AP & Partners

 Authored By: Moksha Bhat (Partner) and Shreya Bhukhmaria (Associate) Introduction     As one of the world's fastest-growing major economies, India is increasingly becoming an important jurisdictional touchpoint for cross-border M&A deals. The focus of this note is on instances where there is an indirect acquisition of an Indian subsidiary on account of a transaction that takes place at a higher level within the corporate group. This note sets out key issues that teams should be mindful of while dealing with such transactions. Understanding these aspects can be critical for structuring, timing, and assessing deal economics.    Foreign Investment Approvals  Cross-border transactions that result in the direct or indirect change of control or ownership of an Indian company can trigger approval requirements under Indian foreign exchange control regulations. As context, Foreign Direct Investment (“FDI”) into India is governed by the (Indian) Foreign Exchange Management Act, 1999 and the rules and regulations framed under it (collectively, the “FEMA Regulations”), along with the Consolidated Policy on FDI and press notes and circulars (“FDI Policy”) issued by Department for Promotion of Industry and Internal Trade under the Ministry of Commerce & Industry.[1] The FDI Policy is implemented through amendments to the FEMA Regulations. Non-compliance with the FEMA Regulations carries significant consequences including penalties of up to three times the sum involved (where the sum is quantifiable) and confiscation of securities. While the FDI Policy has evolved over time, it continues to restrict investments in certain sectors by either (i) prohibiting FDI in certain limited sectors (e.g., atomic energy, tobacco products, lottery business); or (ii) permitting FDI in other sectors, either (a) subject to obtaining an investment approval from the government (approval route) (e.g., print media, defence, insurance, brownfield pharmaceuticals); or (b) without having to obtain such an approval (automatic route) either up to 100% or subject to a prescribed ceiling, depending on the sector. Where foreign investment is permitted under either of the routes, the investment could also be subject to certain sector specific conditions. Where no specific conditions have been provided for a sector under the FDI Policy, FDI is permitted up to 100% under the automatic route. Foreign Direct Investment from Countries Sharing Land Borders Prior government approval is needed for FDI from an entity is situated in, or the beneficial owner of any investment in India (direct or indirect) situated in, or is a citizen of, any country that shares land borders with India.[2] Indirect Acquisitions – approval route investments An indirect acquisition of an Indian subsidiary operating in an approval route sector will be subject to approvals under the FEMA Regulations, notwithstanding that the transaction occurs offshore, and no consideration flows into India.[3] Practice Notes The requirement for government approval under the FEMA Regulations is a critical path item. The acquirer should check if any approvals under FEMA Regulations will be triggered on account of the proposed transaction. The approval process can be protracted (typically 3 to 6 months, or longer) and can materially impact transaction timelines. Key diligence checks: whether an Indian subsidiary is engaged in a sector under the approval route; and whether the investment has been made in compliance with the FEMA Regulations. Merger Control Cross-border transactions can be subject to notification and approval under Indian merger control regulations, even if undertaken outside India. The legislative framework for merger control in India comprises of the (Indian) Competition Act, 2002 (“Competition Act”) and the regulations framed under it, the primary regulation being the Competition Commission of India (Combinations) Regulations, 2024 (“Combination Regulations”). The competition/anti-trust regulator in India is the Competition Commission of India (“CCI”). India operates a mandatory and suspensory merger control regime. Even in the case of an indirect acquisition such as a cross-border merger or acquisition involving entities outside India, if the target group has assets, turnover, or substantial business operations in India that cross the prescribed thresholds, the transaction becomes notifiable to the CCI. Failure to notify a reportable transaction can result in significant penalties and potentially unwinding of the transaction. At the enterprise level, a transaction is notifiable in India if the assets of the enterprise in India exceed INR 25 billion (~USD 302 million) or its turnover in India exceeds INR 75 billion (~USD 907 million). In cases involving a worldwide enterprise with operations or an India leg, the thresholds are crossed if the global assets exceed USD 1.25 billion, of which at least INR 12.5 billion (~USD 151 million) are located in India, or if the global turnover exceeds USD 3.75 billion, of which at least INR 3.75 billion (~ USD 453 million) is attributable to India. At the group level, a transaction is notifiable if the group’s assets in India exceed INR 100 billion (~USD 1.2 billion) or its turnover in India exceeds INR 300 billion (~USD 3.62 billion). For groups with global operations involving India, the thresholds are crossed if the worldwide assets exceed USD 5 billion, of which at least INR 12.5 billion (~USD 151 million) are located in India, or if the worldwide turnover exceeds USD 15 billion, of which at least INR 3.75 billion (~USD 453 million) is attributable to India. The Competition Act exempts acquisitions, mergers, and amalgamations from the requirement of seeking approval from the CCI where the value of the assets of the target entity in India is less than INR 4.5 billion (~USD 53.80 million) or the turnover is less than INR 12.5 billion (~USD 149 million) (“De Minimis Exemption”).[4] Recently, a Deal Value Threshold (“DVT”) has been introduced as an additional criterion for merger control in India. Any transaction with a value of INR 20 billion (~USD 230 million) including direct, indirect, immediate, and deferred consideration will require prior approval of the CCI provided that the target has substantial business operations in India.[5] The De Minimis Exemption is not available where a transaction has to be notified for exceeding the DVT. A target is considered to have substantial business operations in India if it crosses certain thresholds. In non-digital sectors, the target will be considered to have substantial business operations if (a) Gross Merchandise Value (“GMV”) > 10% of global GMV and exceeds INR 5 billion (~USD 60 million), (b) or turnover > 10% of global turnover and exceeds INR 5 billion (~USD 60 million). In digital sectors, the target will be considered to have substantial business operations in India if GMV > 10% of global GMV, turnover > 10% of global turnover, business users in India > 10% of global business users, or end users in India > 10% of global end users.[6] Practice Notes Need to notify the CCI and obtain Indian merger control approval should be screened for early in the deal cycle by undertaking a jurisdictional analysis. If a notification is required, the transaction documents should provide for CCI approval as a condition precedent to closing. The CCI has 150 days to approve a filing. Form I (short form) filings are typically approved in 7-10 weeks, unless the filing is made under the green channel route where approval is automatic (deemed). Review period for form II (long form) filings is generally longer. Open Offer An indirect acquisition of shares or control in a foreign entity that holds shares in an Indian listed company may trigger an open offer requirement in India. Takeovers or substantial acquisitions of listed Indian companies are regulated under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”). Any person or legal entity intending to directly or indirectly acquire a substantial stake in or control over a listed Indian company is obligated to inform the public shareholders (of the listed company) about its intention and offer them an opportunity to exit their holding in the listed company.[7] In such circumstances, the acquirer must make an open offer to acquire 26% of the total shares of the Indian listed company from its public shareholders, at a price determined in accordance with the Takeover Code.[8] The open offer process is highly regulated, timeline-intensive (typically 3 to 4 months). Under the Takeover Code, an agreement to acquire is treated on a par with the actual acquisition of shares, voting rights or control over the publicly traded company, and accordingly, the execution of an acquisition agreement (and not the actual acquisition itself) triggers the obligation to make a mandatory tender offer. Certain exemptions exist, such as inter se promoter transfers (where control remains within the same promoter/family group) and intra-group mergers.[9] Practice Notes As local listed Indian subsidiaries become more common, identifying open offer triggers early on the deal cycle will become critical as such offers can have a significant impact on deal structure and economics. Taxation Direct taxes are governed by the (Indian) Income-tax Act, 1961 (“IT Act”). Cross-border share transfers of foreign entities deriving substantial value from Indian assets can trigger Indian capital gains tax if Indian assets exceed INR 100 million (~USD 1.2 million) and represents ≥ 50% of value of all assets of the foreign entity.[10] In addition, certain transfers are exempt, including (i) small shareholders holding less than 5% of the shares or voting power of the foreign entity, and (ii) certain qualifying intra-group mergers.[11] Practice Notes Potential Indian tax implication should be reviewed by tax advisors. In certain transactions, in our experience acquirers also seek to include indemnities for Indian taxes.    Sector Specific Approvals Certain regulated sectors in India require prior regulatory approval for any direct or indirect change of control, including on account of cross-border M&A transactions. This applies to regulated sectors such as insurance, banking and financial services among others. Practice Notes  Check with local counsel if any such approvals are triggered. These sector-specific approvals are often long lead-time items and the process for obtaining such approvals must be run in parallel with other regulatory workstreams. Alternatively, obtain suitable representations and warranties that no such approvals are required Scope and Approach to Diligence Due diligence processes in India are broadly aligned with global practices. However, a key differentiator in India is the quality and availability of company information. Acquirers may find that the quality, completeness, and accessibility of corporate records and compliance documentation do not always align with international standards. As a result, a common challenge in the Indian context is the potential for information asymmetry. Practice Notes Typically, parties seek comprehensive representations and warranties, backed by corresponding indemnities. In terms of market practice, a pro-sandbagging approach is more common. That is, typically buyers will look to include language that pre-closing knowledge does not impact their ability to bring indemnity claims. Diligence issues can also impact W&I insurance and coverage. Post-Merger Integration   Corporate Governance Corporate governance in India is primarily governed by the (Indian) Companies Act, 2013 and the rules framed thereunder (“Companies Act”). Every private company in India must have at least two directors and two shareholders, with at least one director being a resident in India (i.e., having resided in India for at least 182 days in the preceding financial year).   In M&A transactions, it is common for the board of the Indian subsidiary to be reconstituted. Any change in directors must be filed with the Registrar of Companies (“RoC”)[12] within 30 days of appointment or cessation. Each incoming director must hold a valid Director Identification Number (“DIN”) and a Digital Signature Certificate (“DSC”), and foreign nationals are required to submit notarized and apostilled documents.[13] These formalities often delay the onboarding of foreign nationals as directors of Indian subsidiaries. Name and Registered Office Address Change Post-merger integration may also require changes in the company’s name and its registered office. A change in the name of the company entails approval of the board, reservation of the proposed name with the RoC, approval of shareholders by way of a special resolution, and filing of the requisite forms, following which a fresh certificate of incorporation is issued to make the change effective.[14] This can typically take 4-6 weeks. Where there is a change in the registered office, the procedure depends on the extent of the move: a shift within the same city or town is straightforward and requires only a board resolution and notification to the RoC. A shift within the same state but under a different RoC jurisdiction additionally requires approval of the shareholders by special resolution; and a shift from one state to another requires shareholder approval, confirmation of the Regional Director, and consequent filings with the RoC.[15] This can typically take 3 to 4 months. Significant Beneficial Ownership Reporting Under the Companies Act, any individual who, directly or indirectly holds at least 10% of shares, voting rights, or dividend entitlements, or who otherwise exercises significant influence or control, is required to declare such interest to the Indian subsidiary.[16] The Indian entity is required to make filings with the Ministry of Corporate Affairs with respect to such significant beneficial ownership (“SBO”). Where the holding company of the Indian subsidiary is a body corporate, the individual holding more than 50% of its share capital or voting rights of the holding company (or the ultimate holding company) is considered to be the SBO; if the holding company is a pooled investment fund, the general partner or investment manager may be regarded as the SBO.[17] As an indirect acquisition may trigger a change in the SBO of the India subsidiary, necessary filings with respect to such change in SBO will have to be made. Practice Notes As a part of the SBO filing, certain personal details of the SBO are required to be disclosed. This data is often also available for public inspection.    HR Integration Further, addition to statutory filings, post-merger integration typically also requires alignment of internal corporate policies. This typically includes adoption of a revised HR handbook and harmonization of employment terms. Early planning of these HR and policy matters is critical to ensure smooth integration and workforce stability. Practice Notes Best practice is to initiate integration planning at the outset of the transaction, as these steps involve significant lead time.            [1] The most significant regulation framed under the Foreign Exchange Management Act, 1999 are the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”). [2] Rule 6, NDI Rules. [3] Rule 23 (1), NDI Rules. [4] Section 5(e), Competition Act; Regulation 3, Competition (Minimum Value of Assets or Turnover) Rules, 2024. [5] Section 5(d), Competition Act; Regulation 4, Combinations Regulations. [6] Ibid. [7] Regulation 3(1), Takeover Code. [8] Regulation 7, Takeover Code. [9] Regulation 10, Takeover Code. [10] Section 9, IT Act. [11] Ibid. [12] Under the Companies Act, the RoC is a government authority under the Ministry of Corporate Affairs (MCA) responsible for registering companies and for discharging various administrative and recordkeeping functions under the Companies Act. [13] Section 152 and Section 153, Companies Act; Rule 8(4), Companies (Registration Offices and Fees) Rules, 2014. [14] Section 13, Companies Act. [15] Section 12 and Section 13, Companies Act. [16] Section 90, Companies Act. [17] Rule 2(h), Companies (Significant Beneficial Owners) Rules, 2018.

Authored by – Moksha Bhat, Managing Partner at AP & Partners, And co-authored by – Udit Kapoor, Associate, AP & Partner Introduction Over the past decade, India has become a major start-up hub and now has the third largest number of unicorns—companies valued over USD 1 billion. This growth has been spurred in large measure by foreign capital, particularly venture capital and private equity investors. To access this capital, many Indian start-ups adopted a “flip” structure—incorporating offshore holding companies (commonly in jurisdictions like the US or Singapore) to facilitate fundraising, align with investor preferences, and enable listings on global exchanges such as NASDAQ.  These structures typically involve a non-operating foreign holding company owning a wholly owned Indian subsidiary that houses the operational business. However, this trend is now reversing. Many Indian-origin start-ups are now “reverse flipping” back to India—restructuring so that investors and founders hold shares directly in the Indian company. The primary drivers include stronger domestic capital markets, deepening pools of domestic risk capital, and an increasing number of successful Indian IPOs. Reverse flips – considerations The optimal structure for a reverse flip depends on multiple factors, including tax efficiency, deal timeline, regulatory complexity, and the jurisdictions involved. Common approaches include: Inbound Mergers: a foreign holding company merges with an Indian company, with the Indian entity surviving. Share Swaps/Exchanges: Shareholders of the offshore company directly acquire shares in the Indian company in exchange for their existing holdings. While inbound mergers can be structured to be tax-neutral under Indian law, they can be time-consuming (taking up to a year), unless the fast track route is available. Share swaps may be faster but could trigger capital gains tax depending on treaty relief availability and valuation differentials. Mergers In India, an inbound merger of a foreign company with an Indian company is governed by the provisions of: The (Indian) Companies Act, 2013 (“Companies Act”) and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016; and The (Indian) Foreign Exchange Management Act, 1999 (“FEMA”) and the rules framed under it, mainly the Foreign Exchange Management (Cross-Border Merger) Regulations, 2018 (“FEMA Merger Regulations”). In brief, the process in India to implement a merger can either require the approval of (a) National Company Law Tribunal (“NCLT Route”), a specialised tribunal set up under the Companies Act for issues relating to Indian companies, or (b) the Central Government of India through Regional Directors (“Fast Track Route”). NCLT Route The merger through NCLT Route is usually a more drawn-out process, involving the following steps: The parties to the merger approach NCLT with a “scheme of arrangement” which sets out the manner in which the reorganisation would be implemented. NCLT calls meetings of shareholders and creditors to approve the scheme with the prescribed voting thresholds. These meetings can be waived if written consents are obtained from the prescribed number of shareholders and creditors. The scheme is then notified to various government authorities and to the public through a public notice process. NCLT approves the final merger order after resolving objections (if any), and the order is filed with the Registrar of Companies. A foreign company may merge with an Indian company after both obtain approval from the Reserve Bank of India (“RBI”). Some mergers may qualify under the deemed approval framework (discussed below). Fast Track Route For certain eligible companies, the Fast Track Route is also available where the merger scheme is considered and approved by the Central Government without the need to approach the NCLT. This Fast Track Route has relatively lower compliance requirements and can be undertaken in a shorter time frame. The Fast Track Route can be used for the inbound merger of a foreign company with an Indian company provided that the Indian company is a wholly owned subsidiary of the foreign company. Navigating Indian capital controls Indian exchange control regulations add an additional layer of complexity to be navigated for such reverse flip transactions. As background, the FEMA sets out the framework for foreign investment into India. This includes matters such as pricing guidelines that apply to such transactions, sectoral caps, investment conditions, and reporting requirements. Cross-border mergers transactions are viewed as capital account transactions under the FEMA. Such transactions require prior approval of the RBI unless specifically permitted under the FEMA or the regulations framed under it. Under the FEMA Merger Regulations, cross-border transactions are categorised as either falling under the automatic route, that is, transactions that can be undertaken without the approval of the RBI, or under the approval route, that is, transactions that require prior approval of the RBI. Inbound mergers of foreign companies with Indian companies are deemed to be approved by the RBI subject to certain specified conditions including: Issue or transfer of securities by the resultant Indian company to non-residents must comply with FEMA provisions, including sectoral caps, pricing guidelines, entry routes, and reporting requirements. Off-shore borrowings and guarantees taken over by the Indian company must be brought in with FEMA regulations within two years; no repayment remittance is allowed during this period. The Indian company may acquire, hold, and transfer overseas assets per FEMA. If not permitted, such assets must be sold within two years of NCLT sanction. A foreign currency bank account can be opened for incidental transactions related to the merger, valid for two years post-NCLT approval. All FEMA-related non-compliances or violations prior to the merger must be resolved. Valuation of the foreign company must be done by recognised valuers in the relevant jurisdiction, following internationally accepted principles. If a merger does not comply with the above conditions, an RBI approval would be required for such a merger. Other considerations There are other issues that need to be evaluated when considering a reverse flip transaction, including: Presence of investor from certain jurisdictions: If an investor or beneficial owner is based in a country that shares a land border with India such as China, RBI approval is required. This must be reviewed before finalising a reverse flip. Issues under listing regulations: If the reverse flip is aimed at an IPO in India, listing regulations like minimum shareholding periods, valuations, and disclosure requirements must be checked in advance. Sectoral approvals: Businesses in regulated sectors like financial services may need additional regulatory approvals or need to inform authorities due to a change in ownership or control after the merger. Conclusion The recent surge in reverse flips underscores greater availability of risk capital and the growing maturity of Indian capital markets. In response, Indian regulators have taken steps to streamline inbound merger processes. However, this remains a relatively new and evolving area. The government should look to encourage this trend and evolve a single window clearance framework to make it easier to re-domicile companies to India. At the same time, founders and investors should carefully evaluate legal, tax, regulatory, and commercial considerations before proceeding with any reverse flip transaction.

Authored by Lagna Panda, partner AP & Partners AI-related technologies and products are evolving more rapidly than one can imagine. The hype around generative AI (GenAI)¾which was quite short-lived¾is now giving way to agentic AI. The developments in the AI industry have attracted interest and intrigue of antitrust regulators. A few antitrust regulators have initiated (and, in some cases, completed) market studies to identify potential competition concerns in AI markets. This article analyses some of these concerns including algorithmic collusion, access to compute, and AI partnerships. One of the initial concerns regarding AI that cropped up was ‘algorithmic collusion’: in markets where prices change frequently (perhaps, even multiple times in a day), competitors can use the same software to engage in price-fixing conduct. This hypothesis might be an oversimplification of the agentic nature of AI and how external-facing pricing mechanisms work. That said, without an ‘agreement’ or ‘understanding’ to not compete, competitors have strong commercial incentive to lower prices to complete a sale instead of maintaining price parity. For instance, an online retailer may employ an AI-based tool to track the prices of its competitors on a real-time basis and offer the same prices. However, it will have the commercial incentive to offer lower prices to achieve higher sales. There are also concerns around entry barriers in relation to inputs such as data and compute, for building large language models (LLMs) and foundational models (FMs). Before delving into the specifics of key inputs, it is important to acknowledge that we are still at the very cusp of the AI revolution. Capital allocation (internal and external) towards AI has been significant. Not only are the Big Tech players seriously investing in the AI space, but start-ups working in different areas of the AI stack have fairly easy access to capital. Data: Datasets used to train LLMs and FMs can be public data without copyright protection, public data with copyright protection, non-public copyrighted content, government data, synthetic data, proprietary datasets, and specialized datasets. As the use of publicly available data without copyright protection becomes saturated, demand for other categories of datasets such as synthetic data and public data with copyright protection will increase. We are already beginning to see this. Amazon has entered into a copyright licensing agreement with the New York Times. OpenAI has struck a similar deal with Condé Nast. Licensing deals are seeing an uptick as there is legal ambiguity around use of copyrighted materials to train AI models. Aside from copyright infringement claims in various jurisdictions, we are also seeing launch of tools like Cloudflare’s ‘pay-per-crawl’ tool, to prevent free scraping of copyrighted content. At this stage, where the use of different categories of data to train AI models is being contested or restricted, and use cases are still being explored, it will be premature to conclude that access to data obtained through specifics apps or services like a social media app or a messaging service can act as an entry barrier. Compute: The demand for chips, particularly GPUs, has increased dramatically given GPUs’ suitability for training and fine-tuning generative AI (GenAI) models. While Nvidia has been a major GPU supplier, Big Tech firms have begun investing heavily in developing their own chips because of the pace of AI advancement. Meta is developing its own AI training chips – Meta Training and Inference Accelerator (MTIA). Google has deployed tensor processing units (TPUs) which are being used to run Google’s AI services. Amazon Web Services is using custom Trainium, Graviton and Inferentia chips for AI workloads. Microsoft has deployed Maia chips and is developing Braga chips to meet its AI infrastructure needs. Then there are new-age semiconductor startups in the USA that are developing AI chip architecture like Groq and Cerebras Systems. Other countries are also witnessing immense innovation in this space: Huawei Technologies (China) has launched its series of Ascend AI chips, Rebellions (South Korea) is developing AI chips that use high bandwidth memory, and FuriosaAI (South Korea) is working on designing ‘RNGD’ AI chips. Given the extent of innovation in the AI infrastructure stack and the evolving nature of AI use cases, competition concerns in any market relating to AI compute inputs, seems unlikely. In new, evolving markets, firms may enter into agreements to supply or purchase components and services to generate efficiencies. While we are seeing quite a few partnerships in the AI space (e.g., Perplexity offering access to Perplexity Pro for free for one year to Airtel users), given the high dynamism prevalent, it appears unlikely that any partnership has the ability to impact competitiveness of any AI market in India. Having said that, it will be interesting to see how the Competition Commission of India views AI-related partnerships from a merger control standpoint given that the threshold for ‘control’ is set at ‘material influence’. AI continues to rapidly evolve and its impact across industries and sectors is expected to be nothing short of ground-breaking. While conducting market studies can be a very productive exercise to gauge and understand how market dynamics are shaping up, any regulatory intervention at an early stage can lead to unintended consequences and do more harm than good. For the time being, regulators may take a wait-and-watch approach and let the chips fall where they may.