INDIA Law and Practice Contributed by: Anupam Varma, Poonam Verma Sengupta, Sakshi Kapoor and Rajesh Jha, JSA
• Trading : Tata Power Trading Company Limited, JSW Power Trading Company, GMR Energy Trad- ing Limited. 1.3 Foreign Investment Review Process Governing Framework Foreign direct investment (FDI) by a person resi- dent outside India is primarily governed by the For- eign Exchange Management Act, 1999 (FEMA), the Reserve Bank of India’s rules and regulations, and the consolidated FDI Policy (together, the “FDI Regula- tions”). Under the FDI Regulations, a foreign investor’s equity investment in an Indian entity is permitted only through investment in equity shares, share warrants, or other instruments which are fully, compulsorily and mandatorily convertible into equity shares. FDI Thresholds and Route 100% FDI in Indian entities engaged in the genera- tion, transmission, distribution or trading of electric- ity (other than atomic energy) is permitted under the automatic route, meaning no prior approval of the Reserve Bank of India or the Government of India is required. FDI in the renewable energy sector is also permitted up to 100% under the automatic route. Nuclear power remains excluded from FDI under the automatic route; however, the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India Act, 2025 (“SHANTI Act”) enables private par- ticipation (including foreign entities) in nuclear facilities subject to certain carve-outs/restrictions mentioned under the Act. Protections for Foreign Investment Bilateral investment treaties (BITs) are the principal international law instruments protecting foreign inves- tors. India introduced a revised Model BIT in 2016 providing comprehensive protection against direct and indirect expropriation; where expropriation is unavoidable, the government must provide prompt and adequate compensation. A distinctive feature of the 2016 Model BIT is the requirement for investors to exhaust domestic legal remedies for a five-year peri- od before initiating international arbitration under the investor-state dispute settlement mechanism. Foreign investors also have access to Indian domestic courts,
and the Constitution protects against unreasonable state action. Incentives for Foreign Investment Several government policies incentivise foreign invest- ment: (i) a waiver of Inter-State Transmission System (ISTS) charges for solar and wind projects commis- sioned by June 2025 (extended for green hydrogen and offshore wind projects); (ii) Production Linked Incentive schemes for high-efficiency solar PV mod- ules and Advanced Chemistry Cell battery manufac- turing; (iii) the Viability Gap Funding scheme providing up to 40% capital cost support for BESSs; (iv) a five- year tax holiday for power generating projects, with a 30% deduction of taxable profits for the subsequent five years; and (v) Ultra Mega Renewable Energy Parks to provide land and transmission to developers. 1.4 Sale of Power Industry Assets Governing Legislation The sale, amalgamation and merger of power sector entities and assets are governed primarily by: • the Electricity Act, including its provisions on licences, open access, and the power of regulatory commissions to act on adverse effects on competi- tion (Section 60); • the Competition Act, 2002, which mandates com- petition review of all combinations meeting speci- fied thresholds; • the Companies Act, 2013, which governs schemes of arrangement, mergers, and demergers; and • FEMA, which governs the transfer of assets or shares to foreign persons. Electricity Sector-Specific Regulatory Approvals Section 60 of the Electricity Act empowers an appro- priate electricity regulatory commission to issue direc- tions where an acquisition or combination will cause an adverse effect on competition in the electricity market. Competition Law Transactions meeting the prescribed thresholds under the Competition Act, 2002 require prior notification to and approval from the Competition Commission of India (CCI). The CCI reviews whether the proposed
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