Regulating private traffic


N Raja Sujith at Majmudar & Partners analyses the entry and exit hurdles facing private equity investments

Regulatory hurdles in India have been always a challenge for private equity (PE) investors. However, the flow of PE investment into India has been quite steady in the past, despite several ambiguities in the legal regime governing such investments.

Until 2007, a popular instrument used for PE investment was convertible preference shares. However, since May 2007, preference shares with a partial or non-conversion option have been treated as external commercial borrowings (ECBs), which require onerous approvals. PE investors now have the opportunity to structure their investments through fully and mandatorily convertible preference shares, debentures or equity shares, instead of partly or non-convertible preference shares.

Raja Sujith
Raja Sujith

Ambiguity persists

Some regulations relating to PE investments in listed companies are ambiguous. When PE investors acquire rights in listed companies (such as veto rights on key management decisions), they may be held to have acquired “control” over the company, thereby triggering open offer requirements as specified under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

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N Raja Sujith is a partner at Majmudar & Partners in Bangalore. He can be contacted at The views expressed in this article are personal and do not reflect the official position of the firm.