POST-CLOSING OBLIGATIONS FOR M&A IN INDIA

POST-CLOSING OBLIGATIONS FOR M&A IN INDIA

Share Sale closing formalities

 Q1) What are post-closing obligations?

Generally, no further formalities are required to be carried out after closing, but sometimes depending upon agreement further actions may be necessary post-closing.

CLOSING MECHANISM FOR M&A IN INDIA

CLOSING MECHANISM FOR M&A IN INDIA

Closing mechanism (subject to fulfil of outstanding formality)?

Q1) What is the closing mechanism in case of acquisition?

Everything depends on the intentions of the parties. Generally, in a transaction closing is subject to fulfilment of certain formalities or events which may be set as conditions precedent as required by the buyer or the seller. The parties to the transaction can organize the closing in the manner as convenient to them. Equally, there may be certain conditions agreed upon as conditions subsequent to the closing.

Signing/Closing Meetings Documents – Private Company Share Sales

Q2) What are the closing documents in case of acquisition in case of acquisition by way of purchase of shares?

It depends upon the transaction. Generally, the transaction documents include Share Purchase Agreement, disclosures by the seller, resignation from the outgoing key management personnel, closing board minutes, shareholders’ meeting minutes, if required, approving the transfer of shares and other closing activities and other transnational documents such as escrow agreement, asset transfer agreement, if assets are proposed to be transferred.

Acquisitions – Jurisdiction Restrictions (signing/closing) & Advantages

Q3) Whether signing of share purchase or share sale agreement and/or closing of transaction take place outside India?

Signing/closing of the acquisition can take in place in foreign jurisdiction. However, there is no potential benefit in doing so because, once the executed documents are brought to India, they have to be stamped (as proof of payment of stamp duty) as per the requirements of Indian laws.

Gap Requirement between Signing and Closing

 Q4) How much gap should be between signing and closing of transaction?  

No mandatory gap between signing and closing is required to be followed. It depends upon the modalities of each transaction.

EXECUTION AND NOTARIZATION FOR M&A IN INDIA

EXECUTION AND NOTARIZATION FOR M&A IN INDIA

Different Execution Formalities for Document Types  

Q1) What are the formalities for execution of different types of documents?

Generally, the transaction documents, which are in the nature of agreements/contracts, are executed on appropriate value of stamp paper and also witnessed by 2 witnesses for each signing party. In case of specific nature of documents such as share transfer deed, the same is required to be appropriately stamped through special adhesive stamps. Further, certain documents like power of attorney are required to be duly notarised as a general practice.

Proof of Identity and Authority to Sign

Q2) What documents are the parties generally required to produce for signing transactional documents?

It is a standard practice for the parties to (i) provide a certified board resolution approving the transaction and authorising a person, normally a director, to execute the transaction documents where the party is a company, (ii) provide a duly executed and notarised special power of attorney authorising to execute the transaction documents where the party is an individual and

Is not present at the closing. Depending upon the circumstances, the proof of identity may also be requested.

Document Execution Formalities for Incorporated Companies

Q3) What are the formalities for execution of documents by a company?  

Company is required to pass a board resolution authorising a person, normally a director, to execute the documents on company’s behalf. In some specific transactions, e.g. sale of undertaking, the company in addition to board’s approval may also be required to obtain shareholders’ approval as per requirements of the Indian Companies Act.

Formalities for Execution of Documents – Individuals

Q4) What are the formalities for execution of documents by an individual?

An individual may enter into a contract either orally or in writing except where the transaction or the Indian law requires the execution of document/contract in writing. The person may either execute the document himself or authorise some other person through a power of attorney to execute the documents/contracts on his behalf. Execution is generally witnessed by minimum 2 witnesses as a practice.

Formalities for Execution of Documents – Foreign Companies

Q5) what are the formalities for execution of documents by a foreign company?

Generally, the board resolution of the foreign company is required to execute documents on its behalf. In case certain documents are required to be filed with registrar of companies in India, the board resolution of foreign company whose registered office is located in a country, which is a member to Hague Convention, is required to be apostilled in the home country. However, if the registered office of the foreign company is located in a country which is not a member to Hague Convention then board resolution of such company is required to be consular zed by the Indian embassy in that country.

Notaries – Share and Asset Purchases Role / Types of Documents / Director Appointments

Q6) What are the documents required to be notarized in case of acquisition by way of share purchase or asset purchase?  

Only power of attorney, if any, is required to be notarised.

Notary Power & Deal Terms

Q7) What is the role of a Notary?

A notary cannot change the terms of the transaction as the only role the notary performs is to validate the execution of contracts/documents which are signed in his presence.

Notaries Fee – Level / Negotiable?

Q8) What is the fee of a Notary?

The fee of a notary is very nominal but depend on the nature of document being notarised. However, instrument-wise threshold of fee is prescribed under the Indian law.

Notary Impact on Transaction Timetable

Q9) Is there any impact of notarization on general timelines of a transaction?

Generally no impact.

Appointment to execute documents at signing/closing meeting & requirements

Q10) Whether a company or an individual appoint any third party to execute documents on their behalf?

Yes, both the company and the individual can appoint a third party to execute documents on their behalf at the time of signing/closing. The company will be required to pass a board resolution authorizing a person to sign on its behalf. However, an individual is required to execute a duly notarised power of attorney in favour of a person authorised to sign on his behalf.

Execute Documents in Counterpart?  

Q11) Can a document be executed in counterparts?  

Yes.

RESTRICTIONS, REGULATIONS AND INCENTIVES OF  INVESTING IN INDIA

RESTRICTIONS, REGULATIONS AND INCENTIVES OF INVESTING IN INDIA

Foreign Investment Restrictions (eg The Committee on Foreign Investment in the United States or similar)

Q1) What are the restrictions on foreign direct investment?

Foreign Direct Investment (FDI) in India is permitted up to 100% in most sectors under automatic route without requiring prior approval of the government. However, in some sectors prior approval of the government is required for making investment up to a certain limit or beyond a prescribed threshold. For example, in Defense Sector and Telecom Sector –FDI up to 100% is allowed, however, FDI beyond 49% requires prior approval of the Government of India. In Private Security Agencies, Healthcare (Brownfield), Pharmaceuticals (Brownfield) and Biotechnology (brownfield), FDI up to 100% is allowed, however, FDI above 74% requires prior approval of the Government of India. Besides, there are nine (9) sectors wherein FDI is prohibited. Such sectors inter-alia include Lottery Business, Gambling and betting, Chit funds, and Nidhi Company, Real Estate Business, and Atomic energy/Railway operations.

Exchange Control or Currency Regulations

Q2) What are the legislations which govern foreign direct investment?

Foreign exchange in India is regulated by Foreign Exchange Management Act, 1999 and the regulations made there under and also the guidelines issued by the Reserve Bank of India from time to time. Besides, India also has money laundering laws.

Grants or Incentives  

Q3) What benefits or incentives are available to a foreign investor?

Wide range of incentive schemes are made available to investors (both domestic and foreign) to provide fiscal and non-fiscal benefits. However, no grants or incentives have been introduced specifically for foreign investors. Generally, these incentives are provided for locating units in certain designated areas or establishing units in certain sectors, e.g., power, infrastructure. Benefits are available, both from Federal and State Governments, in the form of concessional taxes, both direct and indirect taxes, reduced cost of setting up of units in specified areas, etc.

ANTI-TRUST LAWS FOR M&A IN INDIA

ANTI-TRUST LAWS FOR M&A IN INDIA

Antitrust Jurisdiction triggering events/thresholds  

Q1) What are the trigger events under anti-trust laws?  

The threshold tests are:

  1. Where the parties have domestic presence:
    1. a) At least INR 80 billion (USD 1.14 billion approx.) in terms of assets or INR 240 billion (USD 3.43 billion approx.) In terms of turnover on a group-wise basis, or
    2. b) At least INR 20 billion (USD 286 million approx.) in terms of assets or INR 60 billion (USD 857 million approx.) in terms of turnover on an entity-wise basis
  1. Where the parties have cross-border presence:

a) Globally, at least USD 4 billion with at least more than INR 10 billion (USD 143 million approx.) in India in terms of assets or USD 12 billion with at least more than INR 30 billion (USD 429 million approx.) in India in terms of turnover on a group-wise basis, or b) At least USD 1 billion with at least more than INR 10 billion (USD 143 million approx.) in India in terms of assets or USD 3 billion with at least more than INR 30 billion (USD 429 million approx.) in India in terms of turnover on an entity-wise basis.

Exemptions:-

(a) The Government has exempted an enterprise, whose control, shares, voting rights or assets is being acquired, has assets of the value of not more than INR 3.5 billion or turnover of not more than INR 10 billion (USD 143 million approx.) in India from the provisions of section 5 of the said Act for a period of five years upto 28th March, 2022. (b) The Government has exempted the ‘group’ exercising less than fifty per cent of voting rights in other enterprise from the provisions of section 5 of the said act for a period of five years.