Leveraged Finance, sometimes referred to as leveraged buyout, involves utilizing borrowed money to finance the acquisition of another firm. Acquisition finance, on the other hand, typically involves the legal, financial, negotiations based issues and other aspects faced by acquirers during an acquisition transaction. The legal provisions and regulations for these forms of finance have been particularly framed in India to regulate transactions, avert potential legal predicaments, and assure lawful conducting of these activities. At SimranLaw, our legal experts assiduously analyze these complexities providing unrivaled insights based on years of experience.
Legal Provisions and Regulations:
1. FEMA (Foreign Exchange Management Act) 1999: Leveraged finance involving foreign direct investment must adhere to this act. Any acquisition or transfer of immovable property in India by a foreign entity is governed by this Act.
2. RBI Guidelines: The Reserve Bank of India (RBI) has outlined extensive guidelines for leveraged finance. The RBI’s guidelines cover areas such as leveraged buyout (LBO) transactions, debt-equity ratios, and pricing guidelines for acquisition financing.
3. Companies Act 2013: Several provisions deal with acquisition finance issues such as mergers and acquisitions, minority shareholder rights, related-party transactions, and preferential allotments.
4. SEBI Regulations: The Securities Exchange Board of India (SEBI) provides a regulation on Takeover Code 2011 that governs the acquisition process of listed companies in India.
5. Insolvency and Bankruptcy Code 2016: Acquiring stressed assets through Indian bankruptcy courts can be one way for businesses to deploy leveraged buyouts and this has been governed under this code.
Case Laws and Judgments:
1. In the case of Subhkam Ventures (I) Pvt Ltd v. SEBI, the Supreme Court of India ruled on the issue of indirect acquisitions, providing guidelines that are still used today to determine the validity of such deals.
2. In the case of Daiichi Sankyo Company Limited v. Jayaram Chigurupati and Ors, the Delhi High Court clarified that a non-compete fee paid to promoters cannot be treated as part of the cost of acquisition.
3. The landmark judgment on M/s. Vodafone International Holdings B.V versus Union Of India & Anr, where the Supreme Court ruled that Indian income tax department does not have jurisdiction to tax this transaction clarified the regulatory stance over tax on offshore mergers and acquisitions.
4. The case of Cyril Amarchand Mangaldas Vs. Securities and Exchange Board of India (SAT Mumbai Appeal No.259/2017) advanced an understanding of how agreements for acquisition need to be treated in the given legal framework.
The legal landscape for leveraged and acquisition finance in India is complex, layered with multiple regulations and guidelines encompassing different aspects of these financing structures. SimranLaw’s legal prowess ensures that you navigate these complexities seamlessly, supported by a comprehensive understanding of the relevant laws and their application. The Indian legal framework, while intricate, aims to maintain a balance between protecting stakeholder interests and enabling corporate growth and flexibility.