INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
issued by a non-resident entity, the guarantor must fulfil the qualification of a recognised lend- er under the ECB Guidelines. Under the OI Guidelines, an Indian company that holds shares in an Offshore SPV (Indian party) can provide a guarantee or procure a guarantee from: • a group company of the Indian company in India, being a holding company (which holds at least 51% in the Indian company), a sub- sidiary company (in which the Indian com- pany holds at least 51%) or a promoter group company, which is a body corporate; • a personal guarantee by the resident individu- al promoter of such Indian company; or • a bank guarantee, which is backed by a counter-guarantee or collateral by the Indian company or its group company as above, and is issued by a bank in India. The foregoing are subject to certain qualitative and quantitative requirements specified in the OI Guidelines, including the following: • the guarantee should not be open-ended – the amount and the validity period of the guarantee should be specified upfront; • all the financial commitments undertaken by an Indian entity – including all forms of loans, guarantees, investments and creation of charge – must be within the overall ceiling prescribed for the Indian party under the OI Guidelines (currently, 400% of the “net worth” of the Indian party as defined under the Indian Companies Act, and which should also not exceed USD1 billion (or its equivalent) during a financial year); • where the guarantee is extended by a group company, it is required to be counted towards the utilisation of the financial commitment
limit of such group company independently, and in the case of a resident individual pro- moter, the same is required to be counted towards the financial commitment limit of the Indian entity; and • further, the conditions discussed in 5.1 Types of Security Commonly Used under Outbound Acquisition Finance in relation to provision of financial assistance by an Indian party will also apply. Any guarantee given by a listed company for the benefit of its wholly owned subsidiary should be in accordance with applicable laws for related party transactions. The requirements stipu- lated under the LODR Regulations will also be applicable to a listed entity that has listed its non-convertible debt securities and has an out- standing value of listed non-convertible debt securities of INR5 billion. In accordance with the LODR Regulations, the issuance of a guar- antee by the listed entity for its subsidiary will require the prior approval of the audit committee of the listed entity and the prior approval of the shareholders of the listed entity. However, such approvals will not be applicable in the case of a transaction involving a wholly owned subsidiary whose accounts are consolidated with the listed entity and placed before the shareholders at the general meeting of the listed entity for approval. See also 5.6 Other Restrictions in relation to the restrictions under the Companies Act for issu-
ance of guarantees. 6.2 Restrictions
See 5.6 Other Restrictions in relation to the restrictions under the Companies Act for issu- ance of guarantees.
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