18's Menaka Doshi is joined by Punit Shah, Partner at Dhruva Advisors in this audiocast.

100% AUTOMATIC FOREIGN INVESTMENT  IN AIFs, REITs, INVITs PERMITTED!

A Companies Law Committee was setup last year to look into the functioning of the Companies Act 2013 and recommend changes that would make it easier to do business in India. The report was submitted to the Finance Minister today and is now public. As per the report, the committee’s recommendations will result in changes to about 78 sections of the Companies Act 2013 and more than 100 changes in the Act itself. Menaka Doshi of CNBC-TV18 spoke with Bharat Vasani, a member of the panel on Companies Act to find out the scope of the changes recommended by the committee.

Bharat Vasani on The Companies Law Committee Report

The Vijay Mallya – Diageo – USL battle has taken a most curious turn. Diageo announced today that it is paying Mr. Mallya $75mn to resign. In exchange Mr. Mallya signs a 5 year non-compete (excluding UK) and agrees to not pursue any claims against Diageo, USL and their affiliates.

 

Diageo has also agreed that Dr Mallya will have ‘no personal liability to Diageo in relation to (i) the findings of the inquiry by USL (announced on25 April 2015) into certain matters referred to in its financial statements and the qualified auditor's report for the financial year ended 31 March 2014 (the "USL Inquiry"), and (ii) its prior agreement with Dr Mallya regarding his position at USL.

 

Diageo has also released Mallya from his personal obligation to indemnify

-          A $141 mn guarantee extended  and paid by a Diageo group company to Standard Chartered towards a loan extended to a Mallya entity. Diageo says it is entitled to the security underlying the loan.

-          A $42 mn guarantee extended and paid by a Diageo group company to Standard Chartered towards a loan extended to a Mallya entity. While there is a counter-indemnification here Diageo says it is unlikely to result in any meaningful recovery

Diageo has also agreed to give Siddharth Mallya a seat on the board of the USL group company that holds the Royal Challengers Bangalore IPL franchise. Mallya will not be removed for 2 years.

 

Vijay Mallya will get the title of Founder Emeritus – USL after he resigns. He also can acquire up to 13 USL properties in India at a 10% discount to fair market value

 

Now contrast this sweet deal with the events of the past 2 years!

 

2014

Several month delay in finalising USL financial accounts for FY14

Rs 4000 cr write down at USL, a substantial portion of which pertains to loans/outstandings involving Mallya entities

Severe auditor qualifications to USL’s FY14 accounts and in subsequent quarters

Vijay Mallya tagged as Wilful Defaulter. He contests that in court

USL public shareholders vote against all Related Party Transactions with Mallya entities


2015
Internal inquiry conducted by USL MD & CEO to look into financial transactions between 2010-2013

Thereafter USL Board asks Vijay Mallya to step down. The company’s release notes


‘The inquiry prima facie revealed that between 2010 and July 2013, certain transactions entered into on behalf of the company appear to have been undertaken to show a lower exposure of the Company (and its subsidiaries) to United Breweries Holdings (UBHL) than that which actually existed at the relevant time that is prior to July 2013.’

 

‘…the directors noted that they had lost confidence in Dr. Vijay Mallya continuing in his role as a director and as chairman and therefore, the Board called upon Dr. Mallya to resign forthwith as a director and as the Chairman of the Board…’

 

‘In the event Dr. Mallya declines to step down, the Board also resolved that it would recommend to the shareholders of the Company, the removal of Dr. Mallya as a director and as the Chairman of the Board.’

 

So on the one hand Mallya is under scrutiny for financial irregularities and is asked by the USL Board to step down. On the other, USL’s majority shareholder Diageo pays $250m Mallya to step down and absolves him of any obligation to them for any financial irregularities involving him.


Mallya's Golden Handshake

CNBC TV18's 'The Firm' is Indian television's only show that covers corporate law, M&A, financial regulation, tax and audit matters.

The show was born in early 2008, of the belief that as India globalised, operating issues of law and tax would become core to corporate strategy. Already 2006 and 2007 had proved that India INC had tremendous appetite to go global. Billion dollar acquisitions, with targets operating across several jurisdictions...managing regulatory and tax risks had moved from being the burden of an under-populated in-house legal team to the offices of the CEO and CFO. And so we believed, 'The Firm', by exploring cross border M&A rules, tax policies, financing structures etc, would surely find an audience.
By late 2008 we had expanded our coverage to include bankruptcy filings, MTM accounting and changing international financial regulations. Since then our brief has only expanded. By 2009 it included the several important domestic commercial laws that were being, written, re-written or tweaked.

The Competition Act, The LLP Bill, The Companies Bill, The Direct Tax Code, GST, IFRS, Takeover Regulations...'The Firm' has devoted substantial time and effort in analysing and debating these impending legislative and regulatory changes.
The battle against tax havens, the confusion regarding GDR voting rights, the invalidity of ROFRs, the validity of negative rights...we've examined several legal grey areas.
When news of the Satyam fraud broke...'The Firm' spoke to scores of Independent Directors and Auditors to better understand their roles, responsibilities and liabilities. 

Corporate Governance is a pet topic on the show and we try hard to keep India Inc. abreast of governance trends across the world.

Ranbaxy-Daiichi, Bharti-MTN, Reliance-MTN, Bharati-ABG-Great Offshore, Inox-Fame-Reliance Media Works and Bhart-Zain...every big deal has had our undivided attention.
Transfer-pricing, Withholding tax, Anti-Avoidance and the famous Vodafone case...we've spent hours informing audiences of the tax road blocks awaiting them.

AS 11, ICAI's shortcomings, Loss Accounting, the transition to IFRS...accounting issues too have been front and center.
Last year, 'The Firm' presented it's first special series: 'Rules Of The M&A Game' - a 5 part series with 11 guests debating the changes needed to India's Takeover Code. Later in the same year, we created yet another special series- 'Business Sutra' - on Leadership & Governance.

Over the three years of its existence, India's finest legal, tax and financial minds have been guests of 'The Firm'. Law firms such as Amarchand Mangaldas, AZB & Partners, Khaitan & Co, Luthra & Luthra & Trilegal have shared expert opinions with us. As have illustrious counsel such as Amit Desai, Aspi Chinoy & Harish Salve. CFOs and in-house counsels from the houses of Tata and Birla, Infosys, L&T, HUL, Godrej Essar are also frequently on the show, sharing their wealth of experience. And not to forget - tax/audit/consulting firms, including the Big 4 firms, are frequent guests.

We've often reached out to the best international opinions from Linklaters, Shearman & Sterling, Cravath Swaine & Moore, Wachtell Lipton, Simpson Thacher, Goodwin Procter, DLA Piper, drawing upon their expertise to keep abreast of global trends.
The views of this collective have helped focus our debates and, we'd like to believe, also shaped regulation & law. An endeavour we hope to be in pursuit of for a very long time.
To get in touch with us, please write to us at thefirm.cnbctv18@gmail.com

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