INDIA Law and Practice Contributed by: Kunal Chandra, Kabeer Mathur, Chinmay Bilgi, Sharnam Vaswani and Rajdeep Mukherjee, Trilegal
2.6 National Security Review India does not have a standalone national security screening statute; instead, national security checks are woven into the FDI framework. The mandatory government approval route for investments from an entity or citizen of a land-bordering nation or an entity in which beneficial ownership is held by a citizen of a land-bordering nation operates as a de facto security screening mechanism (refer to ‘Investments Originat - ing From Bordering Jurisdictions’ in 2.3 Restrictions on Foreign Investments ). Additionally, applications for government approval for foreign investments in sensi - tive sectors, such as space, defence and broadcast - ing, are automatically routed for clearance by the Min - istry of Home Affairs and may be subject to enhanced scrutiny by the relevant administrative ministry. 3. Recent Legal Developments 3.1 Significant Court Decisions or Legal Developments Judicial Scrutiny of Offshore Investment Structures In January 2026, the Supreme Court of India in The Authority for Advance Rulings v Tiger Global Interna - tional II Holdings denied the availability of treaty bene- fits under the India–Mauritius tax treaty on the basis of India’s anti-avoidance framework, and also observed that the Mauritian investment entities involved in the transaction lacked sufficient commercial substance. The dispute concerned taxation of gains from an off - shore transfer where the underlying value was sub - stantially derived from India. The court clarified that the possession of a tax residency certificate does not guarantee treaty protection where the structure lacks genuine commercial substance. Liberalisation of Foreign Investment in Strategic Sectors In 2025, India liberalised foreign investment in certain strategic sectors. In the insurance sector, legislative reforms have increased the permissible foreign invest - ment limit to 100%, subject to regulatory oversight by IRDAI. Similarly, in 2024, the Government liberalised the space sector by permitting up to 100% foreign investment, with differentiated entry routes: (i) up to 74% via the automatic route for satellite manufac - turing and operations, satellite data products and
where the transaction meets the DVT under the Com - petition Act, 2002, in which case notification to the CCI is required irrespective of the target entity’s asset or turnover levels. 2.5 Labour Law Regulations Labour Code Reforms India consolidated 29 central (ie, federal) labour stat - utes into four codes effective from November 2025, which are intended to simplify compliance through uniform definitions, digital filing systems and stream - lined regulatory procedures. Implementation remains subject to phased notification of rules by central and state governments. Once operationalised, the new framework is expected to influence employment dili - gence and workforce structuring in M&A transactions, particularly through changes to wage definitions, pro - hibition of contract labour in core activities and social security coverage. Transaction Structure and Employee Treatment Employee treatment in M&A transactions differs depending on the transaction structure: • Share acquisitions: The focus is on historical non- compliances, including unpaid statutory dues, mis - classification of employees, and legacy disputes, which continue with the target. • Asset transfers or business transfers: Employees do not automatically transfer to the acquirer, and a consent-based approach is generally taken to the transfer of employees. For employees categorised as “workers”, if employment is not continued on terms no less favourable and without interruption of service, the transferor may be required to pay retrenchment compensation. For non-workers, the transfer is contractual, with the provision of ben - efits associated with continuity of service being commercially agreed between parties. Certain labour laws recognise a “successor-in-inter - est” principle, under which the transferee may be jointly liable for past non-compliances, particularly in relation to provident fund, gratuity and other statutory dues. Additionally, accrued employee benefits, such as gratuity, may need to be transferred, funded, or otherwise addressed contractually between the par - ties.
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