1.1. Legal system

1.1.1. How would you explain India’s legal system to an investor?

The Indian legal system bears the influence of the English common law system, which is reliant on the value of binding case law precedents, rulings on equity and the principles of natural justice. Despite the influence of the English common law system, the Indian legal system has also incorporated elements of civil law, such as certain investigative powers of the judiciary relating to the institution of commissions of enquiry or questioning of witnesses. The judicial hierarchy flows upwards from the district or lower courts in every district or city to the high courts in the states, all subject to the supervision and judgment of the apex court of India, the Supreme Court. With respect to disputes pertaining to transfer of immovable property, the courts’ powers extend to granting injunctions in accordance with the Civil Procedure Code 1908 (CPC) and ordering performance of contracts under the Specific Relief Act 1963 (SRA). Broadly, the key legislation governing real estate in India includes the following:

• Transfer of Property Act 1882 (TPA);
• Indian Contract Act 1872 (Contract Act);
• Real Estate (Regulation and Development) Act 2016 (RERA);
• Registration Act 1908 (Registration Act);
• Indian Stamp Act 1899 (Stamp Act); and
• Indian Easements Act 1882 (Easements Act).

In addition, various other pieces of legislation, including the CPC, SRA and a gamut of state-specific laws and municipal laws, deal with development and zoning norms, prescription of the conditions for obtaining development licences, completion certificates, and occupation certificates in relation to such real estate projects. Foreign investment in the construction and development sector is additionally regulated by the Foreign Exchange Management Act 1999 (FEMA) and the rules, notifications and circulars issued thereunder and those issued by India’s central bank, the Reserve Bank of India (RBI). The Contract Act and the TPA permit oral agreements for transfer of property. However, the TPA also provides that any sale of immovable property above 100 Indian rupees requires a written agreement to be executed and registered (under the Registration Act). Apart from the above-mentioned state-specific laws, a central law – RERA – has been enacted for the purpose of protecting consumer interests in the real estate sector; regulating the construction, development, sale, advertising and marketing of real estate projects in a time-bound, transparent and efficient manner; and creating a separate real estate regulatory authority, with state-specific and union territory-specific jurisdiction, for adjudication of disputes between consumers and promoters of real estate projects.

1.10. Commercial versus residential property

1.10.1. How do the laws in India regarding real estate ownership, tenancy and financing, or the enforcement of those interests in real estate, differ between commercial and residential properties?

The distinction between commercial and residential property does show in the master plan issued by the municipal authority of a city, in which separate zones are earmarked for residential and commercial use. Alternatively, these distinctions are made in development approvals or licences or change in land use permissions obtained by a developer from the relevant authorities. Similarly, the building regulations and by-laws of various cities and states distinguish between residential, industrial, commercial and institutional properties, etc, and provide for different procedures with respect to each type of property. Further, varying rates of tax and circle rates (the government-notified value of a property) are provided for residential and commercial property.

1.11. Planning and land use

1.11.1. How does India control or limit development, construction, or use of real estate or protect existing structures? Is there a planning process or zoning regime in place for real estate?

The development and construction of real estate are governed by the development regulations, building regulations and by-laws, and the respective master plan of a city or area of a state. A state government, usually, from time to time enacts and enhances its development plans for five or 10 years or for longer periods. Appropriate development permission or planning permission is provided by state-appointed authorities within the local laws and development regulations. Local municipal authorities in urban areas are empowered to enforce compliance, under applicable local laws, for various aspects of development and construction, including:

• permitted height of buildings;
• floor area ratio or floor space index, which provides the basis for determining the maximum permissible floor area construction;
• fire protection measures;
• water requirements; and
• general building requirements (eg, distance from ancient monuments, eco-sensitive zones).

Construction cannot be undertaken until necessary approvals, such as building plans for the proposed construction prepared by a qualified architect in compliance with applicable laws and applicable environmental consents and approvals, are sanctioned by the authorities concerned.

1.12. Government appropriation of real estate

1.12.1. Does India have a legal regime for compulsory purchase or condemnation of real estate? Do owners, tenants and lenders receive compensation for a compulsory appropriation?

The Land Acquisition Act 1894 (Erstwhile LA Act) has been the paramount legislation governing the acquisition of private property by the government. Provisions for acquisition of land are also found in other legislation, including:

• the Indian Forests Act 1927;
• the Metro Railway (Construction of Works) Act 1978;
• the National Highways Act 1956;
• the Petroleum and Minerals, Pipelines (Acquisition of Right of User in Land) Act 1962; and
• state-specific laws (eg, the Karnataka Industrial Areas Development Act 1966).

The Erstwhile LA Act was replaced by the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 (LA Act), which took effect on 1 January 2014. Under the LA Act, the compensation to be made to landowners has been increased to up to four times the market value of the land (in rural areas) and twice the market value of the land (in urban areas). The LA Act provides a detailed mechanism for the calculation of the amount of compensation and the factors to be considered while arriving at such amounts. The LA Act does not provide any scope for modification of such compensation by way of contractual arrangements. In addition, under the LA Act, acquisition follows a far more detailed process that includes conducting a social impact study of the proposed acquisition, planning and taking steps for rehabilitation and resettlement of landowners, seeking the consent of landowners, etc.

1.13. Forfeiture

1.13.1. Are there any circumstances when real estate can be forfeited to or seized by the government for illegal activities or for any other legal reason without compensation?

Long-term leases and conveyances of the acquired lands granted by the government for a specified purpose allow for revocation of the lease or conveyance and seizure of the property by the government in the event of default by the lessee or transferee on payment of rent, consideration, municipal charges or taxes; or use of the property for any purpose other than for which it is leased, conveyed or acquired or for any illegal or immoral purpose. However, such rights are not usually exercised without providing a cure period to the lessee or transferee to cure the said default. The length of the cure period depends on the terms of the lease or conveyance, and may differ on a case-by-case basis. Other cases of forfeiture of property revolve around actions taken by the civil and criminal courts. The CPC empowers the courts to seize and attach property of a judgment debtor if he or she fails to satisfy a decree passed by a court. Similarly, the Code of Criminal Procedure 1973 authorises attachment of the property of an accused that fails to appear before the court despite service of summons to appear. Non-payment of statutory taxes and bankruptcy could also lead to attachment of property by the competent government authority or court of law.

1.14. Bankruptcy and insolvency

1.14.1. Briefly describe the bankruptcy and insolvency system in India

The CPC provides that in the case of immovable property, attachment can be made by an order prohibiting the judgment debtor from transferring or charging such immovable property, and a prohibition on any person from taking any benefit from such transfer or charge (Order 21, Rule 54). However, the CPC also provides that immovable property in the form of houses or buildings and land appurtenant thereto on which an agriculturist, labourer or domestic servant is residing cannot be attached (section 60). The Insolvency and Bankruptcy Code 2016 (IBC) provides for the codification of the existing framework of insolvency and bankruptcy laws in India and among other things streamlines the processes for insolvency resolution and liquidation of corporate persons, and insolvency resolution and bankruptcy for individuals and partnership firms. The IBC’s enactment brings various benefits, such as enabling any financial creditor, operational creditor or the corporate debtor itself to initiate an insolvency resolution process upon the event of a default by the corporate debtor, to be resolved within a fixed period of 180 days from the submission of an application for the initiation of the insolvency resolution process.

1.2. Land records

1.2.1. Does India have a system for registration or recording of ownership, leasehold and security interests in real estate? Must interests be registered or recorded?

In India, all real estate transactions involving the sale, conveyance or lease of immovable property and land require registration of the definitive agreements or deeds (such as the sale deed or conveyance deed and the lease deed), as the case may be. In a real estate transaction, an agreement to sell, a memorandum of understanding or a letter of intent (which provides for execution of a definitive agreement or deed at a later date) does not ordinarily require registration. The law on registration of documents in India is contained in the Registration Act, which provides for compulsory registration of certain documents, while there are other situations where registration of documents is optional. Registration of the following is mandatory:

• instruments of gifts of property;
• leases of immovable property from year to year;
• non-testamentary instruments, such as deeds of exchange;
• documents assigning rents;
• sales of immovable property; and
• trust deeds evidencing interest in immovable property with a value of 100 Indian rupees or more.

Registration of the following is optional:

• wills;
• leases of immovable property not exceeding one year; and
• instruments evidencing interest in immovable property with a value of less than 100 Indian rupees.

If a document that is required to be registered is not registered, it cannot affect any immovable property, confer any power to adopt or be received as evidence of any transaction affecting such property. A registered instrument over the same property will rank above an unregistered instrument covering the same property.

1.3. Registration and recording

1.3.1. What are the legal requirements for registration or recording conveyances, leases and real estate security interests?

A document (such as an agreement to sell, conveyance or lease) required to be registered under Indian law must be executed before a registrar (a government official, who is appointed under the Registration Act) at district level or sub-registrar at sub-district level, and the parties must appear before the registrar or sub-registrar for authentication and registration of the document. Apart from the payment of stamp duty as per the stamp duty legislation, the registration of a document also involves payment of registration charges on the instrument recording the transfer of interest, the rates of which may vary from state to state. In some states, there are additional state-specific charges imposed (eg, municipal charges or taxes, transfer charges, development charges or taxes, etc), payable to the concerned municipal authorities, development authorities, corporations, etc. Payment of stamp duty, if payable on any instrument or document, is mandatory, notwithstanding registration of such an instrument. As per the Stamp Act, in the absence of any agreement to the contrary, with a sale or conveyance deed, the purchaser is required to pay stamp duty, and with a lease deed the lessee is liable to pay stamp duty.

1.4. Foreign owners and tenants

1.4.1. What are the requirements for non-resident entities and individuals to own or lease real estate in your jurisdiction? What other factors should a foreign investor take into account in considering an investment in India?

As a general rule, foreign companies or foreign citizens are not allowed to directly buy or own real estate in India. A foreign company or foreign citizen may own shares in Indian companies, which may buy or own real estate or carry out construction development of real estate projects in India. The ability of such Indian companies to buy or own will be subject to the business operations of such an Indian company and the proposed usage of the real estate by such an Indian company. An Indian company with a foreign shareholding can own or take on lease any real estate for its business and operations. The exceptions to the rule of direct ownership or purchase of real estate by a foreign company or a foreign citizen are very limited. In accordance with the Foreign Exchange Management (Non-debt Instruments) Rules 2019, a foreign company having its branch office or other place of business in India (and which has been set up in accordance with the regulations framed under FEMA) may acquire immovable property for carrying on its business operations in India. For this purpose, the foreign company is required to file certain declarations with the RBI as prescribed. Further, non-resident Indians and persons of Indian origin are entitled to purchase and transfer immovable property (excluding agricultural land) and make payment for this with funds received in India through normal banking channels by way of inward remittance from any place outside India or by debit to an NRE/FCNR (B)/NRO account.

1.5. Exchange control

1.5.1. If a non-resident invests in a property in India, are there exchange control issues?

A foreign company or individual can invest in the capital of an Indian company engaged in construction, development of townships, housing and built-up infrastructure. There used to be certain ‘project area’ and ‘minimum capitalisation’ requirements for foreign direct investment (FDI) in the construction and development sector, but these requirements have been done away with. Today, 100 per cent FDI under the automatic route is also permitted in completed projects for the operation and management of townships, malls or shopping complexes and business centres. Consequent to foreign investment, transfer of ownership and control of the investee company from residents to non-residents is also permitted. However, as per the extant foreign exchange laws in India, no FDI can be undertaken in an Indian company engaged in the construction of farmhouses, trading in transferable development rights, or ‘real estate business’ (ie, the business of dealing in land and immovable property with a view to earning profit therefrom). The term ‘real estate business’ does not include development of the following:

• townships;
• construction of residential or commercial premises;
• roads or bridges;
• educational institutions;
• recreational facilities;
• city and regional level infrastructure; and
• townships or earning of rent or income on the lease of a property, not amounting to transfer.

With respect to repatriation, the extant foreign exchange laws in India in relation to the construction and development sector state that the investor will be permitted to exit on completion of the project or after the development of trunk infrastructure (ie, roads, water supply, street lighting, drainage and sewerage). Further, as per the extant foreign exchange laws in India, the investor is permitted to exit and repatriate the foreign investment before completion of the project, provided that a lock-in period of three years, calculated with reference to each tranche of foreign investment, has been completed. Further, the transfer of a stake by one non-resident to another non-resident without repatriation of the investment is allowed and is subject neither to any lock-in period nor to any government approval. It is pertinent to note that the exit restriction based on the progress of the project and the three-year lock-in period are not applicable for investments in:

• hotels and tourist resorts;
• hospitals;
• special economic zones;
• educational institutions;
• old-age homes; and
• investments by non-resident Indians or overseas citizen of India.

1.6. Legal liability

1.6.1. What types of liability does an owner or tenant of, or a lender on, real estate face? Is there a standard of strict liability and can there be liability to subsequent owners and tenants including foreclosing lenders? What about tort liability?

The owner of immovable property typically bears the burden of payment of statutory taxes and levies under local state laws (eg, property tax and other municipal taxes or charges). However, with respect to commercial properties granted on lease or licence, the taxes may be contractually passed on to the lessee or licensee. The rights and liabilities of buyers and sellers of immovable property are prescribed under the TPA. Customarily, while the seller is responsible for the payment of statutory dues until the date of transfer of immovable property, there are provisions in law that make the buyer or its lessee liable for non-payment of statutory dues by the seller prior to the effective date of transfer. Therefore, the need to conduct due diligence prior to acquisition of immovable property arises. In addition, the TPA also prescribes the rights and liabilities of mortgagors and mortgagees in relation to immovable property: mortgagors who are in possession of the mortgaged property are required to pay public charges during the subsistence of the mortgage; and mortgagees who are in possession of the mortgaged property are required to manage the mortgaged property, collect rents and profits accruing thereto, and pay all public charges in relation to the same. Under RERA, certain liabilities have been imposed on promoters of real estate projects and consumers. Promoters are required to disclose pertinent information – such as sanctioned plans and schedule for completion of the real estate project – to the consumer at the time of issuance of allotment letters. Promoters are also liable, among other things, in relation to:

• obligations, functions and responsibilities under RERA and rules made thereunder, as per the sale agreement executed with consumers, until the conveyance of the apartment, plot or building, as the case may be;
• structural defects in the apartment, building or plot for a period of five years from the date of handover of possession;
• regulatory compliances such as procurement of occupancy certificate or completion certificate, and lease certificate; and
• maintenance of essential services and payment of all outgoings in relation to a real estate project until the time of handover of the real estate project to the association of allottees.

During construction of a real estate project, a promoter must comply with the terms of the environmental legislation and obtain appropriate approvals from various authorities, such as state pollution control boards and the Ministry of Environment, Forest and Climate Change, and is fully liable and responsible in relation to the same. Consumers are primarily liable for making payments, including their share of statutory dues and charges, in accordance with the sale agreement executed with the promoter of a real estate project, and paying interest in the event of a default in relation to such payments.

1.7. Protection against liability

1.7.1. How can owners protect themselves from liability and what types of insurance can they obtain?

At the outset, adequate due diligence, conducted prior to acquisition of the property, prevents the passage of undisclosed risks and liabilities to the buyer. Adequate indemnity obligations should be obtained from the transferor of the property in this regard. In India, insurance policies can be obtained for general as well as specific perils (eg, fire, flood, earthquake, lightning). Coverage may vary from policy to policy and from insurance provider to insurance provider. Public liability insurance may also be obtained by owners for others who may be affected by any accident at the property, or in connection thereof. However, there can still be third-party claims for environmental hazards resulting from the property or the usage thereof that may not be covered under insurance, providing sufficient scope for tortious claims and claims for damages by third parties and public interest litigation by public or environmentally spirited citizens.

1.8. Choice of law

1.8.1. How is the governing law of a transaction involving properties in two jurisdictions chosen? What are the conflict of laws rules in India? Are contractual choice of law provisions enforceable?

Agreements and contracts pertaining to immovable property are principally subject to the local courts within whose jurisdiction the property is situated. However, the choice of law and dispute resolution fora for investment agreements under which foreign investment or FDI is made into construction development companies are usually international fora, such as the International Chamber of Commerce, the Singapore International Arbitration Centre and the London Court of International Arbitration, in addition to arbitrations in India, whether ad hoc or institutional.

1.9. Jurisdiction

1.9.1. Which courts or other tribunals have subject-matter jurisdiction over real estate disputes? Which parties must be joined to a claim before it can proceed? What is required for out-of-jurisdiction service? Must a party be qualified to do business in your jurisdiction to enforce remedies in India?

The CPC distinguishes between the subject matter, territorial and pecuniary jurisdiction of civil courts. Accordingly, a court within whose limits the subject matter of a dispute is situated will have jurisdiction. In a situation where the immovable property is situated within the jurisdiction of different courts, a suit can be instituted in any such civil court. However, the CPC also acknowledges that the jurisdiction of civil courts can be expressly, by way of statute, or impliedly, barred. Thus, other fora, such as revenue courts, that have jurisdiction to entertain suits relating to rent, revenue or profits of land used for agricultural purposes under local land laws can also adjudicate upon certain real estate-related disputes. With regard to immovable property, the CPC provides that suits can be instituted for the purpose of:

• recovery;
• partition;
• foreclosure;
• redemption;
• sale;
• compensation for wrongs; and
• the determination of any other right or interest in immovable property.

Persons who are adjudged to be necessary parties can institute a suit with respect to immovable property. Furthermore, a court can join any other person as a party to such a suit for immovable property if the court is of the opinion that said person’s presence is necessary for the complete adjudication of the dispute. In addition, RERA provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the authority or the adjudicating officer or the appellate tribunal is empowered by or under RERA to determine. It also provides that no injunctions shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under RERA.

2.1. Investment entities

2.1.1. What legal forms can investment entities take in India? Which entities are not required to pay tax for transactions that pass through them (pass-through entities) and what entities best shield ultimate owners from liability?

As per the extant foreign exchange laws in India, investment can be made by way of subscription or purchase of capital-linked instruments of Indian companies engaged in the real estate development and construction sector, or subscription or purchase of units issued by a real estate investment trust or alternative investment fund established and registered in accordance with the extant regulations issued by the Securities and Exchange Board of India (SEBI). Investment by non-resident entities in the real estate business is prohibited (ie, trading in or dealing in land, property, etc). However, non-resident entities can be incorporated as companies, foreign portfolio investors (to be able to invest in listed securities including listed debt securities such as non-convertible debentures or listed corporate bonds), or provide external commercial borrowing to Indian companies if such non-resident entities meet certain eligibility criteria.

2.2. Foreign investors

2.2.1. What forms of entity do foreign investors customarily use in India?

The most prevalent entity formation for foreign investment is the private limited company. Foreign investors seeking to invest through subscription of non-convertible debentures issued by an Indian company are required to obtain registration from SEBI as Category I or II foreign portfolio investors (as the case may be) in accordance with the SEBI (Foreign Portfolio Investors) Regulations 2019 (FPI Regulations), and must comply with the restrictions and conditions prescribed therein.

2.3. Organisational formalities

2.3.1. What are the organisational formalities for creating and maintaining the above entities? What requirements does India impose on a foreign entity? Does failure to comply incur monetary or other penalties? What are the tax consequences for a foreign investor in the use of any particular type of entity, and which type is most advantageous?

The most viable form of investment is foreign direct investment into companies incorporated in India. Where the foreign investor proposes to set up a 100 per cent-owned Indian company, incorporation formalities under the Companies Act will need to be complied with and additional reporting requirements of the Reserve Bank of India (RBI) will need to be made. Where a foreign investor is investing in an existing company or acquiring shares from an existing shareholder, the RBI will need to be informed by way of filing of the prescribed online forms. Foreign investors registered as foreign portfolio investors under the FPI Regulations 2019 are, among other things, required to:

• ensure that they comply with the conditions imposed by SEBI at the time of grant of registration;
• comply with the investment conditions specified in the FPI Regulations; and
• inform SEBI in case of any material change in information submitted with SEBI at the time of registration.

3.1. Ownership and occupancy

3.1.1. Describe the various categories of legal ownership, leasehold or other occupancy interests in real estate customarily used and recognised in India.

Indian law recognises multiple classes of interests in immovable property, ranging from a mere easement right created by prescription or by operation of custom to freehold rights in the property conveyed through a registered sale or conveyance deed. Security interests in the nature of a mortgage or a charge may also be created to secure the payment of a debt or to secure the performance of certain obligations. One of the rights that can be created is a licence right. A licence is a mere right to access or use immovable property for a limited purpose during limited hours. Under a typical leave-and-licence agreement, the licensor retains constructive possession of the property, while actual possession may be transferred for a limited purpose and duration. The next set of rights are those created under a lease registered with the sub-registrar having jurisdiction over the area in which the property is situated, through which actual physical possession of the property is transferred to the lessee. Registration of leases beyond a period of 12 months is compulsory under the Registration Act 1908. Further, leases may also be executed for longer periods (eg, in perpetuity or for 99 years) involving the grant of leasehold rights in a property, mostly by the government in consideration of a lump-sum premium and payment of yearly rent. The rights created under such a lease are long-term leasehold rights (but not freehold). While a registered lease operates as an effective transfer of leasehold rights in the property against the world at large, transferring freehold rights in a property under a conveyance or sale deed, without reserving any rights thereunder, may create the most marketable and freely transferable interest. Government conveyances usually, however, do reserve certain rights for the government – for instance, the rights to mines and minerals in the land underneath the property, and usage of the property as per the development and zoning norms. As far as attendant benefits and burdens on or attached to immovable property such as easements are concerned, such interests can be passed on to the transferee if held by the transferor at the time of such transfer. For example, the easements, rents and profits arising out of the transferred land will vest with the transferee in terms of the Transfer of Property Act 1882 (TPA) and the Easements Act 1882. In practice, this means that if an individual were to acquire interest in an immovable property to which a right of way is annexed, he or she would be entitled to enjoy the right of way along with the property for the duration of such transfer.

3.10. Review of leases

3.10.1. Do lawyers usually review leases or are they reviewed on the business side? What are the lease issues you point out to your clients?

For short-term or low-value property leases, some clients prefer to follow standard formats provided by lawyers that are updated with the relevant commercial details by the business side and provided for final review to the lawyers. However, leases involving higher or longer commitments or complex transactions are generally prepared, reviewed and negotiated by lawyers. Usual causes of concern are related to:

• representations, warranties and covenants of the parties;
• breaches, termination and indemnity -related provisions;
• lock-in periods;
• lease extensions and renewals;
• delivery and handover of premises;
• payment and refund of the security deposit;
• rent, utility charges, maintenance charges, parking and other charges and escalation thereto
• registration and stamp duty implications; and
• dispute resolution, etc.

Property management and maintenance agreements are also negotiated and reviewed alongside the lease. They are coterminous agreements with the lease deed, entail payment of nominal stamp duty and do not have to be registered. Lenders do require that any outflow of money with respect to any contract or understanding, such as project management agreements, be subservient to the financing security instruments.

3.11. Other agreements

3.11.1. What other agreements does a lawyer customarily review?

Other than title documents, lawyers review the LOI, Term Sheet, MOU or ATS at the first stage, which is thereafter followed by a sale or lease deed or transfer deed. Depending on the magnitude and complexity of the transaction, an agreement for transfer of property may be coupled with numerous other agreements. A transfer of property such as a residential house between the owner of the house and a prospective buyer will involve a title search and review of the terms of transfer (consideration, encumbrances, compliance with local laws pertaining to rent, etc); whereas a transfer of immovable property, as between two corporate entities, will involve more complex agreements. These may include:

• escrow arrangements, in which monetary consideration flows from one party to another;
• a share purchase agreement, where the purchaser buys 100 per cent of the share capital of the company owning the immovable property;
• agreements to set up a single purpose entity that will acquire the immovable property, or to carry out construction and development; and
• powers of attorney (POA) executed to facilitate the buyer entity’s post-transaction title requirements.

As far as development and construction of real estate properties are concerned, a lawyer will be required to draft and review the following, among other things:

• joint development agreements;
• collaboration agreements;
• development rights agreements;
• service contracts pertaining to supply of building materials; and
• labour agreements.

3.12. Closing preparations

3.12.1. How does a lawyer customarily prepare for a closing of an acquisition, leasing or financing?

Indian law permits executory consideration – namely, payment and delivery taking place after the contract has been created – so the timing of closing and funding can be determined by the parties to the transaction. Having said that, generally, there is no strict concept of closing of simple real estate transactions involving sale deeds, and the same is usually accomplished by the parties by executing the deed by which the transfer is effected and having it registered at the relevant sub-registrar’s office simultaneously with payment of the consideration by the buyer and delivery of original documents pertaining to the property by the seller. The list of deliverables may vary depending on the nature of the entities involved in the transaction and the nature of the transaction. For instance, in cases of acquisition of shares of a company owning immovable property, the following documents will need to be handed over to the purchaser:

• share certificates;
• corporate and Reserve Bank of India (if applicable) filings;
• statutory registers;
• share transfer forms; and
• other corporate and secretarial documents.

Further, all transactions where the title is being transferred will involve the seller delivering original documents, including:

• the deed by which transfer of property is effected;
• title documents and revenue records of the seller and the past owners;
• clearances and approvals obtained from appropriate authorities;
• mutation certificate;
• documents evidencing existence of encumbrances;
• possession certificate; and
• authorisation by the board of directors, if the seller is a company or a POA.

3.13. Closing formalities

3.13.1. Is the closing of the transfer, leasing or financing done in person with all parties present? Is it necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction?

With respect to the transfer of immovable property, the process of execution and registration of the deed of transfer in the presence of two witnesses at the concerned sub-registrar’s office simultaneous with payment of the consideration constitutes closing in India. The parties may either be personally present or may authorise their lawful attorneys (via registered POAs in some cases) or, in the case of a company, an individual (duly authorised by a board resolution) to execute the transfer deed on their behalf. As noted above, transfer deeds are required to be executed along with stamp papers, e-stamp papers or franking (depending on the rules of the concerned state) of the requisite value (based on the stamp duty rates prevalent in the concerned state) and registered in the office of jurisdictional sub-registrar on payment of the registration fees as prescribed under the Registration Act by various state governments. Except in prescribed special circumstances, under the Registration Act, registration of documents is required within four months of the execution of such document. Further, in certain situations for transfer of leasehold properties allotted by various governmental authorities, the authorities may also levy transfer fees for effecting such transfers.

3.14. Contract breach

3.14.1. What are the remedies for breach of a contract to sell or finance real estate?

An ATS of immovable property usually contains provisions to the effect that a breach by the buyer to pay the balance consideration renders the seller liable to forfeit the advance consideration paid under the ATS. Further, an ATS also customarily records provisions stipulating that a breach by the seller to deliver possession of the property when the purchaser is willing to perform its part of the obligations will make the seller liable for refund of the advance consideration with substantial interest or penalty (at times twice the amount advanced) or will entitle the buyer to compel specific performance under the ATS. However, enforcing specific performance under the Specific Relief Act 1963 (SRA) has its own limitations, but pursuant to the recent amendments to the SRA, the plaintiff can seek specific performance of a contract as a matter of right, and does not need to prove damages owing to non-performance in a court of law. Damages are usually granted under the Indian Contract Act 1872 if the damage caused by the breach of contract is direct. Indirect, special and remote damages are not granted under Indian law. If the contract stipulates a penalty amount, then the plaintiff will be entitled to compensation up to the penalty amount depending, among other things, on the quantum or excessiveness of the penalty amount. Under the TPA, in the case of a mortgage deed, at any time after the mortgage money has become due to the mortgagee, and before a decree has been made for the redemption of the mortgaged property, if the mortgagor has failed to pay the mortgage money, the mortgagee can obtain a decree from the court debarring the mortgagor from redeeming the mortgaged property, or for the sale of such property. Under special enactments such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act), on the failure of the borrower to repay the secured debt and the consequent classification of his or her account as a non-performing asset by the secured creditor, the secured creditor can initiate proceedings to enforce its security interest and take possession of the secured assets, provided that notice has been sent to the borrower to discharge the liability in full within the stipulated period and the borrower has failed to do so.

3.15. Breach of lease terms

3.15.1. What remedies are available to tenants and landlords for breach of the terms of the lease? Is there a customary procedure to evict a defaulting tenant and can a tenant claim damages from a landlord? Do general contract or special real estate rules apply? Are the remedies available to landlords different for commercial and residential leases?

For a breach of the lease terms by the tenant, the landlord retains the right to terminate the lease deed in accordance with the terms contained therein and, upon failure to vacate the premises, the lessor can seek eviction of the tenant. However, eviction is a cumbersome and tedious process in India and it may take many years to evict a tenant, depending upon the location of the property and the courts having jurisdiction. On the other side, upon a breach of the term by the lessor and failure to rectify them, the lessee may, if the lease permits, serve notice of termination on the lessor. In such cases the lessee also has a right to have the same rectified at the lessee’s cost and deduct such cost from the rents payable by the lessee or recover the same from the lessor. Remedies, other than having a right to terminate, may include a right to seek indemnities or penal interest. However such rights to terminate, be indemnified or receive penal interest may differ from case to case. The TPA expressly provides that a lease can be determined by forfeiture upon the breach of an express condition. If such forfeiture relates to non-payment of rent, the lessee retains the right to seek relief against forfeiture at the time of hearing of a suit, by paying a sum equivalent to the rent and interest due along with the full cost of the suit, or by providing such security that the court deems fit. If the forfeiture results from the breach of an express condition, the lessor can enforce his or her rights against the lessee only after serving notice and giving the lessee a chance to rectify the breach, if possible. As far as special rules are concerned, different states have their own specific rent control legislation that takes precedence over the general law of the land in the case of a clash of provisions. For instance, under the Delhi Rent Control Act 1958, a tenant to whom the act applies cannot be evicted by a landlord unless the conditions specified in this legislation are satisfied, in addition to those specified in the TPA. In the case of a conflict of laws, however, the specific state law prevails over the general laws.

3.2. Pre-contract

3.2.1. What are the typical pre-contractual steps?

At the option of the parties, depending on the underlying intent of the transaction, non-binding agreements such as a term sheet or memorandum of understanding (MOU) or letter of intent (LOI) may be executed between the parties prior to execution of the definitive agreement, briefly detailing the commercial understanding of the prospective transaction and the rights and obligations of parties in respect thereof. Customarily, these documents are executed as an indication of the transferee’s willingness to enter into the proposed transaction, subject to satisfactory due diligence of the property to be acquired and completion of certain conditions precedent by the transferor. These documents may, in some instances, entail payment of a token amount as an advance payment towards the purchase consideration, which is adjustable in the final consideration payable and simultaneously operates as a motivation for the owner to part with the relevant documents pertaining to the property for conducting due diligence. To ensure that a term sheet, MOU or LOI is not binding on the parties, it may be clarified in such document that the parties have mutually agreed:

• to have no obligation under the term sheet, MOU or LOI;
• that the parties will negotiate in good faith and enter into a definitive agreement for the proposed purchase of the property; and
• that such document is not intended to be a binding contract.

Other than brief highlights of the proposed transaction, the aforesaid documents may include clauses providing for the following, among other items:

• exclusivity in dealings;
• confidentiality of the information;
• representations and warranties;
• conditions precedent to the signing of the definitive documents;
• due diligence;
• indemnity obligations; and
• dispute resolution, etc.

Generally, certain clauses such as exclusivity and confidentiality are specifically stated to be binding, while the others remain non-binding. Upon a dispute arising as to the binding nature of such term sheet, MOU or LOI, the court will usually seek to determine the intention of the parties – that is, whether they intended such documents to be binding or non-binding. If certain provisions of the term sheet, MOU or LOI are stated to be binding, the court may also specifically examine whether the provision to which the dispute relates was intended to be binding. If such term sheet, MOU or LOI is held to be binding and the parties have commenced performance thereunder, a possible consequence could be that the court decides that the term of the formal contract or definitive agreement drawn up later will be deemed to have commenced from the date of the said term sheet, MOU or LOI. Generally, a customary binding contract for the sale and purchase of real estate in India is an agreement to sell (ATS), under which the parties agree to the basic terms for the transfer of the property and agree to enter into a sale deed for the proposed transfer. The real estate brokers in India are regulated by the provisions of Real Estate (Regulation and Development) Act 2016 (RERA), wherein they must register themselves and obtain a registration number to become involved in property transactions.

3.3. Contract of sale

3.3.1. What are typical provisions in a contract of sale?

Like most contractual agreements, a sale deed will typically include:

• details of the executants, recitals and background to the transaction;
• details of the property (usually the property is demarcated on a map and a layout plan is annexed);
• details and manner of payment of sale consideration, respective obligations and liabilities of the parties with respect to taxes and charges attached to the property;
• restrictive covenants imposed on the parties, representations and warranties, etc; and
• boilerplate clauses including indemnity for breach or representations (or otherwise), dispute resolution, notices, etc.

In large transactions that involve the fulfilment of numerous obligations post-execution of the definitive agreement, proceeds may be deposited in an escrow. In some real estate transactions, parties execute an ATS with payment of partial consideration and the remaining consideration is paid upon fulfilment of the conditions precedent simultaneously with the execution of the sale deed, thereby concluding the transaction. With regard to taxes, public charges, rent and other outgoings, the TPA and usually the sale deeds attribute liability to the seller for clearing all dues and charges and assuming the risk of loss of the property until the effective date of transfer, after which the onus is shifted to the purchaser.

3.4. Environmental clean-up

3.4.1. Who takes responsibility for a future environmental clean-up? Are clauses regarding long-term environmental liability and indemnity that survive the term of a contract common? What are typical general covenants? What remedies do the seller and buyer have for breach?

The concept of environmental clean-up has not fully evolved in India. However, judicial determination and review of acts of pollution through public interest litigation have led to the formulation of the ‘polluter pays’ principle, which renders the polluter liable for compensating the victims of the pollution and, to the extent possible, restoring the environment to its natural form and taking corrective action to remedy the harm caused by its acts. Further, environmental aspects of real estate transactions fall within the purview of the environment laws of India, such as:

• the Environmental Protection Act 1986;
• the Air Prevention and Control of Pollution Act 1981; and
• the Water Prevention and Control of Pollution Act 1974, and rules enacted thereunder, such as the Hazardous Wastes (Management, Handling and Transboundary Movement) Rules 2008 and the notifications enacted thereunder.

The provisions of the Companies Act 2013 have mandated certain classes of companies to discharge corporate social responsibility, which includes activities relating to environmental protection and conservation.

3.5. Lease covenants and representation

3.5.1. What are typical representations made by sellers of property regarding existing leases? What are typical covenants made by sellers of property concerning leases between contract date and closing date? Do they cover brokerage agreements and do they survive after property sale is completed? Are estoppel certificates from tenants customarily required as a condition to the obligation of the buyer to close under a contract of sale?

Sellers need to make disclosure of all existing encumbrances on the property, including existing leases. Usually with respect to existing leases, the rent received, the area of the premises leased out, the duration of the lease, the background of the lessee related to payment of rent including defaults by the lessee and the liabilities of the seller towards the lessee, if any, are disclosed and warranted against. Between the date of the contract and closing or between the execution of an ATS, LOI or MOU and the execution of a sale deed, the seller is restricted by covenants in the ATS, LOI or MOU not to create any further third-party right or encumbrance over the property without the consent of the buyer. Additionally, prior to entering into such transactions, it should be determined whether the transaction documents for the existing lease arrangement require the seller to obtain the prior written consent of the tenant to the sale of the leased property or require the buyer to provide an undertaking to the effect that the rights and entitlements of the tenant in relation to the leased property will not be disturbed pursuant to the sale of the leased property.

3.6. Leases and real estate security instruments

3.6.1. Is a lease generally subordinate to a security instrument pursuant to the provisions of the lease? What are the legal consequences of a lease being superior in priority to a security instrument upon foreclosure? Do lenders typically require subordination and non-disturbance agreements from tenants? Are ground (or head) leases treated differently from other commercial leases?

If the lessee duly executes a lease prior to the creation of a security interest over the property, the lease will prevail over the security instrument, the secured creditor will be bound by such a lease and will need to wait until the expiry of the lease to enforce its security interest to sell the property. On the other hand, if the lease is created subsequent to a prior security interest, without the consent or knowledge of the secured creditor, the lease can be struck down and the tenant evicted, although eviction proceedings in India are long, drawn-out and complicated. While under Indian law a security interest includes a mortgage, charge, hypothecation or assignment upon property created in favour of a secured creditor, a mortgage is the most common form of security interest created over immovable property.

3.7. Delivery of security deposits

3.7.1. What steps are taken to ensure delivery of tenant security deposits to a buyer? How common are security deposits under a lease? Do leases customarily have periodic rent resets or reviews?

It is very common for leases to entail payment of security deposits as a security against any damage caused to the property by the lessee or default in payment of the periodic rent by the lessee, during the lease period. Such security deposits are usually equivalent to three to six months’ rent and may be adjustable against the rent due for the last months of the lease term. Rent revisions are usual, but the rates are dependent upon commercial negotiations between the parties. The usual escalation (for most residential and commercial properties) is 10 to 15 per cent after every three years of the lease term. Well-informed and advised buyers impress upon delivery (to them) of the security deposit received from the tenants or an adjustment in the valuation.

3.8. Due diligence

3.8.1. What due diligence should be conducted before executing a contract? Is any due diligence customarily permitted or conducted after contract but before closing? What is the typical method of title searches and are they customary? How and to what extent may acquirers protect themselves against bad title? Discuss the priority among the various interests in the estate. Is it customary to obtain government confirmation, a zoning report or legal opinion regarding legal use and occupancy?

The TPA places the onus on the buyer to verify the title of a property itself, for which it may conduct a title search and due diligence to assure itself of the validity of the transferor’s title to the property being transferred. The title search is usually conducted for a period of 30 years prior to the proposed transaction for which the due diligence is undertaken. Detailed due diligence can cover various aspects relating to the property, including:

• title flow;
• encumbrance check;
• zoning and permitted usage;
• construction and operation-related approvals;
• conformity with laws, litigation, etc; and
• property tax and any other outstanding dues, including utility charges.

A title search involves a check at the office of the concerned sub-registrar within whose jurisdiction the immovable property is situated, to check the registered documents of the sale deed, lease deed, mortgage deeds, etc, from the register of documents executed and registered. In addition to conducting a title search, it is ensured that the definitive agreements provide for all customary representations and warranties and sufficient indemnities for breach of the same. As far as priority among interests is concerned, the Registration Act gives precedence to registered documents pertaining to land or immovable property over unregistered documents. Furthermore, the principle of ‘no one can give what he or she doesn’t have’ applies, whereby no person can transfer a better title than he or she possesses. Consequently, since the title of the seller is subject to the agreements in respect of the property previously registered, the title obtained by the buyer will similarly be so subject thereto. In addition, government confirmations or approvals under state-specific laws pertaining to development and zoning regulation and building by-laws are required at various stages of construction and development of a real estate project, and the status of such government confirmations or approvals should be reviewed at the time of due diligence. For example, most state-specific laws require developers to obtain a development licence prior to commencement of construction, and completion or occupation certificates upon completion of construction. Similarly, Indian environmental laws require developers to obtain prior consents in certain situations. Furthermore, as per RERA, no advertisement, sale, marketing, booking or invitation for sale of an apartment, plot or building in a real estate project can be undertaken without prior registration of the project.

3.9. Structural and environmental reviews

3.9.1. Is it customary to arrange an engineering or environmental review? What are the typical requirements of such reviews? Is it customary to get representations or an indemnity? Is environmental insurance available?

Real estate projects are subject to structural and environmental concerns. Structural engineers and architects conduct engineering reviews to verify that the building conforms to structural safety norms and specifications and is constructed as per the approved plans and layouts. Representations and warranties with corresponding indemnities are usually obtained from the seller to the effect that the property is constructed as per the approved layout plans and all consents and approvals related thereto have been obtained. The scope of such representations and warranties may also include representations on mandatory environmental clearances and approvals under applicable laws. Similarly, occupancy and completion certificates issued by municipal bodies and local authorities require satisfaction as to structural safety, fire safety, hygiene and sanitary conditions, etc.

4.1. Secured lending

4.1.1. Discuss the types of real estate security instruments available to lenders in India. Who are the typical providers of real estate financing in India? Are there any restrictions on who may provide financing?

Customarily, a mortgage is the most common form of security interest created over immovable property. The Transfer of Property Act 1882 provides for different types of mortgage, such as the following:

• simple mortgage: where the property is mortgaged without any delivery of possession, and upon failure to repay the loan the sale proceeds of the property may be appropriated towards the mortgage sum;
• mortgage by conditional sale: where the mortgagor ostensibly sells the mortgaged property to the mortgagee with a covenant that the mortgage will become void pursuant to payment of the mortgage sum;
• usufructuary mortgage: where possession of the mortgaged property is delivered to the mortgagee, who is authorised to retain the mortgaged property and receive rents and profits accruing therefrom;
• English mortgage: where the property is transferred absolutely to the mortgagee who will retransfer the same to the mortgagor upon payment of the mortgage sum;
• mortgage by deposit of title deeds: where the mortgagor delivers the documents of title to immovable property to the creditor with the intent to create a security thereon (this is only prevalent in certain states) and
• anomalous mortgage: mortgages that do not fall into one of the above categories.

Other security instruments are pledges or hypothecation of movables, which may form part of a real estate project, or escrow of project receivables, which is primarily wanted to ensure control over the cash flows of a project. In a self-liquidating project, cash flows are considered the best security, since the mortgage over the immovable property keeps diminishing as the allotment or sale of units to third-party customers occurs. In the recent past, real estate developers have managed to make successful issuance of mortgaged-back securities to public and financial institutions.

4.10. Recourse

4.10.1. May security documents provide for recourse to all of the assets of the borrower? Is recourse typically limited to the collateral and does that have significance in a bankruptcy or insolvency filing? Is personal recourse to guarantors limited to actions such as bankruptcy filing, sale of the mortgaged or hypothecated property or additional financing encumbering the mortgaged or hypothecated property or ownership interests in the borrower?

Recourse is first available to the collateral. However, in winding up, insolvency or other recovery proceedings initiated by a lender, the court can award recourse to all other assets of the borrower.

4.11. Cash management and reserves

4.11.1. Is it typical to require a cash management system and do lenders typically take reserves? For what purposes are reserves usually required?

The lender typically takes charge over all cash flows of the borrower (or as agreed for security and collateral). These are created through hypothecation of the receivables along with escrow account agreements. It is not customary in India to maintain reserves for expenses, but in most cases the lenders require appropriate debt service cover reserves to be maintained in lending agreements.

4.12. Credit enhancements

4.12.1. What other types of credit enhancements are common? What about forms of guarantee?

Guarantees, including personal guarantees of promoters, are very common in India. In fact, lenders rely more on personal guarantees from promoters or key shareholders rather than a security offered by the borrower company, since promoters make every effort to ensure that lenders are paid if the project does not perform. Depending on the negotiations, suitable covenants can be built into guarantee documents to protect the lenders in the event that the borrower creates any mischief.

4.13. Loan covenants

4.13.1. What covenants are commonly required by the lender in loan documents?

Usually, there are negative, affirmative and information covenants in loan documents. Furthermore, with respect to the freehold and leasehold financing, among other things, one important covenant is in relation to maintaining the ownership of the property. In the freehold asset class, ownership is already in favour of the borrower or owner, so a covenant to maintain the ownership and to not create any third party rights in the property is obtained, whereas with leasehold assets, a covenant with the effect of maintaining the ownership of leasehold rights and not to create any third-party rights over such leasehold rights is obtained.

4.14. Financial covenants

4.14.1. What are typical financial covenants required by lenders?

The most typical are security cover and the asset value, where periodic appraisals are conducted to keep the security enhanced if the value diminishes, and special rights requiring the permission of the lender for any major actions of the borrower or its shareholders. Further, the lender also emphasises on periodic submission of information related to the cash flows and periodic updates regarding the fulfilment of the purpose for which the loans have been granted. Most of these covenants are required to be complied with by the borrowers through the tenure of the loan and are periodical in nature

4.15. Secured movable (personal) property

4.15.1. What are the requirements for creation and perfection of a security interest in movable (personal) property? Is a ‘control’ agreement necessary to perfect a security interest and, if so, what is required?

A security interest over a movable property is generally by way of a pledge (in the case of the actual delivery of the property, such as shares of the companies or partnership interest in the LLP) or by way of hypothecation of the movables, such as plant and machinery, good will, equipment, inventories and receivables. Further, the lender typically controls the cash flows pertaining to a project by way of escrow accounts. Generally, a deed of pledge is executed along with a power of attorney in the case of a pledge of the movable property, and a deed of hypothecation for the hypothecation of the movable property. In the case of a company, the company hypothecating goods is required to file a charge creation form with the registrar of companies and also make filings with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India.

4.16. Single purpose entity (SPE)

4.16.1. Do lenders require that each borrower be an SPE? What are the requirements to create and maintain an SPE? Is there a concept of an independent director of SPEs and, if so, what is the purpose? If the independent director is in place to prevent a bankruptcy or insolvency filing, has the concept been upheld?

This varies on a case-by-case basis.

4.2. Leasehold financing

4.2.1. Is financing available for ground (or head) leases in India? How does the financing differ from financing for land ownership transactions?

State government instrumentalities and municipal authorities usually grant ground leases in India. These leases usually allow the lessees to obtain financing through pre-identified banks and lenders subject to receipt of prior approval from the lessor. The lessee’s lender in such a case acquires no better rights than the lessee itself. If the borrower defaults in repayment of the secured debt, the lender bank only has the right to appropriate leasehold rights in the property to itself or its nominee if the borrower obtains the land under a ground lease. This is because the rights of the lender will not ordinarily override the lessor’s rights under the contractual documents executed. If, however, the borrower defaults in repayment in respect of funds secured against a charge over land owned by the borrower, the lender may appropriate the charged land and may sell or encumber it to recover the amount due from the borrower. In addition, lease rental discounting can be obtained by the owners of leased properties. These financing arrangements are on the basis of the lease rentals, lease tenures and other covenants of leases on a property. Under applicable laws, there is no minimum lease term for a lease being financed or a shorter maximum term for the financing depending on the business decision of the lenders. The terms of a lease deed pursuant to which a ground lease has been granted should ordinarily permit the lessee to obtain financing, subject to the lessor’s consent, and enable the creation of security over the leased premises or receivables accruing therefrom, to the lender.

4.3. Form of security

4.3.1. What is the method of creating and perfecting a security interest in real estate?

The typical method of creating a security interest over an immovable property is by way of creation of a mortgage over the immovable property. The mortgage can be a simple mortgage, mortgage by condition sale, usufructuary mortgage, English mortgage, mortgage by way of deposit of the title deeds or an anomalous mortgage. Depending on the nature of the mortgage, the mortgage deed is prepared and registered with the sub-registrar within whose jurisdiction the immovable property is situated. In the case of a company, the company is required to file a charge creation form with the registrar of companies. Further, any creditor, including the secured creditor, is required to file particulars of transactions of creation, modification or satisfaction of any security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India.

4.4. Valuation

4.4.1. Are third-party real estate appraisals required by lenders for their underwriting of loans? Are there government or industry standards for appraisals? Must appraisers have specific qualifications or required government or industry certifications? Who is required to order the appraisal?

Valuation for the transfer of real estate usually revolves around the benchmark of circle rates of the properties notified by the government (though the market rates could be significantly higher in certain jurisdictions). Real estate appraisers and valuation firms are used for valuation of properties in larger transactions where the value of the property is significantly higher than the circle rate therefor. These valuations can be on the basis of the net operating income from the property (if leased), the net present value of discounted free cash flow of a potential development on a property, the replacement cost of the property or the locational advantage of a property and the like.

4.5. Legal requirements

4.5.1. What would be the ramifications of a lender from another jurisdiction making a loan secured by collateral in India? What is the form of lien documents in India? What other issues would you note for your clients?

Lenders from foreign jurisdictions are subject to the Reserve Bank of India’s (RBI) Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations, dated 26 March 2019, bearing FED Master Direction No. 5/2018-19 (ECB Framework), as updated from time to time. This master direction provides for certain conditions that must be satisfied by borrowers and lenders in case of the loan falling under the automatic route or the approval route. Another route that foreign lenders and investors use is through subscription to secured non-convertible debentures of Indian companies, in accordance with the Securities and Exchange Board of India (SEBI) (Issue and Listing of Debt Securities) Regulations, 2008, which may or may not be listed on a stock exchange in India. The security interest is created in favour of a debenture trustee, who is responsible for holding the security on behalf of the non-resident and overseeing compliance by the borrower. The non-resident subscriber must be registered with SEBI as a foreign portfolio investor.

4.6. Loan interest rates

4.6.1. How are interest rates on commercial and high-value property loans commonly set (with reference to LIBOR, central bank rates, etc)? What rate of interest is legally impermissible in India and what are the consequences if a loan exceeds the legally permissible rate?

Interest rates are set on the basis of the interest rates set by the RBI. Interest rates are higher in India, since it is still a developing country and there is a high level of inflation. Consequently, the interest rates for any loans or financing are high. While Indian banks usually do not lend money for the acquisition of land, they do lend for construction of real estate projects. Loans are easily available for homebuyers as well. The fees and lender costs are generally excluded from the interest and are charged separately. Additionally, the interest chargeable in relation to loans that qualify as external commercial borrowing will be subject to the conditions prescribed under the ECB Framework and may vary accordingly. For example, eligible borrowers can avail themselves of external commercial borrowing from eligible lenders at interest rates not exceeding 450 basis points (4.5 per cent) above the applicable benchmark.

4.7. Loan default and enforcement

4.7.1. How are remedies against a debtor in default enforced in India? Is one action sufficient to realise all types of collateral? What is the time frame for foreclosure and in what circumstances can a lender bring a foreclosure proceeding? Are there restrictions on the types of legal actions that may be brought by lenders?

After a mortgage payment has become overdue, a mortgagee can institute proceedings to obtain a decree debarring the mortgagor from redeeming the mortgage property or for sale of the property. Similarly, in the case of a mortgage by way of conditional sale, default in payment of a loan will make a conditional sale absolute. If a loan is secured by a security interest as defined in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act), a secured creditor will have the option to enforce its security interest according to the procedure laid down in the SARFAESI Act, which is more expeditious than the usual civil court process. Upon receipt of notice from the secured creditor, the borrower is required to discharge its liability within the stipulated time frame, failing which the secured creditor will have the right to take possession of the secured assets of the borrower. Additionally, in accordance with the Insolvency and Bankruptcy Code 2016, a financial or operational creditor can initiate an insolvency resolution process upon the occurrence of a default on a debt owed by a corporate debtor to such financial or operational creditor. This remedy is becoming increasingly popular among creditors, since the insolvency resolution process is professionally managed and must be completed within 180 days from commencement of the insolvency resolution process.

4.8. Loan deficiency claims

4.8.1. Are lenders entitled to recover a money judgment against the borrower or guarantor for any deficiency between the outstanding loan balance and the amount recovered in the foreclosure? Are there time limits on a lender seeking a deficiency judgment? Are there any limitations on the amount or method of calculation of the deficiency?

There are no limitations. Indian law does not allow remote or indirect damages awards.

4.9. Protection of collateral

4.9.1. What actions can a lender take to protect its collateral until it has possession of the property?

Lenders usually seek interim orders to protect the status quo of the property. Lenders also seek rent deposits or other income or revenue from the property to be deposited with a court-appointed receiver or escrow agent or in a separate bank account. Also, the lender may consider obtaining a usufructuary mortgage in its favour, wherein possession of the mortgaged property is delivered to the mortgagee, who is authorised to retain the mortgaged property and receive rents and profits accruing therefrom. Further, the Transfer of Property Act 1882prescribes certain liabilities that the mortgagee in possession must bear, such as:

• to manage the property as a person of ordinary prudence would manage it;
• to make best endeavours to collect rent and profits;
• to make repairs; and
• not to undertake any destructive activity, etc.

In the event of failure of a mortgagee in possession to comply with its responsibilities, when account is made pursuant to a decree of a court, the mortgagee must be debited with the loss, if any, occasioned by such failure.

9.1. Market overview

9.1.1. How does a buyer typically finance real estate business combinations?

Depending on the commercial considerations that a buyer wishes to achieve in a real-estate business combination, the financing structure (which typically includes availing of debt financing from a bank, an equity investment or mezzanine financing) is finalised. The cost of financing plays a major role in those kinds of financing. These financing structures are also dependent on the nature of assets. For a rent-generating asset, the buyer may consider a lease rental discounting facility from a lender.

9.2. Seller’s obligations

9.2.1. What are the typical obligations of the seller in the financing?

In real estate financing, the sellers are obliged to provide a clean and marketable title to the property. Also, the sellers are under an obligation to clear any dues or pending payment of the existing lenders. The sellers are also required to ensure the continuity of the leases in the property to obtain and provide all the consents or approvals as may be required to be obtained from the lenders or statutory authorities or any third parties. The sellers are also required to ensure that all the insurance policies, approvals, permission and the utilities are transferred or assigned in the name of the buyer and the property is free and clear of any encumbrances (eg, a mortgage) or that require consent from the security holders has been obtained for the proposed transaction.

9.3. Repayment guarantees

9.3.1. What repayment guarantees do lenders typically require in the context of a property-level financing of a real estate business combination? For what purposes are reserves usually required in the context of property-level indebtedness?

Lenders typically require borrowers to provide security cover that among other things, comprises:

• the creation of a charge on the immovable or movable property of the borrower by way of a mortgage on the immovable property, or hypothecation of cash flows or the borrower’s movable assets;
• corporate and personal guarantees from promoters;
• a pledge of the securities of the borrower by its promoter or the majority shareholders;
• non-disposal undertakings by the promoters or majority shareholders; and
• the creation of a debt-service reserve account to ensure the repayment to lenders.

Further, lenders also insist that all management of the receivables or cash shall be routed through suitable escrow arrangements and the receivables shall only be utilised under an agreed waterfall. Besides the commercial considerations of ensuring business continuity, lenders also require that the borrowers maintain certain reserves for ensuring timely payment of interest and repayment of the principal amounts.

9.4. Borrower covenants

9.4.1. What covenants do lenders usually insist on in the context of a property-level financing of a real estate business combination?

While providing loans in a real estate transaction, lenders usually require that the borrower should provide exhaustive financial, information-related and negative covenants regarding the conduct of the borrower during the tenure of the loan. Further, the borrower is also required to provide covenants related to:

• the maintenance of security cover;
• the end use of the funds;
• the charge on the receivables;
• leasing criteria;
• restrictions on deviation from the approved plans of construction or business plan;
• creating additional encumbrances on the secured property;
• change of control of the borrower;
• disclosure of project development, maintenance of financial ratios and furnishing of reports periodically;
• the mechanism for utilisation of the receivables in a project;
• fund management and escrow;
• the regulation of related-party transactions;
• step-in rights in the event of default; and
• management continuity.

In financing related to a project under construction, lenders also insist on the appointment of third-party independent consultants such as quality surveyors and project management consultant.

9.5. Typical equity financing provisions

9.5.1. What equity financing provisions are common in a transaction involving a real estate business that is being taken private? Does it depend on the structure of the buyer?

Under the SEBI (Delisting of Equity Shares) Regulations 2009 (Delisting Regulations), a listed public company proposing the delisting of its equity shares is required to provide an exit opportunity to its public shareholders if none of its equity shares will remain listed on a recognised stock exchange. A listed public company is prohibited from delisting its equity shares if a buy-back of equity shares or a preferential allotment of equity shares has occurred. Further, no delisting can take place until a period of three years has elapsed from the date of listing of such equity shares. Also, promoters cannot utilise the funds of such a company for financing any exit opportunity undertaken under the Delisting Regulations. Therefore, these methods of equity financing cannot be undertaken in a going-private real estate-related transaction. Thus, promoters or third-party acquirers can participate in an exit opportunity only by utilising their funds to purchase the shares of the public shareholders.

11.1. Key developments of the past year

11.1.1. Are there any other current developments or emerging trends that should be noted?

The warehousing sector has seen a sharp increase owing to the expanding delivery network of e-commerce companies in India, many of them concentrated in tier-two cities across the country. Press Note 3 of 17 April 2020 now requires all countries sharing land borders with India or beneficial owners of investors who share land borders with India, proposing to acquire a shareholding or invest in India, will require government approval.

11.2. Coronavirus

11.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

On 28 May 2020, the Ministry of Housing and Urban Affairs issued advice to various states, union territories and other central government ministries concerning the validity and time-limit extension of all approvals, no-objection certificates and subsequent compliances for the real-estate sector. According to the advisory, the states and the concerned agencies have been advised to:

1. consider the situation as a force majeure;
2. extend the validity automatically, of various kinds of approvals by urban local bodies and urban development authorities or other state agencies including the commencement and completion certificates, the payment schedule of charges, including developmental charges and no-objection certificates from various agencies by nine months; and
3. automatically extend timelines for subsequent compliances by the building proponents, as per the precondition of the permission give, for nine months.

The advisory, as outlined in point (2) and (3) above, may be considered for all those projects whose validity has expired on or after 25 March 2020. The advisory further provides that the states may issue necessary directives to municipal corporations, urban development authorities and urban local bodies enabling various approvals, payment of charges and compliances by building proponents be rescheduled without an individual application from the building proponent. Given the above advisory, the real-estate regulatory authorities of several states have extended the registration of the real-estate project including completion timelines from six to nine months. The state of Maharashtra has reduced the amount of the stamp duty by 2 per cent on immovable-property conveyance instruments from 1 September 2020 to 31 December 2020, and by 1.5 per cent from 1 January 2021 to 31 March 2020. The Reserve Bank of India announced a resolution framework for covid-19 related stress on 6 August 2020, addressing borrower defaults under the stress caused by the pandemic – without necessitating a change of ownership and without an asset-classification downgrade, it modified the existing framework. The framework for covid-19 stress covers the resolution of both personal loan accounts and corporate loan accounts. The framework applies to commercial banks, primary cooperative banks, state cooperative banks, district-level cooperative banks, all India term financial institutions and all non-banking financial companies, including housing finance companies. Only those borrower accounts that were classified as standard, but not in default for more than 30 days with any lending institution as on 1 March 2020 and having stress because of covid-19, are eligible for resolution under this framework. On 24 September 2020, the Ministry of Corporate Affairs (MCA) extended the moratorium against the filing of applications for the commencement of corporate insolvency resolution processes against corporate debtors for any defaults arising after 25 March 2020 by a further three months to 25 December 2020. The moratorium, which came into effect in June, was originally announced for a period of six months (ie, from 25 March 2020 to 25 September 2020. The MCA is authorised to further extend the moratorium until 25 March 2021.

5.1. Key developments of the past year

5.1.1. Are there any developments, emerging trends or hot topics in foreign investment review regulation in India? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

As a step towards the liberlisation of foreign investment in India and towards giving an impetus to defence production, the central government, in Press Note 4 dated 17 September 2020, increased the foreign direct investment cap to 74 per cent from 49 per cent through the automatic route in the defence sector. The covid-19 pandemic has adversely affected most major economies, including the Indian economy. In light of the lockdowns and market disruptions caused by covid-19, the valuations of several Indian companies have witnessed a significant decline. To combat any opportunistic takeovers or acquisitions of Indian companies, the Ministry of Commerce, on 17 April 2020, issued Press Note 3 (2020 Series) to amend the extant foreign direct investment policy; and the related amendments to the Foreign Exchange Management (Non-debt Instruments) Rules 2019 were notified in the notification dated 22 April 2020 in exercise of the powers conferred by clauses (aa) and (ab) of subsection (2) of section 46  of  the  Foreign  Exchange  Management  Act  1999, which amended the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (Revised NDI Rules). Based on the Revised NDI Rules, any investing entity that belongs to or is incorporated in or that is beneficially owned by a citizen of or a person situated in a country sharing a land border with India (concerned investor) must obtain the Indian government’s approval prior to making any investment. Over the course of the past several years, the rules relating to foreign direct investment in India were progressively liberalised; however, investors from only two of India’s neighbouring countries – Pakistan and Bangladesh – have been subject to stricter investment rules (requiring all investments to be approved by the government). Investors from China were not subject to such strict scrutiny other than in sensitive sectors such as telecom, defence and railway infrastructure. With the amendment to the Foreign Exchange Management (Non-debt Instruments) Rules the following transactions will require prior government approval (even if the sector is an automatic route sector): any acquisition of a stake in an Indian entity by a concerned investor; or any transaction that will result in a concerned investor becoming a beneficial owner of an Indian entity. Prior government approval must also be obtained for any transfers of existing foreign investment, which would result in the concerned investor securing beneficial ownership of an Indian company. Further, to facilitate seamless investments in India during the pandemic, the Finance Ministry announced a slew of measures across several domains, including, inter alia, income tax filing, corporate affairs, the Insolvency and Bankruptcy Code 2016, the banking sector, and credit schemes to micro, small and medium-sized enterprises. For instance:

• No additional fees were charged for late filing during a moratorium period from 1 April 2020 to 30 September 2020 in respect of any document etc, that was required to be filed with the Ministry of Corporate Affairs (MCA) registry, irrespective of its due date. This step contributed towards the reduction of compliance burden and enabled previous non-compliant companies and limited liability partnerships to make a fresh start.
• The MCA, in a circular dated 24 March 2020, relaxed the regulations for companies conducting their annual general meeting (for the financial year ending 31 December 2019) (AGM) until 30 September 2020. Further, in a general order dated 8 September 2020, the MCA extended the timeline for conducting AGMs from 30 September 2020 to 31 December 2020.
• The Reserve Bank of India, in a notification dated 27 March 2020, permitted all commercial banks (including regional rural banks, small finance banks and local area banks), cooperative banks, All India Financial Institutions, and non-banking financial companies (including housing finance companies and microfinance institutions) to allow a moratorium of three months on payments of equated monthly installments and installments in respect of all term loans outstanding as on 1 March 2020, which was further extended by another three months (until 31 August 2020).
• The Supreme Court, in its order dated 23 March 2020 in WP (Civil) No. 3/2020 took suo motu cognisance of the difficulty faced by the litigants in approaching various courts and tribunals owing to the national lockdown and thereby extended the limitation period in all proceedings, irrespective of the limitation prescribed under the general law or special laws whether condonable, with effect from 15 March 2020 until further orders are passed by the Supreme Court.

In the wake of strict lockdowns in India owing to covid-19, to ensure regulatory continuity and progress new and pending cases, the Competition Commission of India (CCI) in a welcome move in 2020, issued a press release clarifying the procedure for the electronic filing of notification forms as well as online video consultations. Be it Form I/Form II combinations, green channel notifications or, even, combinations with remedies, it has been business as usual for the CCI’s combination division, which has conducted its review as seamlessly as possible with limited staff and work-from-home facilities. Additionally, in a welcome development, the CCI acknowledged the need for businesses to ‘join-hands’ to address the technical and economic challenges caused by covid-19 such as: disruptions in supply chains; the rationalisation of product ranges; the halting of pipeline products; and future supply concerns. In this regard, the CCI issued an advisory to businesses recognising the need of businesses (including those dealing in critical healthcare and essential commodities) to coordinate certain activities (including the formation of efficiency enhancing joint ventures). However, the advisory clarified that these activities shall be limited to: sharing data on stock levels; timings of operation; sharing of distribution networks and infrastructure; and transport logistics, research and development, production, etc. However, the CCI emphasised in the advisory that in its assessment of such coordinated activity, it will review factors such as accrual of benefits to consumers, improvement in production or the distribution and provision of goods and services, and economic development. This caveat clarifies that the CCI will only consider coordinated activity that is necessary and proportionate to address concerns arising from covid-19. The advisory further cautions that businesses taking advantage of covid-19 to contravene the provisions of the Competition Act 2002 will not be able to claim protection from the sanctions. On 27 March 2020, the CCI issued guidance (the Revised Notes) for parties to file a Form I and clarified the scope of information to be provided to the CCI while notifying a combination in Form I. The Revised Notes were essentially issued to incorporate the amendments introduced to Form I by CCI by way of gazette notification dated 13 August 2019. The Revised Notes: provide relaxation in mapping overlaps between the parties; provide relaxation in providing market facing information; and clarify the scope of ‘complementary’ products and services. It also requires an enhanced level of disclosure: from the acquirer with respect to its group activities; and on the details of the transaction, including the rights being acquired. The Revised Notes clarify: that market shares are to be provided for three years (as opposed to the earlier requirement of one year), only when the combined market shares of the parties for any plausible alternative relevant market exceeds 10 per cent; and the scope of complementary products and services. While mapping horizontal and vertical overlaps, parties are now required to consider entities in which they hold: a direct or indirect shareholding of 10 per cent or more; a right or an ability to exercise any right (including any advantage of commercial nature) that is not available to any ordinary shareholder; or a right or an ability to nominate a director or observer in another enterprise. Further, the CCI has also recently proposed to do away with the requirement for transacting parties to disclose (in Form I) and justify non-compete covenants as part of the combination. If this proposal is successful, then parties would be expected to conduct a self-assessment of non-compete covenants while making a notification in Form I. Moreover, the CCI will continue to have the power to conclude on the effects of these non-compete covenants through the provisions pertaining to anticompetitive agreements under the Competition Act 2002 (the Competition Act). While the CCI sought public comments on its recommendation, it is yet to implement this amendment.

5.1. International and national regulation

5.1.1. Are there any emerging trends, international regulatory schemes, national government or regulatory changes, or other hot topics in real estate regulation in India? (eg, transition to a new alternative benchmark rate upon cessation of LIBOR as benchmark rate?)

The Supreme Court of India has upheld an amendment to the Insolvency and Bankruptcy Code 2016 whereby home buyers have been included in the definition of financial creditors. Home buyers being not less than 100 under the same real estate project or being not less than 10 per cent of the total numbers of home buyers in a real state project, whichever is lesser, can file an insolvency application for initiating the insolvency resolution process against a developer should the developer fail to keep the commitment made by the developer to the home buyers.

5.1. Proposals and developments

5.1.1. Are there any other current developments or trends that should be noted?

With the increasing sophistication of offences and the pressure on investigating agencies to find evidence, investigating agencies are also testing the boundaries of attorney-client privilege (and, in some instances, successfully so). As per media reports, a law firm was recently asked by investigating agencies to hand over documents on a fraud allegedly perpetrated by an individual who had left India, since the documents available with the law firm were not covered by attorney-client privilege. Similarly, in connection with the investigation into a failure of a large conglomerate with financial and other businesses, with the consent of the new management, investigating agencies sought details of past advice provided by multiple law firms to the past management.

5.1. Key developments of the past year

5.1.1. Please highlight any recent significant events or trends related to your national anti-corruption laws.

The key recent developments that related to Indian anti-corruption laws are as follows:

• A criminal reforms committee has been constituted in an attempt to amend the Indian Penal Code. A set of questionnaires have been issued by this committee to gauge public opinion on various offences. One of these issues includes private bribery, which may be criminalised by way of amendment.
• recent amendments to the Prevention of Money Laundering Act (PMLA), which expand the definition of proceeds of crime, remove the requirement to file a first information report for a scheduled offence as a prerequisite for the Enforcement Directorate to initiate proceedings under the PMLA and declare all offences under the PMLA as cognisable and non-bailable;
• the former chairman of United Spirits Limited being declared as India’s first Fugitive Economic Offender under the Fugitive Economic Offenders Act 2018;
• recent forensic investigation activity in relation to the affairs of the Amrapali directors, Moser Baer India Limited and Infosys Limited, based on alleged fraud and mismanagement in the affairs of the relevant entities;
• the Securities and Exchange Board (SEBI)’s initiative to reward whistle-blowers for cases involving companies whose securities are listed on stock exchanges in India;
• initiation of proceedings before the Supreme Court, which will ultimately decide the retroactive applicability of the PMLA to cases of fraud under section 447 of the 2013 Act that occurred prior to April 2018;
• the ED’s prosecution against P Chidambram, HDIL and its promoters and Moser Baer India Limited and Ratul Puri, for allegations of money-laundering;
• the prosecution by the Ministry of Corporate Affairs against the directors, management and the statutory auditors of Infrastructure Leasing and Financial Services. The auditors are presently being investigated by the National Financial Reporting Authority, with bans having been met out to the individuals directly involved in the audit;
• proceedings before the Supreme Court of India in relation to the ban imposed by the SEBI against Pricewaterhouse Coopers for its alleged involvement in the fraud committed by the management of Satyam Computer Services Limited; and
• proceedings initiated by the Serious Fraud Investigation Office (against the lenders and the promoters of Bhushan Steel alleging that the senior officials of 13 banks were involved in the bank fraud committed by the promoters against the relevant banks.

5.1. Update and trends

5.1.1. What are the principal challenges to developing cybersecurity regulations? How can companies help shape a favourable regulatory environment? How do you anticipate cybersecurity laws and policies will change over the next year in India?

Various factors have contributed to delayed formulation of cybersecurity regulations in India, including: (i) the rapid advancement of technology that continues to outpace regulatory response; (ii) intermittent and ineffective reporting of incidents; (iii) the private sector’s inability to accurately assess criticality of available information and likely harm that may be caused in the event of an incident; (iv) lack of cross-functional expertise on the nature of cyber security incidents that may be experienced by varied sectors; and (v) government and private sector hesitation to mandate minimum standards for all categories of businesses, in view of the time and expense involved. In the last year, however, there has been a renewed focus on adoption of robust cybersecurity practice in India, both from the government and the private sector. Due to the covid-19 pandemic and the large-scale remote work and new technology adoption resulting from it, the private sector has been quite vigilant in adapting its processing, updating its budgets and responding to cyber threats in a timely and nuanced manner. Several organisations, such as the Data Security Council of India (DSCI), have proactively issued advisories and assisted other private sector organisations to seamlessly transition to safer digital processes. We expect these initiatives to guide the government in terms of level of cyber security preparedness expected from organisations, how the private sector has responded to cyber security threats, renewed focus on revision of policies and diversified skill-set of response stakeholders, and testing efficacy of protective technologies and strategies. Timely and descriptive cyber security reporting by the private sector will bring in more collaboration and clarity on better practices. The varied experiences of regulated businesses regarding cyber incidents will help guide policy, as it is likely that sensitive sectors such as healthcare and social security will require a higher standard of compliance, in view of the nature of their operations and risk assessment. We expect some regulatory developments proposed by the government to further energise compliance. The National Cyber Security Strategy 2020 is a long-awaited policy initiative of the government, and it is hoped that better security standards and priority allocation will be the norm after it is notified. The Guidelines on Regulation of Payment Aggregators and Payment Gateways require payment aggregators to implement security standards, and best practices which will benefit the financial technology sector in India.

5.2. Coronavirus

5.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has been implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

On 28 May 2020, the Government of India, Ministry of Housing and Urban Affairs, issued an advisory to various states, union territories and other ministries of central government with respect to the extension of validity and time limit of all approvals, No Objection Certificates (NOCs) and subsequent compliances for the real estate sector. As per the said advisory, the states and the concerned agencies have been advised to:

• consider the situation as a force majeure;
• extend the validity, automatically, of various kinds of approvals by Urban Local Bodies, Urban Development Authorities and other state agencies, including commencement and completion certificates, payment schedule of charges including developmental charges, NOCs from various agencies by nine months; and
• extend the timelines for subsequent compliances by the building proponents as per the precondition of the permission given, automatically, for a period of nine months.

It has been clarified in the advisory that the advisory as set forth in the second and third points may be considered for all those projects whose validity has expired on or after 25 March 2020. The advisory further provides that the states may issue necessary directives to Municipal Corporations, Urban Development Authorities and Urban Local Bodies so that various approvals, payment of charges and compliances by building proponents may be rescheduled without any requirement of an individual application from the building proponent. In view of the above advisory, the Real Estate Regulatory Authorities of various states have extended the registration of real estate projects as well as completion timelines by a period ranging from six months to nine months. The state of Maharashtra has reduced the amount of stamp duty by 2 per cent on the instruments of conveyance of the immovable property for a period starting from 1 September 2020 to 31 December 2020, and by 1.5 per cent for the period starting from 1 January 2021 to 31 March 2020. The Reserve Bank of India announced a resolution framework for covid-19 related stress on 6 August 2020 to address borrower defaults pursuant to the stress caused by the pandemic – without necessitating a change of ownership and without asset classification downgrade, modifying the existing framework. The framework for covid-19 stress covers resolution of both personal loan accounts and corporate loan accounts. The framework is applicable to commercial banks, primary cooperative banks, state cooperative banks, district level cooperative banks, all Indian term financial institutions and all non-bank financial companies, including housing finance companies. Only those borrower accounts that were classified as standard, but not in default for more than 30 days with any lending institution on 1 March 2020 and having stress on account of covid-19 are eligible for resolution under this framework.

5.2. Coronavirus

5.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

The central government and the state governments, during the covid-19 pandemic, issued orders under the National Disaster Management Act 2005 and the Epidemic Diseases Act 1897. The Epidemic Diseases Ordinance 2020 was promulgated on 22 April 2020 to empower the state governments to take special measures and prescribe regulations during the outbreak of an epidemic disease. These legislation were the primary sources of the government imposing the lockdown and rules surrounding it.

At the Union level, a relaxation on tax return filings was announced through the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020. There was a further relaxation on the tax deducted at source announced at the annual budget. The Central Board of Direct Taxes relaxed the reporting of information as well.

The Reserve Bank of India (RBI) started by imposing a three-month moratorium on loans, which was extended to 31 August 2020. However, there is still some uncertainty as the issue is sub-judice with the Supreme Court and the RBI has not issued fresh guidelines on the moratorium. However, the moratorium imposed against insolvency proceedings was extended up to 25 December 2020. Orders in this matter were reserved on 17 December 2020 and are still awaited.

Timelines for compliances have been extended by the Ministry of Corporate Affairs. These relaxations include conducting the annual general meeting of a company through video conferencing, and the date for the meeting had been extended to 31 December 2020. On the capital markets front, SEBI has extended the timeline for compliances on depository participants as well as trading members. This also includes measures to ease compliance such as permitting digital signature certificates for authentication of filings.

For good order, it is recommended that clients seek advice on the updated compliance requirements under various regulators. There have been continuous changes introduced by the government to address various issues caused by the pandemic. There has been a further review of some of these changes by the judiciary and the state governments.

A repository of resources tracking the changes introduced by the government to tackle the pandemic can be found here: https://www.azbpartners.com/covid-19/

5.2. Coronavirus

5.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

The DSCI (which is an industry body set up by the National Association of Software and Service Companies, established for data protection in India, for the purposes of establishing standards and practices for cyberspace to make it safe and secure) issued a paper titled ‘Business Resiliency and Security during COVID-19’, which outlines how security organisations have handled the unprecedented challenges brought about by the pandemic and is a summation of best practices that may be adopted by organisations, going forward. The DSCI has also issued various advisories on the best practices for cyber security to be implemented by IT administrators and employees working from home, privacy implications arising from remote work and cybersecurity protocols to be adopted by hospitals and law enforcement agencies. Further, an advisory has also been issued by the Computer Emergency Response Team (CERT-In) to combat the covid-19 related phishing campaigns by malicious actors against individuals and businesses. Further, to combat cyber security issues, certain regulators such as the Department of Telecommunication have been issuing, inter alia, various security-related circulars to update stakeholders, such as: ‘Best Practices – Cyber Security‘, which provides protocols to be followed by organisations; and ‘Unsafe Practices to be Avoided at Workplace for Cyber Security‘, which describes unsafe workplace practices that should be avoided, such as using common passwords, leaving devices unlocked, ignoring operating systems and software updates, downloading files without scanning, etc. It is recommended for all organisations to, in a timely manner, appoint a chief information security officer, formulate policies and allocate stakeholder responsibility, and review the available advisories (especially in their particular sector). It is also advisable for organisations to adapt their cyber security preparedness in light of the degree of harm that can be caused to their business and stored information, in the event of an incident. The Reserve Bank of India (RBI), in its ‘Financial Stability Report’ issued in July 2020, recognised the banking industry as a ‘target of choice’ for cyberattacks. In the post-covid-19 lockdown, the number of cyberthreat incidents has considerably surged, in view of which the RBI has taken several measures to ensure the adoption of other practices and procedures. As per the ‘Financial Stability Report’ issued in July 2020, one such example is the advisory issued by the RBI on 13 March 2020 to the regulated entities to ensure that access to systems was secure and critical services to customers were operating without disruption. From then onwards the RBI, in close coordination with the CERT-In, has issued over 10 advisories to supervised entities on various cyberthreats and best practices to be adopted. In addition, a series of video conferences were conducted regarding cybersecurity preparedness and broad cyber/IT threats in order to sensitise supervised entities. Further, owing to the increase in the number of digital transactions on account of the covid-19 crisis and associated threats, the government is in the process of setting up a system to secure the financial sector of the country from cyberattacks, and is establishing a specialised agency, CERT-Fin, for this purpose.

5.2. Coronavirus

5.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

The covid-19 pandemic has adversely affected most major economies, including Indian economy. In light of the lockdowns and market disruptions caused by covid-19, the valuations of several Indian companies have witnessed a significant decline. To combat any opportunistic takeovers or acquisitions of Indian companies, the Ministry of Commerce, on 17 April 2020, issued Press Note 3 (2020 Series) to amend the extant foreign direct investment policy; and the related amendments to the Foreign Exchange Management (Non-debt Instruments) Rules 2019 were notified in the notification dated 22 April 2020 in exercise of the powers conferred by clauses (aa) and (ab) of subsection (2) of section 46  of  the  Foreign  Exchange  Management  Act  1999, which amended the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (Revised NDI Rules). Based on the Revised NDI Rules, any investing entity that belongs to or is incorporated in or that is beneficially owned by a citizen of or a person situated in a country sharing a land border with India (concerned investor) must obtain the Indian government’s approval prior to making any investment. Further, to facilitate seamless investments in India during the pandemic, the Finance Ministry announced a slew of measures across several domains, including, inter alia, income tax filing, corporate affairs, the Insolvency and Bankruptcy Code 2016, the banking sector, and credit schemes to micro, small and medium-sized enterprises. For instance:

• No additional fees were charged for late filing during a moratorium period from 1 April 2020 to 30 September 2020 in respect of any document etc, that was required to be filed with the Ministry of Corporate Affairs (MCA) registry, irrespective of its due date. This step contributed towards the reduction of compliance burden and enabled previous non-compliant companies and limited liability partnerships to make a fresh start.
• The MCA, in a circular dated 24 March 2020, relaxed the regulations for companies conducting their annual general meeting (for the financial year ending 31 December 2019) (AGM) until 30 September 2020. Further, in a general order dated 8 September 2020, the MCA extended the timeline for conducting AGMs from 30 September 2020 to 31 December 2020.
• The Reserve Bank of India, in a notification dated 27 March 2020, permitted all commercial banks (including regional rural banks, small finance banks and local area banks), cooperative banks, All India Financial Institutions, and non-banking financial companies (including housing finance companies and microfinance institutions) to allow a moratorium of three months on payments of equated monthly installments and installments in respect of all term loans outstanding as on 1 March 2020, which was further extended by another three months (until 31 August 2020).
• The Supreme Court, in its order dated 23 March 2020 in WP (Civil) No. 3/2020 took suo motu cognisance of the difficulty faced by the litigants in approaching various courts and tribunals owing to the national lockdown and thereby extended the limitation period in all proceedings, irrespective of the limitation prescribed under the general law or special laws whether condonable, with effect from 15 March 2020 until further orders are passed by the Supreme Court.

In the wake of strict lockdowns in India owing to covid-19, to ensure regulatory continuity and progress new and pending cases, the Competition Commission of India (CCI) in a welcome move in 2020, issued a press release clarifying the procedure for the electronic filing of notification forms as well as online video consultations. Be it Form I/Form II combinations, green channel notifications or, even, combinations with remedies, it has been business as usual for the CCI’s combination division, which has conducted its review as seamlessly as possible with limited staff and work-from-home facilities. Additionally, in a welcome development, the CCI acknowledged the need for businesses to ‘join-hands’ to address the technical and economic challenges caused by covid-19 such as: disruptions in supply chains; the rationalisation of product ranges; the halting of pipeline products; and future supply concerns. In this regard, the CCI issued an advisory to businesses recognising the need of businesses (including those dealing in critical healthcare and essential commodities) to coordinate certain activities (including the formation of efficiency enhancing joint ventures). However, the advisory clarified that these activities shall be limited to: sharing data on stock levels; timings of operation; sharing of distribution networks and infrastructure; and transport logistics, research and development, production, etc. However, the CCI emphasised in the advisory that in its assessment of such coordinated activity, it will review factors such as accrual of benefits to consumers, improvement in production or the distribution and provision of goods and services, and economic development. This caveat clarifies that the CCI will only consider coordinated activity that is necessary and proportionate to address concerns arising from covid-19. The advisory further cautions that businesses taking advantage of covid-19 to contravene the provisions of the Competition Act 2002 will not be able to claim protection from the sanctions. On 27 March 2020, the CCI issued guidance (the Revised Notes) for parties to file a Form I and clarified the scope of information to be provided to the CCI while notifying a combination in Form I. The Revised Notes were essentially issued to incorporate the amendments introduced to Form I by CCI by way of gazette notification dated 13 August 2019. The Revised Notes: provide relaxation in mapping overlaps between the parties; provide relaxation in providing market facing information; and clarify the scope of ‘complementary’ products and services. It also requires an enhanced level of disclosure: from the acquirer with respect to its group activities; and on the details of the transaction, including the rights being acquired. The Revised Notes clarify: that market shares are to be provided for three years (as opposed to the earlier requirement of one year), only when the combined market shares of the parties for any plausible alternative relevant market exceeds 10 per cent; and the scope of complementary products and services. While mapping horizontal and vertical overlaps, parties are now required to consider entities in which they hold: a direct or indirect shareholding of 10 per cent or more; a right or an ability to exercise any right (including any advantage of commercial nature) that is not available to any ordinary shareholder; or a right or an ability to nominate a director or observer in another enterprise. Further, the CCI has also recently proposed to do away with the requirement for transacting parties to disclose (in Form I) and justify non-compete covenants as part of the combination. If this proposal is successful, then parties would be expected to conduct a self-assessment of non-compete covenants while making a notification in Form I. Moreover, the CCI will continue to have the power to conclude on the effects of these non-compete covenants through the provisions pertaining to anticompetitive agreements under the Competition Act. While the CCI sought public comments on its recommendation, it is yet to implement this amendment.

5.2. Coronavirus

5.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

Besides waiving various procedural compliances under certain laws, the Indian regulators have, inter alia, allowed companies to hold meetings through video conferences, to use digital signatures and to contribute towards awareness programmes and research related to covid-19 as part of their corporate social responsibility obligations. Further, the government rolled out various relief packages to address the ill-effects of lockdown on the economy and those affected. The government has also undertaken various measures to improve the ease of doing business in India. Clients would need to evaluate these in light of their specific circumstances.   * The authors would like to acknowledge Abhay Raj Singh Bundela, an associate at AZB & Partners, for his assistance with this chapter.

6.1. Recent developments

6.1.1. Are there in India any emerging trends or hot topics regarding antitrust regulation and enforcement in the pharmaceutical sector?

In October 2020, the Competition Commission of India (CCI) launched a market study to assess the competitive landscape in the pharmaceutical sector. The CCI indicated that the objective of the study is to assess antitrust concerns in the drug supply chain. The CCI has indicated that the study would primarily focus on the distribution segment of the pharmaceutical market, with a view to understanding:

• discounts and margin policies at the wholesale and retail levels of the distribution system;
• the role of trade associations in relation to various aspects of the distribution business;
• regulatory rationalisation of trade margins and its impact on price and competition; and
• the impact of e-commerce on price and competition.

The study also aims to investigate the proliferation of branded generic drugs in India and how this may affect competition, and to assess potential hurdles relating to the entry of biosimilar drugs in India. The market study is being conducted in consultation with relevant stakeholders, including pharmaceutical companies, stockists, chemists, sector experts, trade associations, doctors and regulators.

6.1. Enforcement and compliance

6.1.1. Describe any national trends in criminal money laundering schemes and enforcement efforts. Describe any national trends in AML enforcement and regulation. Describe current best practices in the compliance arena for companies and financial institutions.

In the wake of economic offenders such as Nirav Modi and Vijay Mallya, who have fled the country since their fraud came to light, the Fugitive Economic Offenders Act 2018 (the Economic Offenders Act) was enacted with effect from 21 April 2018. The legislation gives the Indian government the power to attach all the assets (and not just the assets acquired from the proceeds of crime) of an individual against whom an arrest warrant has been issued for committing a prescribed offence where the value exceeds 1 billion rupees. The government has also stated that it will establish an international cooperative mechanism to attach the foreign assets of such declared fugitives. Absconding liquor baron Vijay Mallya became the first person to be declared a ‘fugitive economic offender’ under the Economic Offenders Act. The Directorate of Enforcement (ED) initiated proceedings against Mallya in 2016, alleging that he had used his business ventures to siphon huge amounts of money out of India. He had fled from India and moved to the United Kingdom. The High Court of Justice, according to publicly available information, dismissed his appeal against the Westminster Magistrates’ Court’s extradition order on 20 April 2020. Further, he has also lost leave to appeal against the High Court’s decision before the Supreme Court of the United Kingdom. Certain securities held by Mallya that had been attached by the ED have been sold to recover approximately 10 billion rupees. In February 2018, the ED registered a money laundering case against billionaire diamond dealer Nirav Modi for alleged fraud approximating 13 billion rupees. Modi fled the country and moved to the United Kingdom, despite a series of criminal summons issued to him by Indian courts. He was arrested in London, and the ED is working with the Crown Prosecution Service of the United Kingdom to extradite him back to India. According to publicly available information, a Special Court declared Modi as a fugitive economic offender in December 2019 on an application filed by the ED. By an order dated 25 September 2018, the Reserve Bank of India (RBI) imposed a monetary penalty of 50 million rupees on Federal Bank for non-compliance with the RBI directions in relation to, inter alia, certain know your customer and AML norms as well as for failure to pay compensation for delays in the resolution of ATM-related customer complaints. With the objective of reviewing anti-bribery and anti-corruption laws in India, certain amendments to the Prevention of Corruption Act 1988 (PCA) were introduced with effect from 26 July 2018. Under the erstwhile PCA, only the demand side of corruption (ie, the solicitation and acceptance of a bribe) was a criminal offence, and there was no provision to directly criminalise the supply side of corruption or the offering of a bribe to obtain an undue advantage, which has now been included as an offence. Further, the PCA now also specifically prescribes the consequences of an offence thereunder when committed by a company. By virtue of the same set of amendments, the new offences under the PCA have been listed as ‘scheduled offences’ under the Prevention of Money Laundering Act 2002. The RBI, on 18 December 2020, amended the Reserve Bank of India (Know Your Customer (KYC)) Directions 2016. These amendments make it, inter alia, mandatory for the regulated entities to upload KYC records pertaining to accounts of legal entities whose accounts are opened after 1 April 2021 onto the Central KYC Records Registry (CKYCR), pursuant to Rule 9 (1A) of the PML Rules. Even the KYC data of accounts of individual customers and legal entities opened prior to the above-mentioned date have to be incrementally uploaded on the CKYCR.

6.2. Coronavirus

6.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

Indian regulatory authorities have waived various procedural compliances under certain laws and extended certain compliance timelines. Other measures taken include contribution towards awareness programmes and research related to covid-19 being permitted as part of corporate social responsibility obligations of companies. Further, the government rolled out various relief packages to address the ill effects of lockdown on the economy and those affected. The government has also undertaken various measures to improve the ease of doing business in India. Clients would need to evaluate these in light of their specific circumstances.   * The authors would like to acknowledge Abhay Raj Singh Bundela, an associate at AZB & Partners, for his assistance with this chapter.

7.1. Recent developments

7.1.1. Are there any emerging trends, notable rulings or hot topics related to cryptoassets or blockchain in India?

The Supreme Court ruling of March 2020, setting aside the Reserve Bank of India (RBI) Circular, has been notable in bringing about a positive attitude to crypto trading in the Indian markets. Unlike resistance to cryptoassets, blockchain has recently gained much traction. The government report that forms the basis for the proposed legislation banning cryptocurrency acknowledges that blockchain will play a major role in the new digital age and explicitly excludes this technology from the purview of the ban. Private entities and government institutions have aggressively pushed for innovation using this technology. Noteworthy developments include the Andhra-Pradesh government developing and using blockchain in banking and finance as well as exploring the use of smart contracts. The defence minister has also declared that blockchain has ‘Revolutionised the existing paradigm of warfighting,’ and that the ministry is seeking to employ this technology to better safeguard the security of the critical infrastructure. In its white papers, the RBI has consistently highlighted the various uses of blockchain and encouraged its deployment in the financial services market. Given the vote of confidence, the Indian market is keenly following the policy initiatives that the government may potentially release in the coming years.

7.2. Coronavirus

7.2.1. What emergency legislation, relief programmes and other initiatives specific to your practice area has been implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

The Indian government has issued various guidelines concerning financial aid, health measures, etc, to address concerns arising from the covid-19 pandemic. Given the lack of clarity in regulating cryptocurrency and cryptocurrency businesses, no specific measures or initiatives have been taken in this area.