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Proposed IPO of Kross Limited

JSA is advising Kross Limited and Equirus Capital Private Limited in relation to the proposed initial public offering of equity shares of Kross Limited (“IPO”) comprising a fresh issue of up to ₹2,500.00 million and an offer for sale by the promoters of up to ₹2,500.00 million. Kross Limited has filed its draft red herring prospectus with SEBI on November 30, 2023.

Kross Limited is a diversified player focused on manufacturing and supply of trailer axle and suspension assembly and a wide range of forged and precision machined high performance safety critical parts for medium and heavy commercial vehicles and farm equipment segments and is one of the prominent manufacturers of trailer axles and suspension assembly in India.

Deal value: INR 5,000.00 million

Our transaction team lead partner – Arka Mookerjee, partner – Pracheta Bhattacharya, principal associate – Anshu Bansal, Senior Associate – Sourav Modi, Associate – Jeebitesh Bhattacharya, Pooja Tada, Shambhavi Kumar, Anvita Sinha.

Tags Banking and Financial Services, Capital Markets, IPO, JSA, Leading Law Firm, Leading Lawyers

THE GROWING ROLE OF PRIVATE CREDIT IN THE INDIAN DEBT MARKET

Private credit is the buzzword on deal street. The global private credit market is estimated to be US$ 1.5 trillion and likely to reach US$ 2.7 trillion by 2027. While most of this is centred around the United States and Europe, private credit is rapidly becoming an alternate pool of debt capital in India. Some reports estimate that private credit investors had almost US$ 15 billion of assets under management in India as of December 2022 and over US$ 4 billion was deployed in the first half of 2023 alone.

In the aftermath of the crisis in the non-banking financial sector, many non-banking financial companies have focussed their attention to the retail sector and are re-balancing their wholesale debt exposures. Indian banks, who have recovered some of their non-performing loans thanks to the Insolvency and Bankruptcy Code, 2016 (“IBC”), have pulled back from riskier corporate loans. As a result, there is an increase in demand for new avenues of debt capital. The IBC has brought about a robust insolvency regime and in the last seven years, more than 800 resolution plans have been approved and creditors have realised over Rs. 3.16 trillion. Several promoters have lost control over their companies and creditors have truly been in the driving seat for the first time in India. Not surprisingly, debt alternative investment funds have mushroomed in India over the past few years, and global and Asia Pacific credit funds have also steadily increased their allocation to India.

Please click here to read the full article by Aashit Shah, published in Asian Legal Business.

Tags Banking and Financial Services, Credit Market, Debt market, Ibc, JSA, Leading Law Firm, Leading Lawyers

Fedbank Financial Services IPO

Wooden blocks spelling IPO, representing Initial Public Offering in finance.

JSA advised ICICI Securities Limited, BNP Paribas, Equirus Capital Private Limited and JM Financial Limited in relation to the initial public offering of equity shares by Fedbank Financial Services Limited, aggregating to INR 10,922.64 million through a fresh issue of equity shares and an offer for sale by The Federal Bank Limited and True North Fund VI LLP.

Deal Value: INR 10,922.64 million

Our Transaction Team Lead Partner – Arka Mookerjee, Partner – Siddhartha Desai, Principal Associate – Anshu Bansal, Senior Associate – Sourav Modi, and Associate – Shambhavi Kumar, Anvita Sinha and Ayushi Pandit.

Tags Banking, Banking and Financial Services, Capital Markets, IPO, JSA, Leading Law Firm, Leading Lawyers

Qualified institutions placement by RateGain Travel Technologies Limited

JSA advised IIFL Securities Limited and Axis Capital Limited in relation to the qualified institutions placement by RateGain Travel Technologies Limited (“RateGain“). RateGain filed a placement document on November 10, 2023 for an issue of 9,331,259 equity shares to qualified institutional buyers aggregating to approximately ₹ 6,000.00 million.

RateGain is a leading global provider of software as a service solutions in the hospitality and travel industry, offering travel and hospitality solutions across a wide spectrum of and is one of the world’s largest aggregator and processor of travel pricing data for the hospitality and travel industry.

Deal Value: INR 6,000 million

Our Transaction Team Comprised Lead Partner – Arka Mookerjee, Partner – Pracheta Bhattacharya, Principal Associate – Anshu Bansal, Senior Associate – Sourav Modi, Associate – Pooja Tada, Jeebitesh Bhattacharya, Shambhavi Kumar and Anvita Sinha.

Tags Hospitality, JSA, Leading Law Firm, Leading Lawyers, QIP, Travel Company

Lok Capital invests in GrowXCD, a Fintech Start-up

JSA advised Lok Capital on its investment in GrowXCD Finance, a Chennai-based startup specializing in financial services for the MSME sector. The Series A funding round, witnessed Lok Capital injecting Rs 50 crore into GrowXCD Finance.

This transaction signifies a crucial expansion in the reach of financial services to the underserved MSME sector, particularly in non-metropolitan regions. GrowXCD Finance’s product portfolio, tailored to low-income households and small businesses, includes innovative financial products like small business mortgage loans, home construction loans, and short-term unsecured loans.

Deal Value: Around USD 6 Million

Our Transaction Team Comprised Lead Partner – Siddharth Mody, Principal Associate – Prerana Chaudhari, Senior Associate – Alister Sequeira

Tags Banking and Financial Services, Fintech, Investments, JSA, Leading Law Firm, Leading Lawyers, MSMEs

Qualified Institutions Placement by Texmaco Rail & Engineering Limited

JSA advised Nuvama Wealth Management Limited (formerly known as Edelweiss Securities Limited), ICICI Securities Limited and Motilal Oswal Investment Advisors Limited in relation to the qualified institutions placement by Texmaco Rail & Engineering Limited (“Texmaco“). Texmaco filed a placement document on November 24, 2023 for an issue of 58,090,000 equity shares to qualified institutional buyers aggregating to approximately INR 7500 million.

Our transaction team comprised lead partner – Arka Mookerjee, partner – Siddhartha Desai, principal associate – Krupa Brahmbhatt, associate – Govind Roy, Akash Joshi and associate – Ayushi Pandit.

Tags Banking and Finance, Capital Markets, Equity Shares, JSA, Leading Law Firm, Leading Lawyers, QIPs

JSA Newsletter | Finance | October Edition 2023

Business professionals analyzing financial data and graphs using digital devices and printed charts.

Please click here to download the Newsletter as PDF.

This Newsletter sets out some of the key legislative and regulatory updates in the banking and finance as well as insolvency space for the month of October 2023.

Revised framework for fund raising by issuance of debt securities by Large Corporates (“L-Corps”)

Regulation 50B of the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”) read with Chapter XII of the Master Circular for issue and listing of Non-Convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated August 10, 2021 on ‘Fund raising by issuance of debt securities by large corporates’, inter alia, mandates L-Corps to raise a minimum 25% of their incremental borrowings in a financial year (“FY”) through issuance of debt securities to be met over a contiguous block of 3 (three) years from FY 2022 onwards. The Securities and Exchange Board of India (“SEBI”), vide circular dated October 19, 2023, has issued a revised framework in relation to issuance of debt securities by L-Corps. The key provisions of the revised framework are as follows:

the framework will come into effect:
- from April 1, 2024, for L-Corps following April-March as their FY, and
- from January 1, 2024, for L-Corps which follow January-December as their FY;
the framework will be applicable for all listed entities (except for scheduled commercial banks), which as on last day of their FY (i.e., March 31 or December 31):
- have their specified securities or debt securities or non-convertible redeemable preference shares listed on a recognised stock exchange(s),
- have outstanding long-term borrowings of INR 1000,00,00,000 (Indian rupees one thousand crore) or above, and
- have a credit rating of “AA”/“AA+”/AAA “, where the credit rating relates to the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in;
L-Corps will raise a minimum of 25% of their qualified borrowings[1] through debt securities in the financial years subsequent to the financial year in which they are identified as L-Corps;
L-Corps must endeavor to comply with the requirement of raising 25% of their incremental borrowings done during FY 2022, FY 2023 and FY 2024 respectively by way of issuance of debt securities till March 31, 2024, failing which, such L-Corps must provide a one-time explanation in their Annual Report for FY 2024; and
from FY 2025 onwards, the requirement of mandatory qualified borrowing by an L-Corp in a FY must be met over a contiguous block of 3 (three) years.

The Reserve Bank of India (“RBI”) notifies Master Direction on Scale-Based Regulation of non-banking finance companies (“NBFCs”)

On October 19, 2023, the RBI issued the ‘Master Direction – RBI (NBFC – Scale Based Regulation) Directions 2023’ (“SBR Master Direction”). The SBR Master Direction comes into immediate effect and replaces the erstwhile framework of NBFCs, viz. Master Direction – NBFC – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 and Master Direction – NBFC – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (collectively, “Previous Framework”). The SBR Master Direction aims to harmonize the Previous Framework with the scale-based regulation of NBFCs, published by the RBI on October 22, 2021 (“SBR Framework”).

Under the SBR Master Direction, the earlier classification of NBFCs based on asset size (i.e., systemically important and non-systemically important NBFCs) is brought to an end, while the classification of NBFCs based on: (a) acceptance of public deposits (i.e., deposit-taking and non-deposit taking); and (b) specialisation (factoring business, housing finance, microfinance, account aggregation, etc.) continues to be in force. Further, as classified by the RBI under the SBR Framework, the SBR Master Direction also continues to classify NBFCs into 4 (four) layers, namely, the Base Layer, the Middle Layer, the Upper Layer and the Top Layer.

For a detailed analysis, please refer to the JSA Prism of November 2023.

Regulations governing the Investor Protection and Education Fund (“IEPF”)

SEBI, vide notification dated October 20, 2023, has issued the SEBI (IEPF) (Second Amendment) Regulations, 2023. The said regulations amend the SEBI (Investor Protection and Education Fund) Regulations, 2009 (“IEPF Regulations”) inter alia as follows:

the following amounts must be credited to the IEPF: (a) monies transferred in accordance with the regulation 61A (3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”); (b) monies transferred in accordance with regulation 18 (16) (f) of the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”); (c) monies transferred in accordance with regulation 18 (6) (e) of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”); and
the amounts disgorged and credited to the IEPF in accordance with regulation 4 (1) (h) of the IEPF Regulations and the interest accrued thereon must, in cases where the SEBI deems fit to make restitution to eligible and identifiable investors who have suffered losses resulting from violation of securities laws or for rewarding informants who provide original information to the SEBI to recover amounts directed to be disgorged, be utilised only for the purposes of such restitution or reward.

Permissible transactions for rupee account by persons resident outside India

The RBI, vide notification dated October 16, 2023, has issued the Foreign Exchange Management (Debt Instruments) (Second Amendment) Regulations, 2023 granting permission to persons resident outside India who maintain a rupee account, to purchase or sell dated government securities/ treasury bills, as per the prescribed terms. The amount of consideration for purchase of such instruments must be paid out of funds held in their rupee account and the sale/ maturity proceeds (net of taxes, as applicable) of instruments must be credited to the said rupee account.

Review of Financial Information Provider (“FIP”) under Account Aggregator (“AA”) Framework

The RBI, vide circulars dated October 26, 2023, has decided:

to replace ‘Pension Fund’ with ‘Central Recordkeeping Agency’ as the financial information provider in the AA ecosystem; and
that regulated entities of the RBI joining the AA ecosystem as ‘Financial Information User’ must necessarily join as FIP also if they hold the specified financial information and fall under the definition of FIP.

Accordingly, the Master Directions – NBFC – Account Aggregator (Reserve Bank) Directions, 2016, have been modified.

Appointment of whole-time directors by banks

On October 25, 2023, the RBI has directed the private sector banks and wholly owned subsidiaries of foreign banks (excluding payment banks and local area banks) to strengthen their senior management by having at least two whole-time directors, including the managing director and chief executive officer. Further, the banks that do not meet the minimum requirement as aforesaid will have to submit proposals for appointments within four months of the date of the circular.

RBI’s new guidelines to govern payment aggregators in cross-border transactions

On October 31, 2023, the RBI has notified new guidelines (“PA-CB Guidelines”) to regulate entities that process online cross-border payments for import and export of goods and services. Until now, these entities were called online payment gateway service providers (“OPGSP”). Now, they will be regulated as ‘Payment Aggregators – Cross Border’ (“PA-CB”). PA-CB activities are classified into the following 3 categories: (a) export only PA-CB; (b) import only PA-CB; and (c) export and import PA-CB.

Most notably, PA-CBs will need RBI’s license to operate. Existing OPGSPs need to apply for the license by April 30, 2024. Interestingly, non-bank PA-CBs are also required to register with the Financial Intelligence Unit-India before registering with the RBI. The PA-CB Guidelines replace the draft Online Export Import Facilitators Directions issued in April 2022 which was abandoned by RBI post consultations with industry stakeholders.

For a detailed analysis, please refer to the JSA Prism of November 2023.

Exemptions from moratorium under Section 14(1) of the IBC

On October 3, 2023, the Ministry of Corporate Affairs (“MCA”) issued a notification exempting transactions, arrangements or agreements under the the Convention on International Interests in Mobile Equipment together with Protocol on Matters Specific to Aircraft Equipment (“Cape Town Convention”), relating to aircraft, aircraft engines, airframes and helicopters from moratorium under Section 14(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

The Cape Town Convention is an international instrument that inter alia establishes a set of minimum guarantees reflecting the principles of asset-based financing and leasing agreements pertaining to mobile equipment, including “airframes, aircraft engines and helicopters”. India became a signatory to the Cape Town Convention in 2008. Notably, though India acceded to the Cape Town Convention in 2008, it has not yet ratified it.

This Newsletter has been prepared by:

Anish Mashruwala
Partner

Pratish Kumar
Partner

Sonali Singh
Associate

For more details, please contact [email protected]

[1] For the purposes of the framework, the expression “qualified borrowings” means incremental borrowing between two balance sheet dates having original maturity of more than one year but excludes the following: i. external commercial borrowings; ii. inter-corporate borrowings involving its holding company and/ or subsidiary and/ or associate companies; iii. Grants, deposits or any other funds received as per the guidelines or directions of Government of India; iv. borrowings arising on account of interest capitalization; and v. borrowings for the purpose of schemes of arrangement involving mergers, acquisitions and takeovers. It is also clarified that the qualified borrowings for a FY will be determined as per the audited accounts for the year filed with the stock exchanges.

Tags Finance, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, NBFCs, RBI

JSA Prism | Banking & Finance | November 2023

Please click here to download the Prism as PDF.

Supreme Court holds that rent receivables assigned to a lender would not be assets of the borrower and fall outside the scope of the NCLAT’s Order freezing IL&FS’s assets and security

In a recent decision in the case of Infrastructure Leasing and Financial Services Ltd. v. HDFC Bank Ltd. and Another[1], the Supreme Court of India (“Supreme Court”) has held that the rents receivable by a borrower which was assigned to a lender of a lease rental discounting facility would not be treated as an asset of the borrower, and thus fall outside the purview of the asset and security freeze order of the National Company Law Appellate Tribunal (“NCLAT”).

Brief Facts

Housing Development Finance Corporation Limited (now amalgamated with HDFC Bank Limited) (“HDFC/Lender”) provided a credit facility of INR 400,00,00,000 (Indian Rupees four hundred crores) to Infrastructure Leasing and Financial Services Ltd. (“IL&FS/Borrower”) (“Facility”) pursuant to a master facility agreement (“MFA”) in 2018. In connection with the Facility a separate escrow account was established with HDFC Bank (“Escrow Bank”) for depositing the rents receivable by IL&FS.
In addition to the MFA, the parties had also signed an assignment agreement (“AA”) which stated that the authorised debt owed by IL&FS to HDFC under the terms of the Facility would be paid back from the gross income and revenue from various business centre services/ lease/leave and license agreements (“Rental Agreements”). The AA assigned and pledged a sufficient portion of the rent receivable by IL&FS under the Rental Agreements in favour of the HDFC as the assignee had to pay the principal and interest payable by IL&FS to HDFC under the Facility.
Thereafter, the National Company Law Tribunal, Mumbai (“NCLT”) vide the order dated October 1, 2018, in a petition filed by the Union of India (“UOI”) under Sections 241 and 242 of the Companies Act, 2013, ordered to supersede the existing board of directors of IL&FS. However, the NCLT declined to issue the moratorium sought by UOI in respect of IL&FS on the same lines as under Section 14 of the Insolvency and Bankruptcy Code, 2016.
The UOI appealed before the NCLAT, the NCLT’s decision to refuse moratorium regarding IL&FS. The NCLAT, vide its order dated October 15, 2018, declaring moratorium upon IL&FS and its 348 (three hundred and forty eight) group companies, and stayed “any action to foreclose, recover or enforce any security interest created over the assets of IL&FS and its group companies.” (“NCLAT Order”).
After the NCLAT Order, on the instructions of HDFC, the Escrow Bank continued to transfer monthly amounts from the escrow account to HDFC’s account.

IL&FS alleged that such transfer of funds was in violation of the NCLAT Order, and hence, should be reversed. On the other hand, HDFC asserted its ownership over these funds based on the AA, stating that the rents receivable by IL&FS were assigned in favour of HDFC and ceased to be an asset of IL&FS.

The NCLAT vide the order dated May 13, 2022, (“Impugned Order”) held that so far as the part of the rent receivables deposited in the escrow account sufficient to meet the principal and interest payable by IL&FS to HDFC are concerned, such rent receivables were assigned by IL&FS to HDFC. Hence, no proprietary interest continued with IL&FS in such part of the rent receivables, and it could not exercise any right over such part of the escrow account.
Aggrieved by Impugned Order, IL&FS preferred an appeal before the Supreme Court under Section 432 of the Companies Act, 2013.

Decision of the Supreme Court

The Supreme Court upheld the Impugned Order and confirmed that the documents executed by IL&FS constituted an assignment and were not subject to the NCLAT Order.
The Supreme Court, inter alia, held that:
- Although a reading of the MFA would lead one to infer that the rents receivable by IL&FS form the security for advance extended to it by HDFC, the MFA cannot be read in isolation as it itself adverts to other documents involved in the transaction. The AA clearly provides that rents receivable by IL&FS stood unconditionally assigned to HDFC. The references of “security” and “pledge” at various places in the agreements did not undermine the parties’ intent to absolutely assign the rents receivable. Therefore, IL&FS’s contention that there was no assignment but only creation of security interest was rejected.
- A lease rental discounting (“LRD”) facility is a term loan facility under which a lender extends credit facilities to the owner of a commercial property. In such agreements, a substantial portion or the entire rent or receivables due to such owner is assigned to the lender. The primary purpose is to ensure that the borrower’s liabilities are automatically discharged from the rental proceeds payable in connection with the property. Although the documents executed by IL&FS did not label the transaction as an LRD agreement, it is the nature and substance of the transaction which is determinative and in effect indicated that the transaction was an LRD arrangement. An LRD loan transaction involves a condition that a substantial portion or the entire rent or receivables are sold or assigned absolutely. The court relied on the provisions of the AA which set aside all receivables in favour of the assignee i.e., the lender bank. A power of attorney also appointed HDFC as the duly constituted attorney of IL&FS which authorized HDFC to appropriate proceeds received i.e., the rent receivables, towards discharge of their facility.
- The Supreme Court relied on the Transfer of Property Act, 1882 (“TPA”) in relation to actionable claims and various judicial decisions to conclude that rent receivables are actionable claims which are transferrable under the TPA. Accordingly, the future rents payable by IL&FS’ tenants, lessees and licensees to IL&FS are unsecured debts which stood transferred to HDFC under the AA.

Conclusion

This ruling sets a significant precedent of a lender entering into an assignment agreement in connection with a secured lease rental discounting facility which was also secured against the commercial property and rent receivables from the property being treated as being ring fenced from other creditors as an outright assignment of actionable claims instead of a mere security interest. While in a few decisions courts have acknowledged the concept of equitable assignment, assignment by way of security in favour of lenders and the legal impact of such an assignment had not been tested before a court.

This judgment could also be utilised by lenders who have executed assignment deeds as part of their security arrangement to claim insolvency remoteness in case of a corporate insolvency resolution process to bypass the statutory moratorium under the IBC.

Based on the judgments, it may be advisable for lenders who are relying primarily on cashflow security to also assign such receivables. While the issue of stamp duty has not been expressly dealt with by the court, it needs to be analysed whether such an assignment would also be treated as an assignment of debt which has beneficial stamp duty caps in many states for such assignments and not a conveyance of moveable properties which are stamped at ad valorem rates in most states.

This Prism has been prepared by:

Dheeraj Nair
Partner

Tirthankar Datta
Partner

Angad Baxi
Senior Associate

Malika Tiwari
Associate

Vedika Gandhi
Associate

For more details, please contact [email protected]

[1] 2023 SCC OnLine SC 1371

Tags Banking and Finance, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Nclat, Supreme Court

Securities and Banking Guide for India

Abstract arrangement of Indian Rupee symbols forming a circular structure with reflections and surrounding smoke.

The securities market in India is a vital component of the country’s financial system, facilitating the buying and selling of various financial instruments, primarily securities, which include stocks, bonds, derivatives, and other investment products. The Indian securities market is regulated by the Securities and Exchange Board of India (SEBI) and is known for its vibrancy, depth, and diversity.

SEBI plays a crucial role in regulating and overseeing the IPO process. SEBI ensures that the IPO is conducted fairly and transparently, safeguarding the interests of investors.

The establishment of the Securities and Exchange Board of India in 1992 led to considerable growth in the capital markets and securities sector. SEBI serves as the autonomous statutory regulator of financial markets in India and has as its twin objectives the protection of investors’ interests and the development and regulation of the Indian securities markets. SEBI has powers to investigate and examine companies, to visit their premises, to inspect records and personnel and to impose penalties that are commensurate with any misconduct.

Please refer to the below document to read the full article by Nand Gopal Anand, Vrindesh Patel, Arka Mookerjee, Siddhartha Desai, and Govind RoyTo read further details, click here or refer to the below document.

*In case the document is not visible on the device you are using, please click the link above.

Tags Banking and Finance, Finance, JSA, Leading Law Firm, Leading Lawyers, Securitisation

Qualified Institutions Placement by Laxmi Organic Industries Limited

JSA advised DAM Capital Advisors Limited and Jefferies India Private Limited in relation to the qualified institutions placement by Laxmi Organic Industries Limited (“LOIL“). LOIL filed a placement document on October 10, 2023 for an issue of 9,625,579 equity shares to qualified institutional buyers aggregating to approximately ₹ 2,591.21 million.

Our Transaction Team Lead Partner – Arka Mookerjee, Partner – Siddhartha Desai, Principal Associate – Krupa Brahmbhatt Associate – Akash Joshi and Govind Roy