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Business

PromotersFamily arrangement

Succession planning

Arrangement with

members

Group Consolidation/Listing and Fund raising

Joint Venture Structuring

Financial Restructuring /

Ag en d a f o r t o d a y

OtherShareholders

Unlock shareholders’ value

GauravGolechha (981-981-1661)

Acquisition Merger DemergerSlump sale Itemised sale Buy Back

1

M&A is “Pervasive” – need of every business

CapitalReduction

Dividend paying capability

Deals Restructuring Cash repatriation

Corporatisation

Overseas ListingTax optimization of Shareholdingstructure



Ro l e o f M & A i n a bu si n ess l i f ecy cl e

s

h a r e h o l d e r ’ s v a l u e

ExpansionStage

Mature listedcompanies `

Ø Overseas ListingØ Maintain EPS/ DPSØ Unlocking shareholder’s value

Ø Prepare for Outside InvestmentsØ Prepare for IPOØ Build dividend payment capacity Ø Enable Inorganic Growth

Transaction

• Transaction Due Diligence• Vetting of Transaction Documents

• Advice on other aspects of transactions

GauravGolechha (981-981-1661) 2

M a x i m i z e

Restructuring

Privately heldset ups

Ø Family Arrangement/ Succession PlansØ Corporatization

High GrowthCompanies

Ø Optimize capital structure to attract funding &acquisitions

Ø Control issues JV sensitivities

Ø Avoid sickness normsØ Rehabilitation Package

Companies inthe red



M & A Ta x – co v er s en t i r e g am u t o f l eg i sl a t i o n s

a f f ect i n g a t r a n sa c t i o n

Indirect taxes

Financial due diligence

Corporate

law

Domestic tax laws,treaty law and income

tax laws of other jurisdictions


Transactionsand

restructuring

Stamp duty laws

Exchange controlregulations

SEBI

Securities and ExchangeBoard of India

regulations



D ea l St r u c t u r i n g




Dea l Co n t i n u u m

Deal Continuum

Strategy

Tax inputs forNegotiations

TaxAdjustments on

Pricin

Phase I Phase II

Signing of agreements

IdentifyRestructuring


Value Creation

DDR &Valuation

Implementation /

Closing theDeal

Transactionstructuring

Continued interaction and involvement

Documentationand Closure

Define thedeal



Acqu i si t i o n – Bu si n ess Sa l e

Acquisitions

Asset Purchase Share Purchase


SlumpSale

ItemizedSale

Sale of assets &

liabilities with values

assigned separately for

each item of assets &

liabilities

Sale of business on a

going concern basis for

a lump sum or ‘slump’

consideration



Sl um p Sa l e

Slump Sale, Sec.2(42C), meansØ Transfer of one or more undertakings as result of

sale for a lump sum consideration without values

being assigned to the individual assets and

liabilities

Ø Assignment of values for payment of stamp duty

etc. not to be regarded as assignment of values to

TransferorCompany

TransfereeCompany

Consideration

as cash

The Transaction

Asset Purchase


individual assets & liabilities

Key Issues

Ø Capital Gains

Ø VAT

Ø Stamp Duty

Ø Other Regulatory Issues

Ø Accounting for Slump sale

Sale of

business



I t em i z ed Sa l e

Ø Income Tax Act― Depreciable assets – STCG

― Non Depreciable Assets – STCG/LTCG

― Business profits

― Land & building transactions - Higher of stamp

duty valuation or valuation by valuation officer

Ø Stamp Duty

Sale of individual items of assets ‘cherry picking approach’

Not a sale of undertaking (or

part thereof)

Asset Purchase


― State subject

― Mode of documentation

― Business profits

Ø VAT implications

ItemiseSale

Considerationassigned to

individual assets



Sa l e o f Sh a r es

ØIncome Tax implications

– Capital gains tax in the hands of existingshareholders (LTCG @ 22.145%; STCG @33.22%)

― Section 195: WHT applicable on the gainsderived from the sale of assets situated inIndia (shares of Indian Co.)

Ø Takeover code : Acquisition in excess of 15%shares of a listed company – compulsory open

Acquirercompany

Existingshareholder(s)

Transaction

Monetary flow

Transfer of shares


offer to acquire atleast 20% from the existingshareholders (applicable only to the listedcompanies)

Ø Exchange Control – subject to pricing and otherconditions, acquisition by non-residents (if any) would fall under the automatic route

Ø Stamp Duty – 0.25% duty on value of sharestransferred (physical); nil for Dematerialized

shares

Targetcompany

The resultant structure

Targetcompany

Acquirercompany



Co r p o r a t e r est r u c t u r i n g




W h y Co r p o r a t e r est r u c t u r i n g

Valuation Services

Financial duediligenceFinancial restructuring

• Return surplus fundsto shareholders

• Revaluation

Fund raising

• PE investment

• Future listing

Tax optimization


Why Corporate

restructuring

Transactionstructuring

Shareholder

rationalization

Unlock value toshareholder

Family arrangement /

Arrangement withmembers

Consolidation of business

• Business focussed verticals

• Operatingefficiencies



M er g er

― Horizontal

― Vertical

― Conglomerate

― Forward

― Reverse

― Triangular

Types of Mergers Key Drivers

External

― Acquisitions

―Takeover of a sick entity

Internal

―Consolidation’ of

Operations

―Tax savings

―Eliminate multiple layers of

holdings

―Eliminate cos which have outlived

their utility

―Balancesheet right sizing


―Consolidation of

Promoter holdings― Automatic Listing of Co - Reverse

Merger

Ø Effected by Scheme of Arrangement under Section 391-394 of Companies Act, 1956

Ø Rights, Assets and Liabilities to vest with transferee company

JurisdictionalHigh Court(s)*

Regulatory authorities –ROC, OL, RD

Majority shareholders &

creditors Approvals



M er g er

Merger of one company with another by way of issue of

shares in the surviving/ amalgamated entity to the

shareholders of merged entity

Ø Conditions for tax- neutrality:

– All assets and liabilities to be transferred to themerged company

– Atleast 3/4th in value of shareholders of the

mer in com an should be shareholders of the

Merger of Co X and Co Y

Shareholders X Shareholders Y

Co X Co Y


merged company

Ø Key Issues:

– Carry forward of business losses– Stamp Duty – Other Regulatory Issues viz. SEBI, Exchange control

regulations– Valuation required to determine share exchange

ratio

Shareholders of Xand Y

Co X



D em er g er

Demerger involves transfer of identified business from one company to another and in

consideration, the company which acquires the business issues shares to shareholders of

the selling company.

Ø EffectedbyScheme ofArrangement under Section391-394of CompaniesAct, 1956

Ø Rights, Assets and Liabilities to vest with transferee company


Key Drivers

― Overall lower market capitalization of diversified companies

― Diversified business operations, without synergies, impact the

market valuations as compared to pure play companies

― Management focus and attention gets spread

― Strategic investor may not be willing to invest in a diversified

company with unrelated business

― Value unlocking for the shareholders

― Family Separation



D em er g er

Ø Conditions for tax- neutrality:– All assets / liabilities of the undertaking/division to

become property / liabilities of Resulting Company – Resulting Company issues its shares to the

shareholders of the demerged Company on aproportionate basis

– Shareholders holding not less than ¾ in value of shares in the demerged Company to becomeshareholders of the Resulting Company

Demerged company

Shareholders

Demerger of Business B

Business A Business B


– Transfer of assets and liabilities at book values,excluding revaluation, if any

– Transfer to be on a going concern basis

Ø Key Issues:

– Violations of conditions – Capital gains / deemeddividend implications

– VAT– Stamp Duty

– Accounting Impact– Other Regulatory Issues

Demerged company Business A

Resulting company

Business B

Shareholders



M er g er & Dem er g er – Im p l em en t a t i o n a ssi st a n c e Merger of Co X and Co Y

Shareholders X

Shareholders Y

Co X

Co Y

Co XY

Shareholders of Xand Y

Demerger of Business B

Ø Advising on key aspects of merger/ demerger:

– SEBI Takeover code – trigger & mitigation

– Accounting standards

– Income tax Act

– Companies Act, 1956

– Use of financing instruments – share swap analysis

Ø Drafting/ assisting in review of Scheme of Amalgamation/

Demerger, specific inputs on:


Demerged company

Shareholders

Demerged company Business A

Resulting company Business B

Shareholders

Business A

– Account ng aspects

– Balance sheet rightsizing

– Tax neutrality

– Stamp duty

– Tax losses evaluation

Ø Assisting throughout the High Court process:

– Facilitating filings and company meetings, etc– Engaging and briefing lawyers

– Preparing and filing response to RD queries

– Attending court hearings

Business B



Co r p o r a t e r est r u ct u r i n g ..E xam p l es




St r eam l i n i n g g r o u p h o l d i n g st r u c t u r e – o ver sea s a n d

domes t i c Objectives/ benefits of such structuring:

Ø Funding:

– Bringing in PE Investor for specific project

– IPO structuring – part / entire business

Ø Addressing bleeding units – enhance profitability or

utilize losses

Ø Business consolidation

Ø Plough back of funds to Top Hold Co

Gas

Steel +

Power +Gas +Retail

Power +Real

Estate

Realestate

BeforePromoters


Structuring imperatives:

Ø Mitigating tax costs

Ø Ensuring availability of tax losses

Ø Ensuring carry forward of incentives, to the extent

possible

Ø Stamp duty mitigation

Ø Operation and commercial viability

Tools:

Ø Merger Demerger

Ø Slump sale Acquisition

Power

After

Gas

Hold Co

Steel PowerReal

estate

Promoters

Retail



St r eam l i n i n g g r o u p h o l d i n g st r u c t u r e – o ver sea s a n d

domes t i c

Market Capitalization of company

(All business divisions under onecompany)

Possible Market Capitalization at Industry P/E of the

respective business segments

Particulars PATIndustry

P/E*

MarketCapitalisation

(PAT *Industry P/E)

Division 1 4.77 18.28 87

Particulars Amount

P/E 7.07

PAT 16.56

Market capitalisation


Substantial Increase in the market capitalization by

converting to Industry Multiples

DELINKING OF UNRELATED BUSINESS GENERALLY LEADS TO IMPROVED MARKET

CAPITALIZATION AND HIGHER RETURNS

Division 2 0.52 9.14 5

Division 3 7.00 30.69 215

Total 12.29 307

(P/E*PAT) 117.0



I ssue o f sha r es of H o l d co on Dem er ger

Mechanics & Implications

Ø A is the promoter group.

Ø A holds the share capital of X & Z

Ø X is a listed company

Ø Y is a wholly owned subsidiary of X

Ø One of the business division of Z is proposed

Promoters (A)Issue of shares inconsideration of demerger

Listed Co


.Ø In consideration of such demerger, shares of X

(Listed company) will be issued to the

shareholders of Z, i.e, to the Promoters

Benefits:

Ø Tax neutral demerger

Ø Increase in Promoter Shareholding in Listed

company without cash outflow

Y

X Z

100%

Demerger of business

division



Ca r v e o u t o f a u n i t f r om a L i s t ed Com pan y

Objective:Ø Carve out an undertaking out of a listed company

Ø The new co not to be listed as per the SOA

Mode:

Ø Scheme of Arrangement u/s 391-394 of The Companies Act


Solution:

Ø Separation by way of Demerger

Ø Demerger specified that the new co will not be listed

Ø Provided exit to the shareholders based on the fair values. Exit was optional

Ø Transferor company and its nominees authorized to purchase shares from the shareholders atfair values

Ø Facilitate in one transaction – taking company private through a second scheme in two years

time for capital reduction

Ø In the other case able to convert the transferee company into two way JV involving transferorcompany and the foreign corporation



Co r p o r a t i s a t i o n

Objective:Ø Consolidate business split in various entities – partnership, private limited company into one

company

Ø Put a family arrangement by way of current restructuring

Ø The new co will be the company that will go for an IPO in five years time

Mode:

Ø Conversion of Partnership Firm under Part-IX of the Companies Act


- -

Issues/ Solution:

Ø Reorganize partnership deed for:

Ø Maintaining tax neutrality of conversion considering future plans

Ø Allocate capital in current and capital account considering future conversion plans and also to balance shareholding %

Ø Put in place family arrangement as well

Ø Recognize valuable assets at their fair values at the time of conversionØ Carry out revaluation of fixed assets

Ø Merge the private limited company with newly converted joint stock company using purchasemethod of accounting



Bu s in ess Sa l e o f D i v i s i on

ObjectivesØ Transfer of Division B from Sub Co 1 and Sub Co 2 to a

third party acquirer in a tax and regulatory efficientmanner

Ø Regulated sector- Transfer should not require FIPBapproval

Facts

Ø Positive book net worth of Division B (Post revaluation)

Ø Sources of funds ofSubCo 1 andSub Co 2:

A Co

100%100%

Sub Co1 Sub Co2

Div A Div BDiv BDiv A


―Cap ta n us on y A Co

― Inter Company Deposits (ICDs) by A Co to Sub Cos

― Borrowings– General purpose & Specific purpose

Mechanics

Ø Classification of Division B as an ‘Undertaking’.

Ø Allocation of liabilities (particularly ICDs) to Division B.

Ø Net worth of Division B becomes negative.

Ø Additional debt taken over as part of networth to be

discharged by acquirer post purchase

Slump Sale of Division B by Sub Cos under

a court approved scheme

Lower capital gains tax on account of allocation of

higher debt/liabilities which were to be discharged to

holding co

Lower capital gains tax on account of allocation of

higher debt/liabilities which were to be discharged to

holding co



Bu s in ess Sa l e o f D i v i s i on

Particulars Amount (as isscenario)

Amount (afterplanning scenario)

Enterprise /Dealconsideration (A)*

1000 1000

Assets (B) 600 600

Computation of Capital gains


Loans (C) 300 700

Adjustedconsideration

700 300

Networth** 300 0

Capital gains [A-B] 400 300

* Arrived on thebasis of no of Tower * Per tower value

** As networth is negative the same is taken as zero in view of the Tribunal decisions in the matter of Zuari Industries Ltd and Paperbase

Co. Ltd.



St r u c t u r i n g f o r o v er sea s l i st i n g

OverseasHold Cos.

Before After

Individualpromoter

group

Individualpromoter

group

ØExternalizing Promoter’s shareholding

Ø Benefits:

– Flexibility to raise funds Overseas

– Overall value assimilation of promoter stake

– Listing of Indian co through Offshore structure


OperatingCo/ IndiaList Co

IndianHold Co

verseasList Co

OperatingCo/ IndiaList Co

IndianHold Co



F i n a n c i a l R est r u c t u r i n g




Bu y B a ck

Meaning of Buy-Back

Buy back meanspurchase of ownSecurities by the

Company from theshareholders out of

Securities Premium Account; or

Proceeds of any shares or other specifiedsecurities

1

Free Reserves; or2

3


Key Tax Implications

Company Shareholders

Payment made by Company on purchase of itsown shares in accordance with Sec. 77A of Co Act-Not treated as dividend under section 2(22)(iv)

No tax payable by Company

Section 46A - Entails capital gain tax implicationsin the hands of shareholder – on difference between the cost of acquisition and the value of

consideration received by the shareholder.



Redu ct i o n of Sha r e Cap i t a l

The Co Act provides for Reduction of Capital or Reserves akin to Capital of a Company in

ANY manner and in particular as under:

Indicative modes for

effecting capital

reduction

Repaying paid up equity capital, which is inexcess of wants of the Company

Cancel equity capital by reducing liability onunpaid share capital

1

Cancel paid up equity capital which is lost andunrepresented by assets

2

3


Amount distributed by company on reduction of share capital has two components:

Ø Distribution attributable to accumulated profits - Company to pay dividend distribution tax to theextent of accumulated profits as per the provisions of section 2(22)(d).

Ø Distribution attributed to capital (except capitalized profits) - Capital gains tax for shareholders

CIT v G. Narasimhan, (1999) 236 ITR 327 (SC)



Redu c t i o n o f Cap i t a l – An E f f ect i v e t o o l f or Rest r u c t u r i n g

Cap i t a l

To clean accumulated Losses and fictitious assets

Resultant Benefits:

Cleaner and leanerBalance Sheet reflectingtrue economic value;

Set-off of AccumulatedLosses without a chargeto the future Profits


Uti isation o Dea Reserves

Correction of Over Capitalisation

Possible to reflectgreater EPS and ROCEin future;

Enhances dividendpaying capacity andshareholders’ value.



Case St u d y - 2

FactsØ Promoters hold stake in Operating Co. through

Investment Co.s

Objective

Ø To avoid double layer of Dividend DistributionTax

Suggested restructuring

Promoter 1 Promoter 3Promoter 2


Ø Merge Investment Co.s into Operating Co.

Benefits

Ø Single layer of dividend distribution tax

Ø Savings in administrative and regulatory compliances

Investment

Co 1

Investment

Co 2

Investment

Co 3

Operating Co



Case St u d y - 3

FactsØ Co A and Co B engaged in same business in

service industry

Ø Co B has substantial losses

― Co B has 2 undertakings

― Losses pertain to service undertaking

ObjectiveØ

To combine the two Co.s in efficient manner

Company A


Suggested restructuring

Ø Merger will not give desired results

Ø “Service company “ not Industrial undertaking.

Ø Demergeunit from Co B into Co A

Benefits

Ø Co. A achieves objective of combiningoperations

Ø Loss of Co. B to move to Co. A , thereby resulting in tax efficiencies

Company B

Unit 1 Unit 2



I n b o u n d -Ou t b o u n d st r u c t u r i n g




I m p er a t i v es o f H o l d i n g & Fu n d i n g st r u c t u r e


Liquidity to the promoters STRUCTURE STRUCTURE



Ou t bo u n d st r u c t u r i n g

Indian Co

Overseas

India

Indian Co

SPV SPV1

Indian Co

Direct

InvestmentSPV Structure

Two – Tier

SPV Structure


Draft for discussion purposes only

34

November 2010

Target

Operating Co.Target

Operating Co.

SPV2

TargetOperating

Co.

Tax inefficientTax efficient andflexibility in fundmovement

Optimal structurefrom tax andfunding perspective



I n b ou n d st r u c t u r i n g

Foreign Co

Overseas

India

Foreign Co

SPV SPV1

Foreign Co

Direct

InvestmentSPV Structure

Two – Tier

SPV Structure



35

November 2010

TargetIndian Co.

TargetIndian Co.

SPV2

TargetIndian Co.

Tax inefficientTax efficient andflexibility in fundmovement

Optimal structurefrom tax andfunding perspective



SPV con si d er a t i o n s

Ø Corporate tax rate

Ø Taxation of dividend/ interest

Ø Withholding tax on dividend/ interest

Ø Capital gain tax on transfer of investments / shareholding

Mauritius

Singapore

Netherlands



36

November 2010

Ø Ease of access to debt and equity capital

Ø Black listed Countries

Ø Treaty network

Ø Cost of setting up and administration

Ø Other non-tax considerations likepolitical stability, banking facility etc.

Luxembourg

Cyprus

UAE

Tax Havens –

BVI/ Cayman



Con s i d er a t i o n s f o r Fu n d Ra i s i n g

Valuation Services

Financial duediligence

Listing in India andoverseas

Appropriate jurisdictions

Leveraging andflexibility in raisingfunds in India and

overseas levels


Why Corporate

restructuring

Maximize interestdeduction

Nil/ lower withholding on interest

Tax efficientinstrument



Fu n d i n g I n s t r um en t s

Parameters Equity Preference Shares Loan

Return on

income

Dividend Dividend/ Capital Gains Interest

Taxability in

India

Dividend taxable at

33.22%

Dividend taxable at 33.22%

Capital gains taxable at

33.22%/ 22.145%

Interest taxable 33.22%


TP

regulations

No arm’s length pricing

conditions

Arm’s length Pricing Arm’s length pricing

Repayment Usually by way of Buy

back of shares subject to

host country regulations

Depending upon the terms

of the instrument

As per terms of loan

agreement

Tax Benefit Dividend not taxdeductible

Dividend not tax deductible Interest is tax deductiblesubject to thin cap rules



Fu n d i n g st r u c t u r i n g

• Interest cost deductible in India

• Interest cost deductible at Targetcountry level through taxconsolidation or Merger

• Indian TP regulations to be

Parent

SPV 1

Loan

Equity/RPS/ Loan

Equity


considered in case of RPS/ Loaninstrument used by IndianCompany

Operating Co.

SPV 2

Target

Low Equity/Maximum loan



F u n d i n g Op t i o n s

Regulatory Challenge


Tax Efficiency



Fu n d i n g I n s t r um en t s –Cl a ssi f i ca t i o n

Funding Instruments Exchange Control Income Tax

Equity Shares Equity Equity

CCPS Equity Equity

CCD Equity Debt


RPS/ OCPS/ PCPS Debt Equity

ECB/ Loans/ Debt/ OCCD/ PCD Debt Debt

CCD – M o st T a x & Reg u l a t o r y E f f i c i en t I n s t r u m en t

W i t h h o l d i n g a t 4 0% u n d er I T A ct –M a u r i t i u s n o t su i t a b l e



I n b o u n d St r u c t u r i n g – K ey co n si d er a t i o n s

Tax Liability &

Credits

Exit Options Regulatory

Funding


STRUCTURING

Repatriation

Entity Option

Overseas

Holding

Company



Few Rel eva n t Qu est i o n s

§ What governs foreign investment into India?

§ Who approves the investments?

§ What role does the government have?

§ How does RBI regulate?

§ What would I need to refer to advise a client?

§ When will the regulations be attracted?




M od el I n b o u n d T r a n sa ct i o n s

§ Fresh infusion of funds into an Indian company

§ Transfer of shares of an Indian Company from Resident to Non-Resident

§ Transfer of shares of an Indian Company from Non-Resident to Non- Resident

§ Issue of shares of an Indian company to Non-Resident shareholder on merger of twoIndian companies

§ Issue of shares of an Indian company to Non-Resident shareholder on demerger of Indian com an


§ Transfer of shares of an Indian company on merger of two foreign companies



Need f o r Regu l a t i o n s

§ Protect the Indian industry from unhealthy competition

§ Promotion and economic growth in India

§ Security reasons (Eg. Defense and tobacco)

§ Political stability

§ Create an environment conducive for the promotion of the indigenous Industries




FD I - I n v est m en t r o u t es

Approval Route

Prior approval of regulators – selected

Automatic Route

No prior approvals – Almost allsectors, subject to sectoral caps/

conditions

Prohibited

FDI prohibited in few sectors


sectors/ beyond sectoralcaps

Eg. - Broadcasting,Telecom beyond 49%

Eg. – Manufacturing – 100%,NBFCs – 100% (Minimum capital

requirements),

Banking - 49%

Eg. - Multibrand Retail,

Atomic Energy



D i r ect a n d I n d i r ect F o r ei g n I n v estm en t

Direct InvestmentsInvestment directly by a non-resident entity/person into the Indian company

Indirect InvestmentsInvestment indirectly by a non-resident entity/ person into the Indiancompany through an Indian investing company:--Foreign Control in Indian Hold Co., or-Foreign ownership in Indian Hold Co.

ForeignInvestment


> 50% capital beneficially owned by resident Indian citizens and/or IndianCo ultimately owned and controlled by resident Indian citizens

Foreigninvestment

through IndianHold Conot to be

considered

if in Indian Co

For computation of indirect foreign investment, foreign investment in Indian company to include all types of foreigninvestments i.e. FDI; investment by FIIs (holding as on March 31); NRIs; ADRs; GDRs; FCCB; CCPS and CCD

Resident Indian citizens and Indian Co, ultimately owned and controlled by

resident Indian citizens, have power to appoint majority of Directors

And



Com p u t a t i o n o f D ow n st r eam I n v estm en t s

NRs/ Foreign CoNRs/ Foreign CoOverseas

India

NRs/ Foreign CoNRs/ Foreign Co

Direct ForeignInvestment

Indirect Foreign Investment

Any %owned orcontrolled

>50%owned orcontrolled


>50%owned orcontrolled


<50%owned &<50%controlled

Eg. 40% Eg. 70% Eg. 70% Eg. 40%


Operating CoOperating Co


Investing CoInvesting Co

<100%



100%



Any %

Foreign Investment =

Investment by nonresidents in Operating Co

(40%)


Investment by IndianInvesting Co in Operating

Co (90%)


Investment by nonresidents in Investing Co

– mirror image of Operating Co. (70%)


Nil, even if Investing Coholds 100% in OperatingCo.

Eg. 90% 100%E.g. 40%/80%/ 100%



Ca se St u d y

Foreign Co

Indian

Ove rseas

I n d i a

In Defence sector, foreign investment cannot exceed26%.

• What is direct and indirect foreign investment inDefence Co?

• Whether FIPB Approval required for investmentto be made by Foreign Co in Indian JV Co and by Indian JV Co in Defence Co?

• Is there a difference to the answer above where

Indian Co

51%

49%


DefenceCo

74%

majority of directors on the Board of Indian JV Co are non-residents?

• Direct investment - 26%.

Indirect foreign investment - Nil

• No FIPB approval required as Indian JV Cois ‘investing cum operating’ Co

Automatic route - Less than 49%

• Foreign investment - 100% (Not allowable)

26%

Approval route



Case St u d y – 50 : 5 0 Scen a r i o

NR/Foreign Co. R/Indian Co.

50% 50%

Ove rseas

I n d i a


o.

Board of Directors

2 BoardMembers

2 BoardMembers

Would downstream investments by JV Co be considered foreign investments?



Vo d a f o n e J u d gm en t

HTIL, HongKong

VodafoneNV

Netherlands(or

Vodafone)

Share transferred of CGP

100 percent

CGP

Illustrative structure


IHC, Mauritius

HEL/ VEL,India

100 percent

67 percent

nves men s,Caymans Island



Sec 391 - 394

• Effected by Scheme of Arrangement under Section 391-394 of Companies Act, 1956 read with

Companies (Court) Rules, 1959

• Rights, Assets and Liabilities to vestwith transfereecompany

J urisdictional High

Court(s)*

Regulatoryauthorities –

ROC, OL, RD

Majority innumber and ¾

in value of shareholders

NOC fromStock

Exchange(s) Approvals


• Considerationbasedon valuation

• Scheme effective fromAppointeddate andoperative fromEffective date

– Appointeddate can be retrospective / prospective

• Existing lawpermits Indianas well as a foreign companyto merge into Indiancompany

– ProposedCompanies Bill alsopermits Indiancompanies to merge into foreign company

* Functions / powers of the Courts to be discharged by NCLT on notification by the Government



Procedure u/s 391 - 394

Board Meetings of all companies to approve

the Scheme of Arrangement

File Chairman’s report and Petitions with

High Court

Final hearing at the High Court

Follow up w ith ROC^, Official Liquidator~

and Regional Director to obt ain their no

objection to the Arrangement

Preparation of Scheme of Arrangement

(including valuation report for Arrangement)

Approval from stock exchange*

Conduct meetings as per the orders of the

High Court – if dispensation not granted

Obtain Court order and fil e the same with

Registrar of Companies

App licat ion to High Court seeking d irect ions

on convening / dispensation meetings** of

shareholders / creditors - all companies

* In merger / demerger of listed co and unlisted co, each is required to obtain an Aud itor ’s Certi ficate & a FairnessOpinion from an independent Merchant Banker & file with the Exchange

^Registrar of Companies - regionwise~Applicable only in case of merger

** Scheme considered approved if accepted by 3/4th in value & majority in number of those present & voting in the meeting.Court may dispense convening of meetings on obtaining written consents

Slide 53



• Authorised by:

– Articles of Association– Board of Directors (upto 10%)

– shareholders through a special resolution (beyond 10%)

• Quantum of buyback

– 25% of the total paid up capital and free reserves

– equity shares to be bought back not to exceed 25% of total paid up equity capital in that financial year

ü Financial ear - ?

Section 77A {Buy Back}


• Multiple buyback possible during the year – Maximum limit of 25% of paid up share capital

• Debt equity ratio post buy-back - not to exceed 2:1

– Debts includes unsecured and secured debts

• Shares are fully paid-up

• Declaration of solvency

Buyback also possible through court scheme u/s. 391-394



• Relevant rules and regulations

– For listed companies - SEBI (Buyback of Securities) regulations, 1998

– For unlisted companies – Private Limited Company and Public Limited Company

(Buy Back of Securities) Rules, 1999

• Buy-back to be completed within maximum 12 months from date of passing of board /

shareholders resolution, as may be applicable

Section 77A {Buy Back}


• Extinguish and physically destroy the shares bought back within 7 days

• No fresh issue of same kind of securities for 6 months post buy-back

• Buy-back not permitted, where the company has:

– not filed its annual return [sec 159]

– defaulted in distribution of dividends [sec 205]

– not complied with provisions with respect to the form and content of financial

statements [sec 211]

– defaulted in repayment of term loan/interest to any financial institution/bank Slide 55



• The buy-back can be out of

– free reserves

– the securities premium account

– the proceeds of any shares or other specified securities

ü proceeds of an earlier issue of the same kind of shares or same kind of other specified

securities cannot be used

Sources of Buy Back


• ‘Free reserves’ is defined as having the same meaning as assigned to it in explanation to

section 372A

Slide 56



Art ic les to permit

buybackHold a board meeting

and pass board

resolution proposing

buy back

Convene a

general meeting and

pass special resolution

authorising buyback

Procedure for Buy Back [other than through board approval]


Extinguishment of

shares bought back

from shareholders

Return and registers

containing particularsof buyback to be

prepared

• Buyback offer made to

shareholders

• Acceptance of offer byshareholders

• Closure of offer

Slide 57