Diwan Advocates

Private Equity Practice

A foreign fund acquires a controlling stake in an Indian company through a Mauritius SPV. The transaction closes. Eighteen months later, the tax authority raises a demand under GAAR, treating the structure as lacking commercial substance. The fund had not obtained an advance ruling.

A promoter signs a shareholders’ agreement with a PE fund. Three years in, the fund invokes the put option. The promoter refuses to perform. The agreement has an arbitration clause but is silent on whether the option is enforceable as specific relief.

Private equity in India operates across company law, securities regulation, foreign investment rules, taxation, and contract enforcement. Each layer creates risk. At Diwan Advocates, we advise funds, portfolio companies, and promoters across the full investment cycle.

What We Do

Our private equity practice spans deal structuring and documentation, regulatory approvals, and dispute resolution. We act for domestic and offshore funds, investee companies, promoters, and management teams.

Transaction Structuring and Documentation

We structure PE investments from entry to exit, advising on choice of instrument (equity, compulsorily convertible debentures, optionally convertible instruments), entry route (FDI, FPI, or FVCI), and holding structure. We draft and negotiate term sheets, shareholders’ agreements, subscription agreements, and ancillary documents. Key provisions in PE agreements require particular care: anti-dilution rights, liquidation preferences, information and inspection rights, affirmative vote matters, drag-along and tag-along rights, and put and call options. Each of these has enforceability dimensions under Indian law that differ from offshore market practice.

Foreign Investment and Regulatory Approvals

Foreign investment in Indian companies is governed by the Foreign Exchange Management Act, 1999 and the rules and regulations made under it, principally the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Sectoral caps, prohibited sectors, pricing guidelines for issue and transfer of shares, and downstream investment conditions all apply. Government approval is required in certain sectors and for investments from land-border countries. FVCIs investing in eligible sectors receive a more flexible regulatory treatment. We advise on structuring to comply with FEMA and obtain requisite approvals, and on downstream restructuring where portfolio companies have their own foreign investment requirements.

Tax Structuring and GAAR

Tax is a primary driver of PE structure. Capital gains on exit, withholding obligations on dividends and interest, treaty eligibility, and indirect transfer taxation under the Income Tax Act, 1961 all require advice before the structure is finalised. The General Anti-Avoidance Rule allows the tax authority to recharacterise or disregard arrangements that lack commercial substance. Structures relying on treaty benefits are also subject to the Principal Purpose Test under India’s tax treaties post-BEPS. We advise on defensible structures, advance rulings before the Board for Advance Rulings, and representation before the Income Tax Appellate Tribunal and higher courts where assessments are challenged.

Corporate Governance and the Companies Act

PE investments in Indian companies sit inside the framework of the Companies Act, 2013. Board composition, related party transaction approvals, restrictions on financial assistance, buy-back regulations, and the rights of minority shareholders are all governed by the Act. Shareholder rights negotiated in the SHA must be consistent with the Act and the articles of association; provisions that conflict with mandatory statutory requirements are unenforceable. We advise on aligning SHA protections with company law, and on oppression and mismanagement proceedings before the NCLT where the relationship between a fund and a promoter breaks down.

Exits: IPO, Secondary Sale, and Strategic Sale

Exit is where PE returns are realised and where legal risk concentrates. An IPO exit involves lock-in periods, offer for sale mechanics, and pre-IPO disclosure obligations under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. A secondary sale to another fund triggers FEMA pricing rules and, if the target is listed, potential insider trading exposure. A strategic sale to a competitor may require Competition Commission of India approval under the Competition Act, 2002. We advise on exit planning from the time of entry and manage each exit route as it develops.

Disputes and Enforcement

PE disputes in India arise between funds and promoters, between co-investors, and between funds and portfolio company management. The most common flashpoints are option exercise and refusal to perform, breach of affirmative vote rights, information right denials, and deadlock. Most PE agreements provide for arbitration. Where the seat is India, the Arbitration and Conciliation Act, 1996 governs the proceeding and any challenge to the award. Where the seat is offshore, enforcement in India requires an application under Part II of the Act. Interim relief in support of arbitration, including injunctions against share transfers or asset dissipation, is available from Indian courts under Section 9. We represent funds and promoters in arbitration, and in related proceedings before the High Court and the NCLT.

Why Diwan Advocates for Private Equity?

Legislative Reference Index

PE transactions are built on tight timelines. Disputes do not announce themselves in advance.

Diwan Advocates is ready.

Diwan Advocates  |  Delhi, India