With the onset of the third wave of the pandemic, the preceding quarter saw only a few notable regulatory developments including permission granted to FPIs to invest in debt securities of InVITs and REITs, introduction of special situation funds by SEBI and Legal Entity Identifier becoming mandatory for resident entities.

Arnav DayalPartner

Sanjna VijhAssociate

During the last quarter of 2021, regulatory developments in the corporate sector were relatively muted. M&A activity remained buoyant, with the technology sector continuing to dominate deal volumes in a year which also saw several technology companies going public. An additional 40 firms also achieved unicorn status in the year 2021. Renewable energy was another sector in focus, with heightened interest in light of a global push towards investments in clean energy.

Key Developments

  • FPI investments in debt securities issued by InVITs and REITs

    On 13 October 2021, the Reserve Bank of India (RBI) permitted foreign portfolio investors (FPIs) to invest in debt securities issued by infrastructure investment trusts (InVITs) and real estate investment trusts (REITs). Previously, such investments by FPIs were limited to debt instruments issued by bodies corporate. This follows an announcement of the Ministry of Finance, Government of India, in February 2021 enabling such debt financing of InVITs and REITs by FPIs. Over the course of the previous year, several amendments have been carried out to other relevant legislation under securities laws to facilitate issuance of debt securities by pooled investment vehicles such as InVITs and REITs.

    The RBI notification also provides that acquisition of such debt securities by FPIs will be subject to the limits and terms and conditions under the respective regulations of Medium-Term Framework[1] or the Voluntary Retention Route[2], as applicable.

  • Legal Entity Identifier for cross-border transactions

    On 10 December 2021, the RBI announced that it will be mandatory for resident entities to obtain and quote a Legal Entity Identifier (LEI) number while making certain cross-border transactions. This requirement takes effect from 1 October 2022 and will be applicable to any capital or current account transaction for an amount of INR 500 million or above. Once an entity has obtained the LEI number, it must quote the LEI number while undertaking any future cross-border transaction, irrespective of transaction size. Non-resident entities have also been advised to obtain and quote the LEI number for such transactions from 1 October 2022, although this has not been made mandatory.

    The LEI is a 20-digit number that uniquely identifies parties to financial transactions in any jurisdiction. This has been implemented to manage and improve the quality and accuracy of financial data systems by creating a global reference database. The RBI has been implementing the LEI system in a phased manner since 2017.

  • SEBI introduces a new category of funds to invest in stressed assets

    The Securities and Exchange Board of India (SEBI), in December 2021, introduced a new category of funds called 'Special Situation Funds' (SSFs), for making investments in 'stressed assets'. By way of an amendment to the SEBI (Alternative Investment Funds) Regulations, 2012 notified on 24 January 2022, a concept of 'special situation assets' has been introduced, which includes (a) stressed loans available for acquisition as per the relevant RBI directions or as part of a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 or in terms of any other policy of the RBI or the Government in this regard; (b) security receipts issued by Asset Reconstruction Companies; (c) securities of 'companies in distress'; and (d) any other asset/security as may be prescribed from time to time.

    SSFs will be a separate sub-category under category I alternative investment funds (AIFs) - the regulatory parlance for pooled vehicles like venture capital and private equity funds. Presently, AIFs can invest in stocks, debentures and security receipts (issued against underlying loans). However, an SSF will be able to purchase non-performing loans as well as loans that show early signs of stress. SSFs will also be exempt from certain regulatory requirements applicable to other AIFs, such as investment concentration limits in a single investee company.

  • Conduct of shareholder meetings through audio visual means

    The Ministry of Corporate Affairs (MCA) had previously issued circulars permitting conduct of shareholders’ meetings through video conference and other audio-visual means, in light of the pandemic and corresponding lockdowns. This dispensation was available until 31 December 2021. The MCA has now extended the window for companies to conduct shareholder meetings through video conference and other audio-visual means until 30 June 2022.

    It has, however, been clarified by the MCA that the dispensation will not be construed as conferring any extension of time for holding the annual general meeting under the provisions of the Companies Act, 2013.

In the coming months, we expect to see further developments in the foreign direct investment policy for the insurance sector. Further to the enhancement of the foreign investment limits from 49% to 74%, revisions are expected to facilitate the disinvestment of Life Insurance Corporation of India (LIC) for its upcoming IPO - thereby paving way for foreign investors to participate in the IPO. As of now, the FDI policy does not apply to LIC, which is governed by separate legislation, the Life Insurance Corporation Act, 1956 which bears no mention of foreign investment and limits shareholding of any shareholder other than the Central Government to a maximum of 5%.

It is also reported that the Government is in the final stages of preparation of a new e-commerce policy. This follows criticism from stakeholders and reportedly contrary viewpoints within different ministries of the Government over the previous draft e-commerce policy as well as the Consumer Protection (E-Commerce) Rules, 2020.

In another interesting development, on 15 December 2021, the Union Cabinet approved a comprehensive program for the development of semiconductors and display manufacturing ecosystem in India. The Government has committed support of approximately USD 30 billion to position India as a global hub for electronics manufacturing with semiconductors as the building block. To aid establishment of this ecosystem in India, the Government proposes to implement various schemes containing incentives, including fiscal support and infrastructure for manufacturing as well as design companies. The schemes, if successful, would be a welcome step towards reducing dependence on the global supply chain for semiconductors (which have been in short supply for most of the pandemic), apart from encouraging domestic manufacturing opportunities, increasing foreign investment and generating employment opportunities.


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