INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
• it has an account appearing as a non–per- forming asset; • it is classified as a wilful defaulter by any bank; or • it is under investigation by a financial service regulator or investigative agencies in India, namely the Central Bureau of Investigation or Directorate of Enforcement or Serious Frauds Investigation Office. In order to further streamline matters, a deemed no objection is also provided for, where a no- objection certificate is not issued by the lender bank/regulatory body/investigative agency with- in a period of 60 days. The following security can be created in the case of an outbound acquisition finance, subject to the Indian entity complying with the conditions and other qualitative and quantitative restrictions set out under the OI Guidelines after obtaining the approval of the authorised dealer bank (ie, banks in India that have been given special licences to deal with foreign exchange): • a pledge on the shares of an overseas target or the Offshore SPV or the shares of its step- down subsidiary outside India, to secure loans availed from an authorised dealer bank in India or a public financial institution in India; • a pledge on the shares of the Offshore SPV held by the Indian acquirer to secure a facil- ity availed by it from overseas lenders, who should not be from a country/jurisdiction in which a financial commitment is not permit- ted under the OI Guidelines; • a charge on the assets of the Indian share- holder of the Offshore SPV, its group compa- ny or associate company in India, promoters and/or directors, to secure a facility availed by it from overseas lenders, who should not be
from a country/jurisdiction in which a financial commitment is not permitted under the OI Guidelines; and • a security on the assets of the Offshore SPV or the overseas target to secure loans availed from an authorised dealer bank in India. The value of the facility is assessed as a financial commitment for the Indian party, and the total financial commitment of the Indian party should be within the limits set out in the OI Guidelines. Currently, this limit is 400% of the net worth of the Indian acquirer, subject to a maximum of USD1 billion in one financial year. In the case of ECBs, the RBI has permitted authorised dealers to grant permission in relation to the creation of security over movable prop- erty, immovable property and financial securities in favour of or for the benefit of an ECB lender. The acquisition finance availed by an Indian acquirer from Indian banks or financial institu- tions for an outbound acquisition can be secured by security on the Indian assets of the acquirer or the Indian group companies of the acquirer. Inbound Acquisition Finance: FOCC As the acquisition finance availed by a FOCC by way of NCDs is domestic debt, this debt can be secured by Indian assets of the FOCC. Security on Indian assets of the target will be subject to financial assistance rules. However, prior approval of the RBI is required to create a pledge on the shares from the FOCC held by the non-resident shareholder to secure the NCDs. Subject to applicable foreign laws, pledge on shares of the Offshore SPV of the FOCC or its step-down subsidiary, and assets of Offshore SPV and its step-down subsidiaries, can also
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