Mergers and Acquisitions

Introduction Mergers
  • The term “merger” finds substantial mention in the Companies Act,2013 (CA13) as well as 1956(CA56), the Income Tax Act, 1961(IT Act) and various regulations of Securities and Exchange Board of India(SEBI), none of them have clearly laid down an exhaustive and absolute definition of merger. However, the framework of merger laid down in these legislations connotes that merger is the blending of two or more companies into one.
  • It is an amalgamation where all properties and liabilities of transferor are merged with the properties and liabilities of the transferee company. In essence, it is a merger of assets and liabilities of two or more companies. The IT Act defines an amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company.
  • All assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company. The shareholders with at least nine-tenths in value of the shares in the amalgamating company (or companies) become shareholders of the amalgamated company. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:
    • Equity shares in the transferee company,
    • Debentures in the transferee company,
    • Cash, or
    • A mix of the above mode
  • An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling interest in the share capital, or all or considerably all of the assets and/or liabilities, of the target. A takeover may be friendly or hostile and may be effected through agreements between the offeror and the majority shareholders, purchase of shares from the open market, or by making an offer for acquisition of the target’s shares to the entire body of shareholders.
  • Acquisitions may be by way of acquisition of shares of the target, or acquisition of assets and liabilities of the target.
Forms and Types of Merger
  • Merger through Absorption:- An absorption is a combination of two or more companies into an ‘existing company’. All companies except one lose their identity in such a merger.
  • Merger through Consolidation:- A consolidation is a combination of two or more companies into a ‘new company’. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or share exchange.
  • Horizontal merger: – Is a combination of two or more firms in the same area of business.
  • Vertical merger: – Is a combination of two or more firms involved in different stages of production or distribution of the same product.
  • Conglomerate merger: – Is a combination of firms engaged in completely different lines of business activity.
Acquisitions
  • Acquisition refers to the process of acquiring a company at a price called the acquisition price or acquisition premium. The price is paid in terms of cash or acquiring company’s shares or both.
    There are two types of business acquisitions, friendly acquisition and hostile acquisition.

    • In a friendly acquisition, a company invites other companies to acquire its business.
    • In a hostile acquisition, the company does not want to sell its business. However, the other company determined to acquire the business takes the aggressive route of buying the equity shares of the target company from its existing shareholders.
Amalgamation
  • Amalgamation is an arrangement where two or more companies strengthen their business to form a new firm, or become a subsidiary of any one of the company. The terms amalgamation and merger are used interchangeably but there is a slight difference.
  • Merger is the integration of two or more companies into a single company where the identity of some of the companies gets dissolved. Whereas, amalgamation involves dissolving the entities of amalgamating companies and forming a new company having a separate legal entity.
Types of Amalgamation
  • There are two types of amalgamations.
    • The first one is similar to a merger where all the assets and liabilities and shareholders’ of the amalgamating companies are combined together. The accounting treatment is done using the pooling of interests method. It involves laying down a standard accounting policy for all the companies and then adding their relevant accounting figures like capital reserve, machinery, etc. to arrive at revised figures.
    • The second type of amalgamation involves acquisition of one company by another company. In this, the shareholders of the acquired company may not have the same equity rights as earlier, or the business of the acquired company may be discontinued which is similar to the purchase of a business. The accounting treatment is done using a purchase method. It involves recording assets and liabilities at their existing values or revaluating them on the basis of their fair values at the time of amalgamation.
Joint Ventures
  • Joint venture is a contractual arrangement between two or more parties who agree to come together for the purpose of undertaking a business project. All the parties contribute capital and share profits and losses in a decided ratio. Joint ventures are a type of partnership that is always executed through a written contract known as a joint venture agreement (JVA).
  • The contracts registered under JVA are legally binding on the parties. Furthermore, they are temporary in nature because they are implemented for a definite period of time to attain a specific goal. The contract automatically dissolves after the expiry of the decided time period.
Demergers
  • Where the business of an entity comprises two well defined ‘undertakings’, it is possible to split up the entity into two entities. Generally, shareholders of the original entity would be issued shares of the new entity. Where a demerger is completed through a court process and fulfills certain conditions prescribed under the Tax Act, it will not result in capital gains for the seller (section 2(19AA) of the Tax Act) or sales tax liability. In addition, tax losses of a demerged company responsive to the demerged ‘undertaking’ can be carried forward and balance the profits of the resulting company, subject to fulfillment of certain conditions.
Regulatory framework governing M&A transactions Company law
  • An acquisition of shares is acceptable with prior approval of the audit committee and board of directors. Share sale between related parties may also require prior shareholders’ approval. Earlier mergers or demergers were largely governed by sections 391-394 of the Companies Act, 1956.
  • Recently, with effect from 15 December 2016, sections 230-240 of the Companies Act, 2013, were notified(except Section 234 of Companies Act, 2013), following to which all the Schemes of Arrangement now require approval of the National Company Law Tribunal (NCLT) as against the High Court earlier.
  • As per the procedures, any scheme is first approved by the audit committee, the board of directors, stock exchanges (if shares are listed) and then by the shareholders/creditors of the company with a requisite majority (i.e. majority in number and 3/4th in value of shareholders/creditors voting in person, by proxy or by postal ballot).
  • NCLT gives its final approval to the scheme after considering the observations of the Regional Director, Registrar of Companies, Official Liquidator, income tax authorities, other regulatory authorities (RBI, stock exchanges, SEBI, Competition Commission of India [CCI], etc.) and any other objections filed by any other stakeholder interested in or affected by the scheme.
Income-tax Act, 1961
  • Implications under the Income Tax Act, 1961 Tax implications can be understood from the following three perspectives:
    • Tax concessions to the Amalgamated (Buyer) Company. If the amalgamating company has incurred any expenditure eligible for deduction under sections 35(5), 35A(6),35AB(3), 35ABB, 35D, 35DD, 35DDA, 35E and/or 36(1)(ix), prior to its amalgamation with the amalgamated company as per section 2(1B) of the Act and if the amalgamated company is an Indian company, then the benefit of the aforesaid sections shall be available to the amalgamated company, in the manner it would be available to the amalgamating company had there been no amalgamation. Also under section 72A of the Act, the amalgamated company is entitled to carry forward the unabsorbed depreciation and unabsorbed accumulated business losses of the amalgamating company provided certain conditions are fulfilled.
    • Tax concessions to the Amalgamating (Seller) Company.Any transfer of capital assets, in the scheme of amalgamation, by an amalgamating company to an Indian amalgamated company is not treated as transfer under section 47(vi) of the Act and so no capital gain tax is attracted in the hands of the amalgamating company.
    • Tax concessions to the shareholders of an Amalgamating Company. When the shareholder of an amalgamating company transfers shares held by him in the amalgamating company in consideration of allotment of shares in amalgamated company in the scheme of amalgamation, then such transfer of shares in not considered as transfer under section 47(vii) of the Act and consequently no capital gain is attracted in the hands of the shareholder of amalgamating company. Where an Indian target entity is sought to be acquired by a foreign entity, it may be noted that the corporate laws permit only domestic companies to be amalgamated. So the foreign acquirer have to create a local special purpose vehicle (SPV) in India to give effect the amalgamation with the Indian company and more over the SPV avails the tax benefits on amalgamation under the Act since the same are subject to the amalgamated company being an Indian company.
  • In the case of foreign companies holding shares of Indian companies, on amalgamation or de-merger of the foreign company with another foreign company, the transfer of shares would enjoy exemption from capital gains tax, subject to the following conditions:
    • At least 25% shareholders of the amalgamating foreign company 75% of shareholders of the de- merged company continue to remain share holders of the amalgamated foreign company/resulting foreign company and
    • Such transfer does not attract tax on capital gains in the country of incorporation of the amalgamated/resulting company. Amalgamation when effective: – Date of amalgamation. Every scheme of amalgamation provides for a transfer date from which the amalgamation is effective i.e., the Appointed Date‘. The effective date‘ is the date when the amalgamation actually takes place after obtaining the jurisdictional Court Approval and furnishing of the relevant documents with the Registrar of Companies. The effective date thus differs from the appointed date.
  • Tax Implications on Mergers and Acquisitions Mergers and acquisitions (M&As)
    • Tax Implications on Mergers and Acquisitions Mergers and acquisitions are an accepted strategy for corporate growth. While they may create value, mitigate agency problems associated with a firm’s free cash flow, enhance the firm’s market power, or help utilize tax credits.
    • The tax impact of properly structuring the disposition and acquisition of a company can have a very material impact on the economics of the transaction to both parties. , there are numerous tax planning opportunities that allow each party to obtain its specific tax and economic objectives without harming the other party.
Securities laws
  • Any acquisition of shares of more than 25% of a listed company by an acquirer would trigger an open offer to the public shareholders. Any merger or demerger involving a listed company would require prior approval of the stock exchanges and SEBI before approaching NCLT.
  • Further, under the Takeover Code, a merger or demerger of a listed company usually does not trigger an open offer to the public shareholders.
Foreign Exchange Regulations
  • Foreign exchange regulations Sale of equity shares involving residents and nonresidents is permissible subject to RBI pricing guidelines and permissible sectoral caps.
  • A merger/demerger involving any issuance of shares to non-resident shareholders of the transferor company does not require prior RBI/government approval provided that the transferee company does not exceed the foreign exchange sectoral caps and the merger/demerger is approved by the Indian courts.
  • Issuance of any instrument other than equity shares/compulsorily convertible preference shares/ compulsorily convertible debentures to the non-resident would require prior RBI approval as they are considered as debt.
  • Where an acquisition relates to a sector where foreign investment is restricted and therefore needs prior regulatory approval from the central government, the waiting period for such approvals can range from six to eight weeks. The central government has delegated authority to the Foreign Investment Promotion Board (FIPB) under the support of the Ministry of Finance to grant such approvals on its behalf. In practice, delays are not uncommon and the definitive timing to obtain FIPB approval is hard to predict.
  • Foreign investment in the insurance sector is restricted to 49 per cent of the share capital of the Indian insurance company. In addition, the Indian insurance company is required to obtain a license from the Insurance Regulatory and Development Authority and adhere to several reporting, solvency and accounting requirements.
  • Tax residency certificate
    • Non-resident taxpayers are mandatorily required to furnish a tax residency certificate along with the prescribed information such as status of the taxpayer, country of incorporation, tax identification number, etc, for claiming the benefit of an applicable tax treaty.
  • Withholding tax
    • Where the payee is a non-resident or a foreign company, there is a legal obligation on the payer (whether resident or non-resident) to deduct tax at source when making any remittance to the former, if such payment constitutes income which is chargeable to tax under the Tax Act read with the applicable tax treaty.
Competition regulations

Any acquisition requires prior approval of CCI if such acquisition exceeds certain financial thresholds and is not within a common group. While evaluating an acquisition, CCI would mainly scrutinize if the acquisition would lead to a dominant market position, resulting in an adverse effect on competition in the concerned sector.

Stamp duty
  • The Indian Stamp Act, 1899, provides for stamp duty on transfer/issue of shares at the rate of 0.25%. In case the shares are to be withdrawn, there would be no stamp duty on transfer of shares.
  • Conveyance of business under a business transfer agreement in the case of a slump sale is charged to stamp duty at the same rate as in the case of conveyance of assets. Typically, a scheme of merger/demerger is charged to stamp duty at a concessional rate as compared to conveyance of assets. The exact rate levied depends upon the specific entry under the respective state laws.
The basic regulatory framework governing labour and employee benefits in a business combination
  • Among the key issues which an investing company is confronted with, is the tangle of labour and employment laws in India which govern employee rights. Provisions for termination of employment are contained in the Industrial Disputes Act, Shops & Establishment Act of the State in which the establishment is located, Standing Orders Act, and the Service Contracts of employees.
  • Restructuring which involves merger of one unit with another where the original unit loses its identity or becomes part of another entity, or one unit acquires another but the existing unit retains its status as an entity, are all events which lead to change of owner for the employees, or reallocating (transfer) employees between the existing and acquired units, or termination of employment contract, and designing settlement packages, or even re-writing employment agreements require to be within the permissible limits under the local laws.
  • Divestment of a Unit or Undertaking.
    • Divestment of a Unit or Undertaking is when a running business undertaking is acquired by another company and the ownership of the business changes from the old company to a new company. This leads to a sale of assets and purchase by a new company with or without the employees (assuming these to be “workman”) of the transferred undertaking.
    • Where such workmen are not taken over by the new buyer, the old company may continue their service contracts but any redeployment of roles and terms would require consent to be obtained in terms of the ID Act, notices to be given regarding changes in their terms, etc. On the other hand, if the workmen are transferred to the buyer entity, this involves a change of ownership and a new employer for such workers.
    • As judicial norms go, the Supreme Court in India has held that the old employer has to obtain the consent of the affected workers even if there is no change in their terms of service and they are transferred on no less favourable terms. More significantly, the employee transfer would have to be accompanied by an agreement between the transferor (seller) and the transferee (buyer) under which the seniority or period of service may have to be taken over by the buyer so that there is no interruption of employment for purpose of social security benefits.
    • This will also involve transfer of gratuity funds to the buyer entity and transfer of provident fund accounts of the employees to the new entity. If the workers do not wish to move over, and the existing employer does not wish to retain them then the workers have to be “retrenched” as redundant under the ID Act and have to be paid compensation, given notice of termination with reason recorded therein, and all their termination benefits have to be paid under appropriate settlement agreements.
    • There may also be a situation where the transfer of undertaking may involve transfer of workmen on terms less favourable. In this case the workmen who agree to resign from the old employer (seller), and accept to move to the new employer (buyer), would have to be paid retrenchment compensation as provided under the ID Act, and if they have done five years of continuous employment in the seller company, they would have to be paid their gratuity benefits, though the provident fund accounts and balances would have to be transferred to the new employer (buyer).
    • Here a note of caution needs to be sounded for the benefit of the buyer/new employer, as the courts have held that the doctrine of continuing employer mandates that the new employer must take over the service seniority of the employees. Thus, new employers must undertake due diligence to ensure that the appropriate deductions of statutory contributions were made by the old employer and only then take over the accounts. In most cases of mergers (involving sale or transfer of shares), the courts now insist that the buyer would incur the social security obligations as a successor employer.
  • Determination of the status of employees
    • There are a number of statutory and judicially defined criteria that have to be applied to the employment agreements or appointment letters to determine the exact status in each case.
    • Both the ID Act and the S & E Act of the State concerned provide for notices, grounds of termination simpliciter where permitted, though in most cases only ‘with cause’ termination are permitted. Then, depending upon the industry and strength of the total numbers employed, there are legal requirements of giving simple notice to the government or applying for prior permission to the government in case of large undertakings in certain industrial establishments.
    • Under the ID Act, the procedure to be followed depends on a case to case fact situation of the industry, whether it is in the service sector or in the manufacturing sector. Where the employees are external resources or “consultants” who were hired for providing services as independent contractors, the procedural requirements and legal conditions for termination are different from those mandated for “workmen”. If these resources have to be terminated as surplus or redundant, their settlement packages, and payment of statutory benefits, if applicable, hinge on the determination of their status.
Bankruptcy under Mergers and Acquisitions
  • Under Indian law, a company is regarded to be ‘potentially sick’ where accumulated losses at the end of a financial year have dissolved 50 per cent of its net worth during the immediately preceding four financial years.
  • The board of directors of a ‘potentially sick’ company can make a reference to the Board for Industrial and Financial Reconstruction (BIFR) within 60 days from the date of finalisation of the audited accounts for the financial year with reference to which ‘sickness’ can be attained.
  • Foreign investors are permitted to invest in ‘sick’ units, provided that prior approval of the BIFR is obtained. While acquiring assets from a company in the BIFR, it is very important to ensure that no proceedings are pending against any order by the BIFR that could possibly delay title to the assets.
  • Under section 531A of the Companies Act, 1956 (corresponding provision section 329 under the Act is not yet notified), any transaction relating to property of the company concluded within one year prior to the commencement of its winding-up, other than in the ordinary course of business or in good faith for valuable consideration, is invalid.
  • Additionally, transactions with creditors preceding six months prior to the commencement of a winding-up can be challenged as a fraudulent preference.
Anti-Corruption Laws and Sanctions for Business Mergers and Acquisitions
  • Indian Government has passed the following Laws and Acts against corruption:
    • Indian Penal Code, 1860
    • (IPC), Prevention of Corruption Act, 1988 (POCA),
    • Prevention of Money Laundering Act, 2002 (PMLA) and
    • Foreign exchange laws and regulations.
  • India is also a signatory to the United Nations Convention against Corruption and has ratified the same.

Merger Control

Introduction
  • The term “merger” finds substantial mention in the Companies Act,2013 (CA13) as well as 1956(CA56), the Income Tax Act, 1961(IT Act) and various regulations of Securities and Exchange Board of India(SEBI), none of them have clearly laid down an exhaustive and absolute definition of merger. However, the framework of merger laid down in these legislations connotes that merger is the blending of two or more companies into one.
  • It is an amalgamation where all properties and liabilities of transferor are merged with the properties and liabilities of the transferee company. In essence, it is a merger of assets and liabilities of two or more companies. The IT Act defines an amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company.
  • All assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company. The shareholders with at least nine-tenths in value of the shares in the amalgamating company (or companies) become shareholders of the amalgamated company. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:
  • Equity shares in the transferee company,
  • Debentures in the transferee company,
  • Cash, or
  • A mix of the above mode
  • An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling interest in the share capital, or all or considerably all of the assets and/or liabilities, of the target. A takeover may be friendly or hostile, and may be effected through agreements between the offeror and the majority shareholders, purchase of shares from the open market, or by making an offer for acquisition of the target’s shares to the entire body of shareholders.
  • Acquisitions may be by way of acquisition of shares of the target, or acquisition of assets and liabilities of the target.
Selection and Appointment of Arbitrator(s)

    • The Arbitration and Conciliation(Section 10 of the 2015 Act), grants the liberty to the parties to appoint an arbitrator mutually. The Act provides that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number. However, if the parties fail to do so, the arbitral tribunal shall consist of a sole arbitrator.
    • The procedure in relation to appointment of arbitrator(s) is provided under Section 11 of the Act. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. The aforesaid section also deals with the contingency wherein the parties fail to appoint an arbitrator mutually.
    • In such a situation, the appointment shall be made, upon request of a party, by the Supreme Court or any person or institution designated by such Court, in the case of an International Commercial arbitration or by High Court or any person or institution designated by such Court, in case of a domestic arbitration.
    • Before the appointment of arbitrator is made, the concerned Court or the person or institution designated by such Court is required to seek a disclosure in writing from the prospective arbitrator in terms of Section 12(1) of the Act and also give due regard to any qualifications required for the arbitrator by the agreement of the parties and the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It may be noted that under Section 12(1) of the Act, an obligation has been cast upon the prospective arbitrator to make an express disclosure on (a) circumstances which are likely to give rise to justifiable doubts regarding his independence or impartiality; or (b) grounds which may affect his ability to complete the arbitration within 12 (twelve) months.
    • The purpose of this provision is to secure the appointment of an unbiased and impartial arbitrator. Fifth Schedule to the Act discussed below contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator.
    • The Seventh Schedule (AnnexureB) lays the grounds which make a person ineligible to be appointed as an arbitrator. The Act provides that in an International Commercial Arbitration, an arbitrator of a nationality other than the nationalities of the parties may be appointed where the parties belong to different nationalities.
    • Expeditious disposal of application for appointment of an arbitrator(s) is emphasized by the Act and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

    The Fifth Schedule

    The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:

Arbitrator’s relationship with the parties or counsel

  • The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
  • The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.
  • The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.
  • The arbitrator is a lawyer in the same law firm which is representing one of the parties.
  • The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
  • The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.
  • The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
  • The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income there from.
  • The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
  • A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
  • The arbitrator is a legal representative of an entity that is a party in the arbitration.
  • The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
  • The arbitrator has a significant financial interest in one of the parties or the outcome of the case.
  • The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.

Relationship of the arbitrator to the dispute

  • The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
  • The arbitrator has previous involvement in the case.

Arbitrator’s direct or indirect interest in the dispute

  • The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
  • A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
  • The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.

Previous service for one of the parties or other involvement in the case

  • The arbitrator has within the past three years served as counsel for one of the parties or an affiliate of one of the parties or has previously advised or been consulted by the party or an affiliate of the party making the appointment in an unrelated matter, but the arbitrator and the party or the affiliate of the party have no ongoing relationship.
  • The arbitrator has within the past three years served as counsel against one of the parties or an affiliate of one of the parties in an unrelated matter.
  • The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.
  • The arbitrator’s law firm has within the past three years acted for one of the parties or an affiliate of one of the parties in an unrelated matter without the involvement of the arbitrator.
  • The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties.

Relationship between an arbitrator and another arbitrator or counsel

  • The arbitrator and another arbitrator are lawyers in the same law firm.
  • The arbitrator was within the past three years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same arbitration.
  • A lawyer in the arbitrator’s law firm is an arbitrator in another dispute involving the same party or parties or an affiliate of one of the parties.
  • A close family member of the arbitrator is a partner or employee of the law firm representing one of the parties, but is not assisting with the dispute. 29. The arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm.

Relationship between arbitrator and party and others involved in the arbitration

  • The arbitrator’s law firm is currently acting adverse to one of the parties or an affiliate of one of the parties.
  • The arbitrator had been associated within the past three years with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or partner.

Other circumstances

  • The arbitrator holds shares, either directly or indirectly, which by reason of number or denomination constitute a material holding in one of the parties or an affiliate of one of the parties that is publicly listed.
  • The arbitrator holds a position in an arbitration institution with appointing authority over the dispute.
  • The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the arbitration.
    • Explanation 1. – The term “close family member” refers to a spouse, sibling, child, parent or life partner.
    • Explanation 2. – The term “affiliate” encompasses all companies in one group of companies including the parent company.
    • Explanation 3. – For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.
Laws and Regulations governing Business
    • The Competition Commission of India (CCI) is the central authority that ensures the enforcement of Competition Act. The decisions of CCI can be appealed to the Competition Appellate Tribunal and subsequently to the Supreme Court.
    • Sections 5 and 6 of the Competition Act prohibit persons or enterprises from entering into combinations which have or are likely to have an Appreciable adverse effect on Competition on competition in the relevant market in India.
    • Section 5 of the Competition Act encompasses three broad categories of combinations within its fold:
    • The acquisition by one or more persons of control, shares, voting rights or assets of one or more enterprises, where the parties, or the group to which the target will belong post-acquisition, meet the specified assets/turnover thresholds.
    • The acquisition by a person of control over an enterprise where the person concerned already has direct and indirect control over another enterprise with which it compete, where the parties, or the group to which the target will belong post-acquisition, meet the specified assets/turnover thresholds.
    • Mergers or amalgamations, where the enterprise remaining, or enterprise created, or the group to which the enterprise will belong after the merger/amalgamation, meets the specified assets/turnover thresholds.

     

    • According to the act, these combinations are void. Section 20(4) of the act sets out the factors that the CCI will consider when assessing whether a combination has or is likely to have an AAE on competition in India.
    • Transactions which exceed the specified jurisdictional thresholds for assets and turnovers are caught by the legislation. These thresholds are set out in Section 5 of the Competition Act, as amended by the relevant government notifications. Asset and turnover-based thresholds apply to determine whether a transaction is caught by the legislation. These are set out below.
    • Parties test: The parties have combined assets in India of INR 2,000 crores (INR 20 billion) or a combined turnover in India of INR 6,000 crores (INR 60 billion); or The parties have combined worldwide assets of USD 1 billion, including combined assets in India of INR 1000 crores (INR 10 billion) or a combined worldwide turnover in excess of USD 3 billion, including a combined turnover in India of INR 3,000 crores (INR 30 billion).
    • Group test: The group has assets in India of more than INR 8,000 crores (INR 80 billion) or a turn­over in India of INR 24,000 crores (INR 240 billion); or The group has worldwide assets of USD 4 billion, including assets in India of INR 1,000 crores (INR 10 billion), or a worldwide turnover of USD 12 billion, including turnover in India of INR 3,000 crores (INR 30 billion).
      In this context, ‘group’ means two or more enterprises which are directly or indirectly in a position to:
    1. Exercise 50% or more of the voting rights in another enterprise;
    2. Appoint more than 50% of the board of directors in another enterprise; or
    3. Control the management or affairs of another enterprise.

     

    • The government of India, through a Notification dated 4 March 2016, renewed the de minimis target-based filing exemption for five years until March 2021, under which transactions where the target has either Indian assets of less than 3.5 billion rupees or Indian turnover of less than 10 billion rupees are exempted from the CCI notification requirement (target exemption).However, it should be noted that this exemption is only applicable for acquisitions and not for mergers or amalgamations.
    • Other than CCI, there are sectoral regulators like the Reserve Bank of India (for the banking sector), the Department of Telecommunications (for the telecommunications sector), the State Electricity Regulatory Commissions (for the electricity sector), the Securities and Exchange Board of India (SEBI) (for publicly listed companies), and the Insurance Regulatory and Development Authority (for the insurance sector) which can look into mergers/acquisitions in those specific sectors.

     

    • Through the first Notification, the Central Government has increased thresholds, both assets and turnover, for any transaction to qualify as a combination under Section 5 of the Competition Act, 2002 (Act)by 100%. Consequently, the following shall be the revised thresholds under the Act to trigger the filing requirement for any transaction before the Competition Commission of India (CCI):
    Threshold for proposed combination (acquirer + target) Threshold for group post acquisition
    In India In or outside India In India In or outside India
    Assets Assets Assets Assets
    Jointly worth more than INR 3,000 Crores (INR 30 billion) Jointly worth more than USD 1500 million (including assets worth at least INR 1500 Crores (INR 15 billion) in India) Jointly worth more than INR 12,000 Crores (INR 120 billion) Jointly worth more than USD 6 billion (including assets worth at least INR1500 Crores (INR 15 billion) in India)
    Turnover Turnover Turnover Turnover
    Jointly worth more than INR 9,000 Crores (INR 90 billion) Jointly worth more than USD 4.50 billion (including at least INR4,500 Crores (INR 45 billion) in India) Jointly worth more than INR 36,000 Crores (INR 360 billion) Jointly worth more than USD 18 billion (including at least INR 4500 Crores (INR 45 billion) in India)
Procedure of Filing

Trigger

  • It is mandatory to notify the CCI of the combination in the event that the jurisdictional thresholds are met and exemptions are unavailable. The Competition Act prescribes that notifying parties must file a notification with the CCI within 30 calendar days of:
  • Final approval of the proposal of merger or amalgamation under Section 5(c) of the Competition Act by the board of directors of the enterprises concerned; or
  • Execution of any agreement or other document for acquisition under Section 5(a) or acquisition of control under Section 5(b).
  • The Combination Regulations clarify that the term ‘other document’ means any binding document, by whatever name, that conveys an agreement or decision to acquire control, shares, voting rights or assets.

 

Time of Filing Notification

  • A combination must be notified to the CCI within 30 days of either:
  • Execution of any binding agreement for acquisition.
  • Passing of the board resolution approving the combination (in the case of a merger/amalgamation).
  • However, by way of exception, a post facto notification must be filed within seven days from the date of the acquisition for share subscriptions, financing facilities or any acquisition made under an investment agreement or a covenant in a loan agreement by any of the following:
  • Public financial institution (PFI).
  • Foreign institutional investor (FII).
  • Bank or venture capital fund (VCF).

 

Form of Filing

  • The Combination Regulations prescribe three forms for filing a merger notification. Notifications are usually filed in Form I (ie, short form). However, the parties can file a merger notification in Form II (ie, long form). The Combination Regulations recommend that Form II notifications be filed for transactions where the parties to the combination are:
  • Competitors with a combined market share in the same market of more than 15%; or
  • Active in vertically linked markets, where the combined or individual market share in any of these markets is greater than 25%.
  • Form II requires extremely detailed information – far more than that required by the (long form) Form CO under the EU Merger Regulation or a second request pursuant to the US Hart Scott Rodino Act. This information includes detailed descriptions of products, services and the market as a whole, including:
  • The relative strengths and weaknesses of competitors;
  • Estimates of a minimum viable scale required to attain cost savings;
  • The costs of entry; and
  • The impact of research and development
  • No pre-notification procedure exists. It is possible to conduct pre-notification consultations with the CCI on procedural and substantive issues. Consultations are oral, informal and non-binding. The merger control regime has a standstill requirement and no part of a transaction can be implemented until approval has been obtained.

 

Fees

  • At present, the filing fee for notice filed in Form I is Rs 15,00,000
  • In Form II is Rs 50, 00,000 (See Regulation 11 of the Combination Regulations).
  • No fee is payable for filing the notice in Form III.
Joint Ventures
  • The formation of a joint venture (JV) is not specifically covered by Section 5 of the Competition Act. Section 5 covers the acquisition of an “enterprise” and mergers and amalgamations of “enterprises”. The term “enterprise” is defined under the Competition Act.
  • It effectively refers to a “going concern” that is already conducting or has previously conducted business. A purely “Greenfield” JV (that is, a new project with no previous work) is unlikely to be considered as an enterprise, and will therefore not fall within the scope of Section 5.
  • However, setting up a “Brownfield” JV (where parents are contributing existing assets or businesses, or conferring control over these assets/businesses to the JV) where the jurisdictional thresholds are met, is notifiable as it relates to the acquisition of an enterprise under the Competition Act.
  • There is presently very little guidance from the CCI of India in relation to the treatment of JVs or the criteria it applies in determining if a transaction is Greenfield or Brownfield.
Foreign ownership
  • The exchange control regulations primarily govern foreign ownership of assets in India. These regulations list certain sectors:
  • Where prior approval of the government is required before an investment can be made by a non-resident (eg, investments in the defence sector);
  • With restrictions on the investment limits that a non-resident can make (eg, foreign direct investment in infrastructure companies is permitted only up to 26% without having to obtain the government’s prior approval);
  • Which have conditions that must be fulfilled before making foreign investment (eg, investment in a non-banking financial company is subject to certain minimal capitalisation norms); and
  • In which foreign investment is completely prohibited.

Foreign to Foreign Transactions  

  • As per the jurisprudence developed so far from CCI orders, as long as the prescribed thresholds mentioned above are met, and the “de minimis” exemption as well as the possible exclusions mentioned in Schedule I of the Combination Regulations are not applicable, the transaction needs to be notified to CCI for its approval before consummation irrespective of the fact that the transaction is taking place entirely outside India.
  • In this context, it is important to mention that the CCI, by an amendment to Schedule I of the Combination Regulations, has deleted one category which originally provided for exclusion of combinations taking place entirely outside India with insignificant local nexus and effect on markets in India.
  • It is also pertinent to mention that the CCI does not differentiate between combinations taking place in India or outside India in case of any violation of the provisions of the Act, particularly in the matter of adhering to the prescribed timelines.

Legal Professionals






















  

Rajasthan

Introduction
  • As per the report published by DIPP the FDI inflows in Rajasthan for the year 2016-17(April’16 – December’16 )( In US$ Millions) is 157 and the percentage of total inflows is 0.5.
  • Rajasthan is the largest state in India contributing around 30% of the total value of minor minerals being produced in the country.
  • 8,380 sq km of Rajasthan falls in the National Capital Region (NCR).
  • It provides access to wider market as the state shares its border with Punjab, Haryana, Uttar Pradesh, Madhya Pradesh and Gujarat.
  • Converting land for industrial use comes at a lower cost.
  • It has the second largest network of National Highways in the country with a total road length exceeding 7,310 km.
  • The state has well connected railway routes of approximate length 5,822.28 km to other major cities as well as ports such as Mumbai, Kandla and Mundra in Gujarat.
  • As per latest updates given by the Ministry of Micro, Small and Medium Enterprises, the Foreign Direct and NRI Investment will continue to be welcome in high technology areas and infrastructure. The special measures envisaged to facilitate Foreign Direct and NRI investments will include:-
    • 15 Transport policies, rules and procedures regulating investments.
    • Priority in allotment of residential houses in new schemes to NRIs by Rajasthan Housing Board, Jaipur Development Authority and Urban Improvement Trusts, in case they set up industrial projects in the State.
    • Priority for land allotment in industrial areas.
    • The Bureau of Industrial Promotion will appoint for every FDI/NRI project, a Nodal Officer to ensure speedy approvals and provide escort service.
Investment Promotion Agencies in Rajasthan

Rajasthan State Industrial Development and Investment Corporation (RIICO)

RIICO established for development of industrial areas in the state also acts as a financial institution providing assistance for large and medium scale industrial projects. RIICO has developed land banks and has so far established 321 Industrial Areas by acquiring about 59,000 acres of land.

Bureau of Investment Promotion (BIP)

The Bureau of Investment Promotion (BIP) is the nodal agency charged for investment promotion, development of investment policies and single window clearances. Services provided by BIP to investors and entrepreneurs include:

State Efforts to Facilitate Investments in Rajasthan

Special Economic Zone
Rajasthan special economic zone is a nontaxable territory in the state, which is exempted from all kinds of state taxes, duties, levies, and local taxes such as stamp duty, VAT on raw materials, electricity duty, entry tax, luxury and entertainment tax.
Rajasthan Special Economic Zone is being set up with an objective to initiate infrastructural development and a hassle-free environment best suited for export trade from the state with a primary focus in the fields of gems and jewelry, woolen carpets, handicrafts, and so on.
40% of the proposed Delhi-Mumbai freight corridor will pass through Rajasthan throwing up enormous possibilities for development of industrial belts such as special economic zones along the corridor.
Six SEZs with an expected investment of 165.15 billion have already been notified. These are:
Mahindra World City (Jaipur) Ltd., Jaipur
Somani Worsted Ltd., Khushkeda, Bhiwadi, Alwar
Genpact Infrastructure (Jaipur) Pvt. Ltd., Jaipur
Vatika Jaipur SEZ Developers Ltd., Jaipur
Mansarovar Industrial Development Corporation, Jodhpur
RNB Infrastructure Private Limited, Bikaner (270 crore)

National Manufacturing and Investment Zone
NIMZ will be set up in the Delhi Mumbai Industrial Corridor (DMIC) region to attract investments and provide quality infrastructure and support. It will be setup in Khushkhera-Bhiwadi-Neemrana (Rajasthan) 150 sq km and Jodhpur-Pali-Marwar Region in Rajasthan.

Miscellaneous
The Government of Rajasthan has 2 Special Jems & Jewellery Economic Zones in the Sitapur area of Jaipur.
Rajasthan Government has also launched a new IT scheme in 2015 and new IT parks at Jaipur, Kota, Jodhpur and Udaipur.
Rajasthan offers huge potential for agro-based industries. There are many Agro-food parks run by RIICO in districts like Kota, Sriganganagar, Alwar, etc. Concessions in these food parks are provided in areas like tax, electricity, stamp duty, etc.
RIICO is considering developing state-of-art Bio Tech Parks at Jaipur, Jodhpur and Bhiwadi (Alwar). The infrastructure in terms of developed plots, continuous power, high speed data connectivity facility, roads, common testing facility etc. are being developed in Bio Tech Parks.

Highlight of Industrial Policies in Rajasthan

Rajasthan Enterprise Single Window Enabling and Clearance Act, 2011

Rajasthan Enterprise Single Window Enabling and Clearance Act, 2011 enables single window clearance system which includes 86 forms of 11 departments including RIICO, Revenue, factories & boilers, tourism, commercial taxes, Medical & health, Agriculture, Technical education, Jaipur Development Authority (JDA), labor, energy (Jaipur, Vidhyut Vitran Nigam).

Allotment of land from RIICO 30 days
Allotment of land from Revenue Deptt. 30 to 60 days
Conversion of land from Revenue Deptt. 30 days
Allotment of Land from Urban Development & Housing (UDH) (JDA/Urban Improvement Trust (UIT)) 60 days
NOC to Establish Technical Institute – 30days (from the receipt date of AICTE application
Conversion of land from UDH(JDA/UIT) – 60 to 90 days
Electricity Connection 30 to 60 days
Fertilizer- Permissions / Authorization/ Manufacturing Certificate 30 to 45 days
Medical Drug License 15 days
Project Approval for Tourism Department 45 Days
Factories and Boilers Department (License of factory) 45 days
Factories and Boilers Department (approval of plant layout) 30 days
Commercial Taxes Department (registration under VAT/CST) 24 hours
Single Window System is mandatory for all projects involving investment above US$149856.70. It provides a single point of contact for all permissions for starting a business, it also provides for the provision of making an appeal in case of default by the authorities.
State Pollution Control Board (PCB) is a nodal authority for environmental clearances in the state and acts as an enforcing authority .The government has computerized the whole process which resulted in implementation of Computerized Application Management Systems for environment related clearance under single window system.
Land-use certificate approval from the local development authority.
Construction permits from the local urban development authority.
Approval for building plans-RIICO.

Other Policies in Rajasthan
  • Rajasthan Investment Promotion Scheme, 2014 for promoting investment and generating employment opportunities.
  • Rajasthan Land Revenue (Industrial Area Land Allotment) Rules, 1959 for allotment, acquisition and development of land for industrial use carried out by RIICO and whole process takes around 90 days.
  • Conversion of a land from agricultural land to industrial land can be done through single window clearance mechanism with the help of RIICO and the Bureau of Investment Promotion (BIP) underRajasthan Land Revenue (Conversion of agricultural land for non-agricultural purposes in rural areas) Rules, 2007.
  • State has amended three labour legislations the Industrial Disputes Act, 1947, Contract Labour Act, 1970 and the Factories Act, 1947 to allow companies employing up to 300 staffers to lay off workers or close down without taking the government’s prior approval. There is single window mechanism for registration under factories act.
  • Rajasthan Agro-Processing and Agri-Marketing Promotion Policy – 2015 is a step in the direction of utmost priority to and attention for development of agro-food parks by Govt. of Rajasthan. They have given concessions w.r.t. Land and building tax, Stamp duty, Electricity duty, Entry tax, Mandi tax etc. The following types of incentives are available:
    • Patent & Design registration: Up to a maximum of US$29971.34 per beneficiary per year.
    • Quality certification: Up to US$29971.34 to each enterprise for each certification per year.
    • Sending agri-products for test marketing abroad: 40% of the actual cost subject to a maximum of US$749.28 per beneficiary for one sample of one commodity to one country.

Punjab

Introduction
  • As per the report published by DIPP the FDI inflows in Punjab, Chandigarh, Haryana, Himachal Pradesh for the year 2016-17(April’16 – December’16) (In US$ Millions) is 6and the percentage of total inflows is 0.4.
  • Punjab, located in north-west of India has a total area of 50,362 kms, which comprises of 48,265 kms of rural area and 2097 kms of urban area.
  • Punjab borders the West Punjab to the west, Jammu and Kashmir to the north, Himachal Pradesh to the northeast, Haryana to the south and southeast, Chandigarh to the southeast and Rajasthan to the southwest.
  • The state has a total population of 27.74 million with a literacy rate of 76.7%.
  • The five rivers Sutlej, Beas, Ravi, Chenab and Jhelum divide the state into three regions, namely, Majha, Doaba and Malwa.
  • Agriculture is the largest industry in Punjab and other major industries include the manufacturing of scientific instruments, electrical goods, financial services, machine tools, textiles, sewing machines, sports goods, starch, tourism, fertilizers, bicycles, garments and the processing of pine oil and sugar
  • It contributes nearly two thirds to the total production of food grains and a third of milk production in the country. It is the leading producer of wheat at a total production of 2 million tons per annum.
  • Punjab has a rail network of 2,126 Kms and road connectivity of 64,037 Kms with a road density at 133 Km per 100 Sq. Km. which is among the highest in the country and five upcoming and operational airports at Mohali, Ludhiana, Amritsar, Bathinda and Pathankot.
  • The state has an installed capacity of 11,664 MW with a power surplus of around 2,000 MW.
Investment Promotion Agencies in Punjab

Industries, Commerce & Investment Department

The Department of Industries and Commerce plays a pivotal role in rendering assistance to the entrepreneurs. The process of assistance begins with the very first stage of project identification to financial assistance up to the commissioning of Industrial units. The existing industry is also helped in the process of continuous up gradation of technology and modernization.

The main functions of the department are as follows:

  • All matters relating to Promotion, development and regulation of electronics in the State, The Punjab State Electronics Development and Production Corporation Limited and companies owned, managed or promoted by it in the Joint Sector and Telecommunications.
  • All matters relating to establishment of the Directorate of Industries and annual Administration Reports of the Department of Industries.
  • Overviewing the functioning of various credit and loan scheme for industries.
  • Development of Industries in the backward areas.
  • Providing loan subsidies and grant-in-aids under various legislations.

Punjab Bureau of Investment and Promotion

  • Punjab Bureau of Investment Promotion (Bureau) has been set up by the Government of Punjab as the single point of contact for regulatory clearances and fiscal incentives approvals to facilitate investors who are looking to set up a business in Punjab. As the nodal agency, Bureau has been entrusted the responsibility to ensure a smooth transition of the project from the proposal stage up to the implementation stage.The member departments include:
    • Department of Excise and Taxation
    • Department of Factories
    • Department of Forests and Wild Life Preservation
    • Department of Housing and Urban Development
    • Department of Industry and Commerce
    • Department of Labour
    • Department of Local Government
    • Punjab Pollution Control Board
    • Department of Power
    • Department of Revenue, Rehabilitation and Disaster Management

Punjab State Industrial Development Corporation Ltd (PSIDC).

  • It was established in the year 1966 to promote planned industrial development in the organized sector and to speed up industrialization. Today, PSIDC is engaged in the promotion of large and medium scale projects.
  • PSIDC since inception has attained phenomenal growth and some of its objectives are extending of term loan assistance under IDBI Refinance Scheme to projects promoted by private sector and also promotion of industrial and infrastructure projects in the Assisted and Joint Sector.
State Efforts to Facilitate Investments in Punjab

Eco City, New Chandigarh, Mullanpur

Spread over an area of 412 acres, Eco City Phase-I, is the upcoming Ultra modern Township at Mullanpur, New Chandigarh. Quite synonymous to its name, it is surrounded by lush green areas. Total area under development of the scheme is 400 acres and the total project cost of development is Rs. 151 crores, out of which Rs. 50 crores have already been spent on the construction of roads and providing PH, Electrical & Horticulture services etc. Process of acquiring around 450 acres of land for Eco City, Phase-II is under process.

Medicity, New Chandigarh, Mullanpur

Located in the vicinity of ECO City, land measuring about 100 acres stands acquired for developing the Medicity. Out of total area, 50 acres has already been allotted for the construction of Tata Cancer Hospital. In phase-II of the scheme land measuring 160 acres would be acquired.

Education City, New Chandigarh, Mullanpur

Education City spread over an area of 1700 acres is located at Mullanpur. Land will be made available for setting up schools, colleges and universities offering world class state of the art facilities. The project so completed would offer education facilities in courses like Engineering, Management, Bio tech, Tourism, Hospital, Multimedia, pharmaceuticals etc.

Aerocity, Mohali

Land measuring 800 acres (approx.) on both sides of the approach roads of the upcoming International Airport for the development of state of the art aerotropolis comprising institutional/commercial and residential use. Around 5000 residential plots are planned in Aerocity. The total project cost of the development on the right side of the airport road is Rs. 141.30 crores while for the left side total amount earmarked for the development works is Rs. 123.71 crores

IT City / Knowledge Park, Mohali

Land measuring around 1700 acres was acquired for development of IT City/ Knowledge Park close to Sector 66, 82 and 101 on Kharar-Mullanpur road. The facility being developed on land worth Rs. 3000.00 crore would offer Industrial, Institutional, Commercial and Residential property.

Food Parks/Electronic Cluster

280 acres of industrial land available for Food Parks in Kapurthala, Pathankot, Goindwal Sahib. SAS Nagar (Mohali) has been declared a Brownfield Electronic Cluster (EMC) for benefits under the M-SIPS Scheme by GoI.

Highlight of Industrial Policies in Punjab

Large manufacturing Sector Units

  • Exemption from VAT and CST up to 80% of the Fixed Capital Investment as the maximum cumulative quantum of incentive.
  • The eligibility period of the exemption from 10 to 13 years.
  • Exemption from payment of Electricity Duty on Power up to 100%, including Captive Power consumed by the same unit or exported to PSPCL shall be available to new units.
  • Exemption from payment of Stamp duty on purchase/lease of land up to 100%.
  • Refund of Stamp duty shall be allowed for all real estate which has been purchased/leased up to 3 years prior to the date of submission of application form, by the same entity.
  • Up to 100% exemption from payment of Property Tax.

Integrated Textile Units

  • Exemption from VAT and CST up to 90% of the Fixed Capital Investment as the maximum cumulative quantum of incentive.
  • The eligibility period of the exemption from 11 to 13 years.
  • Exemption from payment of Electricity Duty on Power up to 100%, including Captive Power consumed by the same unit or exported to PSPCL shall be available to new units.
  • Exemption from payment of Stamp duty on purchase/lease of land up to 100%.
  • Refund of Stamp duty shall be allowed for all real estate which has been purchased/leased up to 3 years prior to the date of submission of application form, by the same entity.
  • Upto 100% exemption from payment of Property Tax.
  • 50% exemption from payment of Market Fee, Rural Development Fund and Infrastructure Development Cess on the purchase of cotton.

Electronics Hardware and IT industry

  • 80% exemption from VAT and CST of the Fixed Capital Investment as the maximum cumulative quantum of incentive.
  • The eligibility period of the exemption is 10 years.
  • Exemption from payment of Electricity Duty on Power, including Captive Power consumed by the same unit or exported to PSPCL shall be available to new units for a period of 10 years.
  • 100% exemption of stamp duty for IT/ITES/Knowledge Units/Developers on all components within the said Park on the sale/ lease / lease-cum-sale of land or built up office space within the constructed IT Park.
  • No stamp duty will be levied in respect of land allotted by Department of Information Technology/any other Development Authority of the State to the units.
  • Refund of Stamp duty shall be allowed for all real estate which has been purchased/leased up to 3 years prior to the date of submission of application form, by the same entity.
  • Exemption from payment of Property Tax for a period of 10 years.
  • The units notified by Department of Information Technology, Government of Punjab will not require any NOC/ Clearance from Punjab Pollution Control Board (PPCB) for release of electricity connection from Punjab State Power Corporation Limited (PSPCL).
  • Exemption from inspections under various Labour Laws.
  • Exemption from the Punjab Apartment and Property Act 1995.
  • Preferential Market access to Electronics hardware manufacturing units in the State for the products procured by all government departments in the State

Agro Industrial and Food Processing Sector

  • Exemption from VAT and CST of 80% to 90% of the Fixed Capital Investment as the maximum cumulative quantum of incentive.
  • The eligibility period of the exemption from 10 years.
  • Exemption from payment of Electricity Duty on Power up to 100%, including Captive Power consumed by the same unit or exported to PSPCL shall be available to new units for a period of 10 years.
  • Exemption from payment of Stamp duty on purchase/lease of land.
  • Refund of Stamp duty shall be allowed for all real estate which has been purchased/leased up to 3 years prior to the date of submission of application form, by the same entity.
  • Up to 100% exemption from payment of Property Tax for a period of 10 to 12 years.
  • Subsidy on Domestic distant marketing and export of flowers, fruits & vegetables and import of planting material.
  • Financial assistance of 50% of the cost of patent registration with ceiling of Rs. 5 lacs, 50% of consultation charges for preparation of Project Report.
  • Exemption from Mandi fee and Rural Development fee on purchase of fruits and vegetables from farmers.

Tourism Sector

  • Exemption from VAT and CST from 40% to 75% of the Fixed Capital Investment as the maximum cumulative quantum of incentive.
  • The eligibility period of the exemption is 10 years.
  • Exemption from payment of Electricity Duty on Power, including Captive Power consumed by the same unit or exported to PSPCL shall be available to new units up to 10 years.
  • Exemption from stamp duty from 50% to 100% up to 10 years.
  • Refund of Stamp duty shall be allowed for all real estate which has been purchased/leased up to 3 years prior to the date of submission of application form, by the same entity.
  • Exemption from payment of Property Tax for a period of 10 years.
  • Water supply at domestic rates and no conversion charges for Heritage Hotels.
  • 5% extra VAT incentive for Green Hotels.

Health Sector

  • Exemption from VAT and CST from 45% to 75% of the Fixed Capital Investment as the maximum cumulative quantum of incentive.
  • The eligibility period of the exemption is 10 years.
  • Exemption from payment of Electricity Duty on Power, including Captive Power consumed by the same unit or exported to PSPCL shall be available to new units up to 10 years.
  • Exemption from stamp duty from 50% to 100% up to 10 years.
  • Refund of Stamp duty shall be allowed for all real estate which has been purchased/leased up to 3 years prior to the date of submission of application form, by the same entity.
  • Exemption from payment of Property Tax for a period of 10 years.
  • No CLU charges for hospitals and Medical Colleges.

Punjab Industrial Facilitation Act, 2005

  • Common Application Form (CAF) for obtaining approvals from different departments.
  • Online submission of form to prevent hassles.
  • Deemed approvals, if timeline provided is not met with for granting approvals. ( Annexure 1)
  • Single window clearance system established with 10 departments as members.
  • Designed to cut red tape and provide single stop clearance for all 30 requirements in 10 departments.
  • Standardized mechanism for grievance redressal.
  • Departmental action against officials for unjustified delay in processing of the application.
Focus Sectors in Punjab

Punjab has grown at a rate of 15% per annum in the past decades and is one of the fast growing economies in the region. The focused sectors of the state are:

  • Agro and food processing
  • Skill Development
  • Information technology and ITeS
  • Life Sciences
  • Healthcare
  • Tourism
  • Renewable Energy
  • Manufacturing
  • Aerospace and Defence