1. Deal Structure: The transaction is structured as a preferential allotment of equity shares under Section 62(1)(c) of the Companies Act, 2013 read with Chapter V of the SEBI (ICDR) Regulations, resulting in a 20% fully diluted shareholding. Despite board nomination rights, there is no change in control under the SEBI Takeover Regulations, and the investor remains a public shareholder.
2. FEMA NDI Rules: The investment falls under Schedule I of the FEMA NDI Rules, being equity investment in an Indian financial services company. As the investee is an RBI-regulated NBFC, the investment is permitted under the automatic route. Pricing complies with Rule 21 of the NDI Rules, with the issue price aligned to the SEBI ICDR floor price, thereby meeting FEMA minimum pricing norms for listed companies.
3. RBI Approval: While the shareholding is below 26%, the transaction results in a material change in board composition. Investor nomination rights lead to a change in management structure requiring prior RBI approval. RBI approval is therefore a substantive condition precedent.
3. Call Option: The structure includes a call option in favour of the investor, not a put option. From a FEMA perspective, the absence of assured exit pricing is critical. A call option exercisable at prevailing fair market value does not offend the assured return prohibition.
4. SEBI Pricing: The preferential issue pricing follows Regulation 164 read with Regulation 166A of the SEBI ICDR Regulations, based on the higher of the 10-day and 90-day VWAP preceding the relevant date, the BM date.
5. Shareholder Approval: A special resolution is required under Section 62(1)(c) of the Companies Act, 2013 and SEBI ICDR Regulations. Separately, the grant of governance rights independently requires shareholder approval under Regulation 31B of SEBI LODR Regulations.
6. Special Rights under Regulation 31B: Board nomination and pre-emptive rights qualify as “special rights” under Regulation 31B. These rights are subject to shareholder approval through special resolution, and statutorily lapse after five years unless renewed.
7. Non-Compete Payment – Tax Lens: The investor is paying a one-time non-compete fee to a promoter-side ownership trust. From a tax perspective, where the trust is not engaged in business and the payment represents a capital restriction on competing activity, a defensible position exists that Section 28(va) does not apply and the receipt is capital in nature.
8. Regulatory Closures: Completion is subject to RBI, CCI and stock exchange approvals. The transaction does not trigger the SEBI Takeover Code, and disclosure obligations under Regulations 30 and 30A of SEBI LODR is required and is complied with.