The Technology M&A Review: India
The year 2020 witnessed a major fillip to India's digital economy on account of rapid technology adoption necessitated by the covid-19 pandemic. Businesses and institutions of all sizes were forced to increase reliance on technology, not just as a measure of cost efficiency, but rather as a necessity. Owing to a burgeoning internet user base of roughly 700 million users,2 India's technology sector is expected to cross revenues of US$194 billion in 2021.3 The exponential growth has contributed to the rise of 24 newly crowned 'unicorns' in India in 2021 – ranging from Cred (a payments and credit cards rewards company), Urban Company (a gig marketplace), Sharechat (a social networking platform), BharatPe (a business-to-business payments solutions provider), and Pharmeasy (an e-pharmacy) – already doubling 2020's figures and taking the total tally of Indian unicorns to 60.4
From a government policy viewpoint, significant emphasis has been placed on promoting the domestic industry through the government's 'Atmanirbhar Bharat' (self-reliant India) initiative, including its vision of becoming a US$1 trillion digital economy by 2025.5 To further incentivise domestic manufacturers and attract foreign investment, the government implemented the Production Linked Incentive (PLI) Scheme, extending incentives of 1 to 4 per cent on net incremental sales of electronic goods manufactured in India.
This vision has been affected to some degree by policy headwinds, including protectionist measures taken as a response to simmering tensions between India and China. In April 2020, the government mandated prior approval for any inbound investment from China (and other countries sharing land borders with India) or from entities beneficially owned by persons residing in such jurisdictions.6 This measure, taken with a view to curb opportunistic takeovers, has curtailed the otherwise steady flow of Chinese investment in India's technology sector. In addition, the Indian government banned the use of nearly 60 Chinese applications (including TikTok, WeChat and CamScanner), some of which had significant presence in India, on the grounds of a potential threat to India's sovereignty, integrity and national security.7
Separately, various regulatory agencies, including the anti-trust regulator (the Competition Commission of India (CCI)) and the Directorate of Enforcement (which is in-charge of enforcing exchange control regulations and anti-money laundering legislations), as well as government departments looking into matters of consumer affairs and information technology, have initiated investigations and enforcement actions against some of the larger players in the technology sector. For instance, there are investigations ongoing into the operations of major e-commerce platforms (mainly Amazon and Walmart-owned Flipkart, with allegations ranging from predatory pricing, abuse of dominance to breach of conditions pertaining to receipt of foreign investment), and run-ins with Twitter and WhatsApp, regarding their data security measures and use of personal data. Major names in the credit cards business, including Mastercard and American Express have been prohibited from issuing new cards in India as a result of non-compliance with data localisation norms.8
Despite the challenges, the outlook remains largely positive, as evident from the highly successful listing of Zomato (a food delivery and restaurant database platform) and a host of other tech startups making a beeline for the bourses, including Nykaa (an online beauty and wellness product retailer), Paytm and Mobikwik (both leading players in the digital payments sector) and PolicyBazaar (an online insurance aggregator). Indian tech startups are also expanding globally, with the likes of Byju's (an ed-tech company) having recently completed two acquisitions to mark its presence in the United States and aiming to achieve revenues of US$300 million from US operations within this financial year.9
Year in review
While the covid-19 pandemic resulted in fewer mergers and acquisitions (M&A) deals in 2020 (relative to 2019), the overall deal value in 2020 crossed US$82 billion, marking an increase of 22.9 per cent from 2019 levels.10 Deal value in technology and ancillary sectors hit US$40 billion, an increase of ~120 per cent compared to 2019 levels.11
Notably, the technology sector witnessed acquisitions by large Indian conglomerates, including the Tata Group's acquisition of BigBasket (an online grocery supermarket) for US$1.3 billion and of 1MG (a digital consumer healthcare platform).12 Flipkart raised US$3.6 billion at a valuation of US$38 billion, from multiple investors, including GIC, Canada Pension Investment Board, Khazanah Nasional and Softbank Vision Fund 2, in what is being considered its pre-IPO funding round.13 Dominating high-value deals in 2020, Reliance Industries received investments from internet giants Facebook and Google, both of which acquired a minority stake in Jio Platforms (a technology company holding digital businesses of Reliance Industries) for US$5.7 billion and US$4.5 billion, respectively.14 These investments drew the attention of several other global investors, which led to further investments of ~US$9.9 billion in Jio Platforms.15
Some notable themes of deal making that emerged during the year include:
- Increased vertical integration with leading online businesses expanding in allied spaces, with PharmEasy (an e-pharmacy) acquiring a majority stake in Thyrocare (a leading diagnostics provider) and Medlife (an online healthcare platform).16
- Increased focus on the ed-tech sector, which attracted record-high foreign investment of US$2.22 billion, which were used for making other acquisitions,17 including Byju's (India's largest ed-tech company) acquisition of Aakash Education Services Limited (an offline educational service provider) for US$1 billion. Byju's also looked to expand its global footprint through the acquisition of US-based ed-tech firm Epic for US$500 million.18
- A burgeoning user base for online games and fantasy sports in India attracted an investment of approximately US$544 million during 2020.19 The sector also witnessed its first IPO with Nazara Technologies listing on the Indian stock exchanges.20 Dream11 (a fantasy sports platform) recently became the first company in the e-gaming sector to attain unicorn status,21 and was followed closely by Mobile Premier League (an online gaming platform).
Legal and regulatory framework
The legal and regulatory framework governing M&A broadly comprises of the Companies Act, 2013 (Companies Act), which, among other things, regulates M&A and general governance of companies and is administered by the Ministry of Corporate Affairs (MCA), Government of India (GoI); securities laws that regulate acquisitions and takeovers of listed companies, as well as listing and delisting norms and are administered by the Securities and Exchange Board of India (SEBI); and the Foreign Exchange Management Act, 1999 (FEMA), which regulates foreign capital flows and is administered by the Reserve Bank of India (RBI) and the GoI.
The past year has witnessed significant developments in the legal framework governing the technology sector. Certain key developments include the following.
The regulatory framework in relation to e-commerce entities has evolved over time. To boost investment in the sector, the GoI has over the years liberalised the regime for marketplace e-commerce and single-brand retail trading. This has often been met with opposition from smaller traders and retailers. Accordingly, the GoI has had to do a balancing act between its objectives of developing the e-commerce sector and protecting the interests of small traders and retailers. The result has been a policy, pursuant to which e-commerce entities are permitted to act as marketplaces, but not sell products to customers directly, or have any control over inventory. On account of differing interpretations of such regulations, a complex loop has developed where regulations are tweaked and the e-commerce entities, in turn, modify their business models to address such tweaks, while the GoI looks to further curb potential loopholes in the revised business models. The latest instance of such regulatory amendments relates to consumer protection laws, which seek to introduce liabilities on e-commerce platforms for acts of sellers registered on such platforms and to curb predatory pricing practices.22
The merger control framework is primarily governed by the Competition Act, 2002 (Competition Act). Parties undertaking M&A activity must seek prior approval of the CCI for a transaction, if thresholds, based on asset and turnover metrics, are breached. Having witnessed big-ticket investments in the technology sector, particularly in targets with low asset or turnover value, the CCI is now contemplating alternative metrics for assessing the anticompetitive nature of transactions that would otherwise slip under the radar.23
iii Digital payments
The digital payments industry continues to be a key contributor to India's growth story and has witnessed multiple developments in the past year with considerable focus on innovation, increasing competition and user safety. A key intermediary in the payments space is the National Payments Corporation of India (NPCI), set up by the RBI and the Indian Banks Association, with all major banks in India being shareholders.27 As part of its responsibilities of providing infrastructure for payment and settlement systems and bringing innovations in retail payment systems, NPCI has launched RuPay (India's indigenous card payment network), immediate payment service (IMPS) and the unified payments interface system (UPI). Within the existing NPCI framework, volume-caps on third-party app providers (TPAPs) like Google Pay and PhonePe have been imposed to ensure that the total transaction volume initiated through a TPAP does not exceed 30 per cent of overall transactions processed in UPI during the preceding three months. A detailed standard operating procedure has also been issued by the NPCI for ensuring compliance with the volume caps.28
As a measure of enhancing competition and decentralisation of systems, the RBI is in the process of enabling participation of private players in developing additional payment systems, through new umbrella entities (NUE).29 These NUEs will, among other things, be responsible for setting up and operating new payment systems and payment methods in addition to those launched by the NPCI. Several banks, fin-tech companies and foreign investors have expressed interest in setting up such NUEs.
Key transactional issues
i Company structures
Corporate entities in India have traditionally been set up as a private limited company (having a minimum of two shareholders) or a public limited company (having a minimum of seven shareholders). Since 2008, a third type of corporate structure was introduced in the form of limited liability partnerships (LLP), which combines characteristics of a partnership with those of limited liability corporations. That said, there are still certain ambiguities associated with regulations pertaining to LLPs. Accordingly, limited companies tend to be the most common form of corporate entity.
Historically, a number of Indian businesses have been set up with an overseas holding structure (with Mauritius and Singapore being the preferred jurisdictions), on account of the relative ease of raising and pooling overseas capital and flexibility in listing in overseas jurisdictions, as well as to take advantage of preferential tax treatment available under bilateral tax treaties between India and such overseas jurisdictions. These advantages are getting neutralised on account of changes in the Indian regulatory and tax regime. This includes changes made to enable direct overseas listing of Indian companies, without having to first list on Indian bourses (while enabling provisions have been introduced in the Companies Act, detailed guidelines are awaited) and revisions to tax laws and a renegotiation of India's bilateral tax treaties with Mauritius and Singapore, which have curtailed the beneficial tax treatment on capital gains that was previously available for such overseas holding structures.
ii Deal structures
The choice of deal structure is largely driven by tax and commercial considerations. Stock acquisitions are the most prevalent form of deal structure. A stock purchase or a primary investment is the default mode of acquisition, unless there are specific considerations that merit a different mode of acquisition, such as an asset or business transfer, or merger.
Stock purchases tend to be the fastest and most straightforward method of getting a deal done. That said, investments in certain sensitive sectors (including news broadcasting, telecom, insurance, defence and multi-brand retail) beyond prescribed thresholds, require prior approval of the GoI, which could be time consuming. In case of a publicly listed company, an acquirer seeking to secure control in a publicly listed company or acquire a stake of 25 per cent or more, is required to tender a public offer to further acquire at least an additional 26 per cent stake.
Business transfers are most often structured as a 'slump sale' (i.e., sale of a business-undertaking as a going concern for a lump-sum consideration). These have tax advantages over transactions involving transfer of individual assets, in that no goods and service tax is payable. Relative to stock purchases, business transfers tend to be more complicated and time consuming, given that these typically require consents from business counterparties and local government authorities (including for transfer of real estate etc.). Business transfers also tend to involve a higher incidence of stamp duty compared to stock purchases.
Mergers have a distinct advantage in that these can be structured as cash and tax neutral transactions. However, their implementation involves a process before a quasi-judicial body – the National Company Law Tribunal, which can be time consuming relative to the other structures.
iii Acquisition agreement terms
Consideration for an M&A transaction may be discharged by payment of cash or otherwise, depending upon tax and commercial considerations. Cash deals are most common, although mergers are predominantly implemented in a cash-neutral manner, through exchange of stock. Besides mergers, there are regulatory limitations pursuant to Indian exchange control regulations on structures involving non-cash consideration (including share swaps and the like) that limit structuring options in cross-border M&A deals. In addition, these regulations prescribe conditions for pricing of share deals, and require discovery of a 'fair value' by independent accountants, with that fair value acting as a floor for consideration that can be paid by an overseas acquirer to an Indian seller, and as a cap for consideration that can be paid to an overseas seller by an Indian acquirer. Deferral of consideration is often resorted to, although Indian exchange control regulations limit the quantum and time period for any such deferral to 25 per cent of the total consideration and 18 months from execution of definitive agreements, respectively.
Pricing mechanism and earn-out
The completion accounts mechanism, with adjustments for working capital and net debt levels, is commonly used for price adjustments in private M&A transactions. Locked-box pricing has been gaining traction in instances where the seller possesses bargaining power, such as in auction sales, although it is more commonly resorted to in sectors where the target has a steady and predictable revenue stream. Earn-outs are also utilised as a tool to bridge valuation gaps between the seller and the purchaser and are often resorted to in technology deals, although there is limited flexibility on account of exchange control regulations imposing limitations on the quantum and time period for deferral of consideration.
Warranty and indemnity
Warranty and indemnity insurance is at a relatively nascent stage in India. That said, the market for such insurance products is growing rapidly, particularly given the increase in stressed asset acquisitions. Policy premium has witnessed a downward trend, making these products more attractive, especially in transactions involving start-up promoters or private equity investors, looking to exit without tail liabilities. For deals that are not backed by warranty and indemnity insurance, seller indemnity obligations are sometimes secured by escrow arrangements. These face similar limitations as to quantum and time period as those applicable to deferred payments, under Indian exchange control regulations.
Break fees are a matter of commercial negotiation. While not uncommon, break fees are not the norm for M&A transactions in India. Broadly, such fees are enforceable where the quantum is determined as a compensation for the cost and effort spent on a transaction. On the other hand, fees that assume the nature of a penalty are likely to be struck down by Indian courts. Reverse break fees are rare and generally limited to auction sales.
It is common to see financing for M&A transactions through equity, debt or a combination of the two. Both modes of funding are available for domestic as well as foreign acquirers. Foreign acquirers, however, are restricted from pledging shares of the Indian target entity for obtaining acquisition financing. For a domestic acquirer, while acquisition financing from banks is prohibited, they have the option of approaching non-banking financial companies (shadow banks for this purpose).
v Tax and accounting
The chief tax consideration in M&A deals is levy of capital gains tax, which is applicable on transfers of capital assets situated in India and governed by the Income Tax Act, 1961 (ITA), as well as double tax avoidance treaties, which India has entered into with specific jurisdictions.
Capital gains tax is computed on the difference between the sale consideration and the costs of acquisition. Further, depending on the holding period of the capital assets, capital gains are taxed as short-term capital gains30 or long-term capital gains, with short-term capital gains attracting a significantly higher rate of tax.31
Additionally, transactions involving transfer of shares of a foreign company, which derive their value substantially from assets located in India,32 are susceptible to capital gains tax in India, as indirect transfers. The GoI's stand on retrospective taxation of indirect transfers has been a cause of concern for foreign investors. Pursuant to a Supreme Court ruling disallowing a tax demand on indirect transfers,33 the GoI specifically amended the ITA in 2012 to permit retrospective taxation of M&A deals that substantially derive their value from assets in India. Recently, the GoI has amended the tax regime to scrap retrospective taxation on indirect transfer (i.e., no M&A transaction involving an indirect transfer of shares in India, which was concluded prior to the 2012 amendment, would be subject to capital gains tax).34
Further, taxation of technology companies that shift their bases and offices to low tax jurisdictions has also been debated intensely, nationally and globally. In this regard, the GoI imposed an equalisation levy of 2 per cent on the consideration receivable by a non-resident e-commerce operator from supply or services made, provided or facilitated to Indian residents and non-residents (where an Indian internet protocol address is involved).35
Further, the ITA has been amended to add 'significant economic presence' as a criteria to tax a non-resident entity, with recently notified thresholds36 (i.e., generating more than ~US$267,000 in a financial year) from transactions in respect of any goods, services or property, including provision of download of data or software in India, or where such non-resident entity through systematic and continuous business activities is soliciting or engaging in interaction with more than 300,000 users in India.37 It remains to be seen how the global minimum tax negotiations under the OECD/G-20 initiative would impact these developments.
vi Cross-border issues
Foreign direct investment (FDI) in India is permitted through the automatic route (i.e., without prior government approval) and the approval route. Investment in most sectors falls under the automatic route, other than certain sensitive sectors, where investment beyond a certain threshold of ownership requires prior government approval. Foreign investment in the technology sector as well as allied sectors (other than telecom and news broadcasting services) is permitted through the automatic route.
Deals involving issuance or transfer of securities to a non-resident are subject to the determination of 'fair value' in accordance with pricing guidelines under the foreign exchange regulations (discussed in Section IV.iii). These guidelines do not apply to transfer of securities between non-residents.
In 2020, pursuant to an amendment to the FDI policy, the GoI mandated prior government approval for investments from acquirers based out of a country that shares a land border with India (i.e., China (including Hong Kong), Nepal, Bhutan, Bangladesh, Myanmar, Afghanistan and Pakistan) or from entities which have their 'beneficial ownership' in these jurisdictions. The primary objective is to curb any opportunistic takeovers of Indian companies by China-based entities. However, the change has resulted in some uncertainty given the absence of an objective threshold for determining 'beneficial ownership'.
India is a party to various international intellectual property (IP) conventions, including the Paris Convention for Protection of Industrial Property (Paris Convention) and the Berne Convention for the Protection of Literary and Artistic Work, and has modelled its domestic IP legislations accordingly. Under the Indian IP regime, copyrights enjoy protection without any registration requirements. Similarly, while registration of trademarks is provided under the IP framework, unregistered marks can also be protected through common law or contractual obligations. Patents are protected by domestic statute with additional protection under international conventions, such as the right of priority, under the Paris Convention, given to an applicant filing a patent application. Other key elements of IP – know-how and trade secrets – are not protected under specific legislation but are recognised under common law and can be protected through contractual obligations. In terms of recent developments, the Intellectual Property Appellate Board (an appellate adjudicatory body for IP matters) recognised the patentability of software under the category of 'method and device'.38 Further, a parliamentary standing committee released a comprehensive report on 'Review of the Intellectual Property Rights Regime in India'.39 The committee noted the need to review the IP regime in India and to address the low number of IP filings in India compared to other major jurisdictions. The report emphasises inter alia on (1) simplifying and expediting the procedures for trademark filing and registration; (2) review of the current provisions of the patent regime, to allow patenting of a mathematical or a business method, a computer programme or algorithms run by artificial intelligence; (3) specific legislation to deal with the menace of counterfeiting and piracy; (4) the introduction of 'patent pending' status for patents that have been filed; and (5) the need to reconsider the recent move of the abolition of Intellectual Property Appellate Board.
The labour welfare framework in India is presently undergoing an overhaul pursuant to the introduction of four new labour codes framed with the intention of simplifying compliance by reducing the number of legislations, registrations and implementing authorities. Notably, the codes recognise gig workers, platform workers and home-based workers and enable the framing of social security schemes for such workers. The codes also seek to increase the statutory benefits payable to contractual and fixed-term employees and significantly increase penalties for non-compliance.
M&A deals require careful consideration of employment issues and labour law compliances. Employees and their IP are key to technology companies, and transaction documents often provide for non-compete and non-solicit covenants on the outgoing management, protection of trade secrets or other commercially valuable information. Indian law places restrictions on the scope of post termination non-compete provisions, other than in transactions involving a sale of business goodwill and the structuring and scope of such provisions require detailed consideration.
Employee incentivisation is also a key focus area in M&A deals – these are mostly implemented through employee stock option programmes (ESOPs). Under company law, such stock options can only be issued to permanent employees and directors of a company but not to promoters and directors who hold more than 10 per cent of the outstanding equity shares of the company.40 However, certain startups are exempt from the restriction on issuing stock options to promoters and directors, for a period of 10 years from the date of their incorporation or registration. For employees engaged with a foreign company or working for Indian subsidiaries of a foreign company, the foreign exchange laws permit acquisition of shares under ESOP schemes put in place by that foreign company for its global employees.
At present, there is no dedicated legislation dealing with data protection and privacy, with the existing regime finding its source in specific provisions of the Information Technology Act, 2000. Pursuant to this act, regulations have been formulated requiring entities to put in place accredited security practices and procedures for the collection, storage and transfer of personal data. Parallelly, India is in the midst of overhauling the regime by introducing a dedicated data privacy legislation. The Personal Data Protection Bill, 2019 (PDP Bill), which is based on the European Union's General Data Protection Regulation (GDPR), has been hotly debated and is presently pending legislative approval. Among other things, the PDP Bill expands protection available for personal data, enhances control that users have over their data, introduces a central data protection regulator and prescribes data localisation requirements for certain sensitive personal data. However, the PDP Bill has faced criticism because it provides the GoI with the ability to exempt any agency of the government from provisions of the PDP Bill if it is, inter alia, in the national interest or required for prevention of offences that undermine the national interests of India.41 The PDP Bill also provides an exemption from obtaining consent for data processing if it is, among other things, required for any function of the state authorised by law for the provision of any service or benefit provided by the state.42 Further, the GoI is also contemplating a separate framework for non-personal data (NPD).
The regulatory regime for intermediaries has also changed significantly. Pursuant to, among other things, growing concerns around risks of malicious 'fake news', the GoI enacted the Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021 (Intermediary Rules). These primarily aim to (1) increase accountability of social media platforms (such as Facebook, Instagram, Twitter); (2) introduce a three-tier redressal mechanism; and (3) regulate digital media. The provisions placing the onus on social media platforms to identify originators of information have come under some criticism with platforms contesting that such provisions would require breaking end-to-end encryption, thereby compromising users' privacy. Further, the rules also require significant social media intermediaries, such as Twitter, to appoint officers in India in charge of securing compliance and consumer redressal. Twitter has been at loggerheads with the GoI over the imposition of these additional liabilities and is presently embroiled in a litigation before the Delhi High Court in this regard.
GoI has introduced various schemes to attract investors and usher growth, such as Special Economic Zones (SEZs), Export Oriented Scheme and Software Technology Parks. These offer wide-ranging tax benefits, including duty-free enclaves offering 100 per cent income tax exemption on export revenue for the initial five years and 50 per cent for the next five years. As of September 2020, India houses ~262 operational SEZs in India catering to large IT players such as Infosys, Wipro and HCL Tech, etc.43
In addition, the International Financial Services Centre at the Gujarat International Finance Tech (GIFT) City has been envisaged by the GoI and government of Gujarat as a global financial and technology hub. Entities looking to set up base in the Gift City are entitled to several benefits, including 10-year tax holiday on 100 per cent of profits, minimum alternate tax (MAT) of 9 per cent of profit-booking, no goods and services tax on goods and services supplied to overseas clients and no capital gains tax.44
In early 2021, GoI also implemented the PLI Scheme for electronic and technology products specifically to attract investment in the electronics manufacturing sector. The scheme, among other things, extends an incentive ranging from 1 to 4 per cent on net incremental sales of goods manufactured in India for a period of four years.45 Another significant step taken by the GoI was the introduction of a concessional income tax rate of 15 per cent applicable to new domestic manufacturing companies incorporated on or after 1 October 2019, and commencing business on or before 31 March 2023,46 effective from FY 2019–2020.
While the extent of diligence depends on several factors, including the mode of acquisition and deal dynamics including the competitive nature of the bid, for tech M&A, conducting IP diligence of the relevant technology is essential. Information about the target's IP, including confirmation of title, can to some extent be obtained from public databases maintained by relevant IP authorities established by the GoI. Further, a public database search is also required to identify the litigations involving the target entity. While the process of digitisation of court records has been initiated at the higher judiciary levels, the number of courts and tribunals and the lack of a central database make the task of finding details of litigation difficult and time-consuming. Thus, primary reliance is generally placed on information provided by the target and sellers.
Parties to M&A transactions in India generally prefer arbitration as a mode to resolve disputes given the time and cost efficiencies, confidentiality and procedural flexibility involved, especially in cross-border transactions.
India is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (NY Convention), and the Indian Arbitration and Conciliation Act, 1996 (ACA) provides for enforcement of foreign arbitral awards based on the principle of reciprocity, which currently extends to around 48 contracting states to the NY Convention.47
In a recent high-profile litigation, in the context of a shareholder dispute between Amazon and Future Retail (relating to an alleged breach of contractual share transfer restrictions by Future Retail pursuant to a stake sale to Reliance), the Supreme Court of India has upheld the validity of an interim award passed by the Singapore International Arbitration Centre's emergency arbitrator, staying the Reliance–Future Retail transaction.
Covid-19 has accelerated digitisation and permanently transformed the manner of conducting business across sectors. Deal volumes in the second half of 2020 are indicative of a promising road ahead for the technology sector. The success of the Zomato IPO has also paved the way for other technology companies to follow suit and the eventual performance of these companies on the bourses should have a lasting impact on the technology sector as a whole. A string of successful listings would enhance interest in technology startups, with potential investors finding comfort in having a viable route to exit.
Further, China's recent clampdown on its consumer internet companies (particularly ed-tech companies) could result in a massive opportunity for Indian startups, which have one eye on attracting global capital, and the other on expanding their global footprint. The growth of the technology sector should also fuel interest in the allied businesses (such as data centers, warehousing and logistics service businesses).
Regulators in India now have an important role to play in facilitating growth of the technology sector, by focusing on legitimate control over anticompetitive practices, while steering clear of overreach and protectionist measures.
1 Harsh Pais and Arnav Dayal are partners and Anindita Basu and Kastubh Madhavan are senior associates at Trilegal. The authors would like to thank Archit Gupta, Hitakshi Mahendru, Simar Bindra and Yashita Gour – all lawyers at Trilegal – for their invaluable assistance.
2 Telecom Regulatory Authority of India (2021), 'The Indian Telecom Services Performance Indicators July –September 2020', https://www.trai.gov.in/sites/default/files/QPIR_21012021_0.pdf.
3 Nasscom, Technology Sector in India 2021, New World: The Future is Virtual/Strategic Review, nasscom.in/knowledge-center/publications/technology-sector-india-2021-new-world-future-virtualstrategic-review.
5 Ministry of Electronics and Information Technology, India's Trillion-Dollar Digital Opportunity, www.meity.gov.in/writereaddata/files/india_trillion-dollar_digital_opportunity.pdf.
6 Press Note 3 (2020 Series) dated 17 April 2020, Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, GoI; the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2020.
8 Press Release: 2021–2022/106 dated 23 April 2021, RBI, www.rbi.org.in/scripts/FS_PressRelease.aspx?prid=51471&fn=9; Press Release: 2021–2022/530 dated 14 July 2021, RBI, www.rbi.org.in/scripts/FS_PressRelease.aspx?prid=51895&fn=9.
19 www.business-standard.com/article/technology/gaming-sector-in-india-attracted-investments-worth-544-million-report-121031400228_1.html; https://home.kpmg/in/en/home/insights/2021/05/indian-online-gaming-market-mantra.html.
23 The Competition (Amendment) Bill, 2020 proposes sector specific thresholds based on deal value or the size of the transaction or any other criterion. The Competition (Amendment) Bill, 2020 was published on 20 February 2020 for public comments. As of the date of writing, the Bill is pending for listing and discussion before the parliament.
27 www.npci.org.in/who-we-are/about-us (For banks' shareholding, see: www.npci.org.in/PDF/npci/corporate-governance/shareholding-pattern.pdf).
28 Standard Operating Procedure (SOP) – Market Share Cap for Third Party Application Providers (TPAP), 25 March 2021.
29 Draft Framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems, 18 August 2020, RBI, www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11954&Mode=0.
30 For transfer of securities listed on any recognised stock exchange in India, short-term capital gains arise if such asset is held for a period of 12 months or less, and, in case of transfer of unlisted securities in India, short-term capital gains arise if such asset is held for a period of 24 months or less.
31 For transfer of securities listed on any recognised stock exchange in India, long-term capital gains arise if such asset is held for more than 12 months and, in case of transfer of unlisted securities in India, long-term capital gains arise if such asset is held for more than 24 months.
32 As per Section 9, Income Tax Act, 1961, a foreign company's share or interest is said to derive its value substantially from underlying Indian assets, if the value of such Indian assets exceeds 100 million rupees and constitutes 50% of the total value of assets owned by that foreign company.
33 Vodafone International Holdings BV v. Union of India  1 SCR 573.
34 The Taxation Laws (Amendment) Act, 2021, https://egazette.nic.in/WriteReadData/2021/228986.pdf.
35 Part VI, Chapter VI, the Finance Act, 2020.
36 Effective from 1 April 2022.
37 Section 9, Income Tax Act, 1961 read with notification no. GSR 314(E) dated 3 May 2021 issued by the Central Board of Direct Taxes.
38 Allani Ferid v. Assistant Controller of Patents & Designs (IPAB) OA/17/2020/PT/DEL.
40 Rule 12, Companies (Share Capital and Debenture) Rules, 2014.
41 Clause 35, the PDP Bill.
42 Clause 12, the PDP Bill.
46 Section 115BAB, Income Tax Act, 1961.