Post on 07-Jul-2018
8/19/2019 Project Marge (1)
1/30
PROJECT REPORT
ON
NON BANKING FINANCIAL COMPANY w.r.t MERGER OF
ACQUISITON OF VODAFONE
M.COM – I BANKING & FINANCE
20!"20#
SUBMITTED BY
KUNAL S$ANKAR K$AIRE
ROLL NO –B%2
PROJECT GUIDE
PROF. AMIT PRAJAPATI
SUBJECT' St()* O+ M,r-,r O A/(11t13+ 3 V3)43+,
P,356,7 E)(/4t13+ S3/1,t*7
DR. AMBEDKAR COLLEGE OFCOMMERCE AND ECONOMICS
8ADALA9 MUMBAI" :00 0;.
8/19/2019 Project Marge (1)
2/30
ACKNO8LEDGEMENT
I hereby acknowledge all those who directly or indirectly helped me to draft the project report. It would not have been possible for me to complete the task without
their help and guidance. It is my great privilege to thank Dr. Ambedkar College of
Commerce and Economics.
First of all I would like to thank the principal Dr. .! "amble and the coordinator
#rof. anjay $. "haire who gave me the opportunity to do this project work. %hey
also conveyed the important instructions from the university from time to time.econdly& I am very much obliged of #rof. !ahul hah for giving guidance for
completing the project.
I am thankful to all those persons who co'operated with me. %hey not only
rendered time out of their busy scheduled but also answered my (ueries without
hesitation.
I must mention my hearty gratitude towards my family& other faculties and friends
who supported me to go ahead with the project.
P64/,' MUMBAI
D4t,'
8/19/2019 Project Marge (1)
3/30
P,356,7 E)(/4t13+ S3/1,t*7
DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS
8ADALA9 MUMBAI" :00 0;.
CERTIFICATE
%his is to certify that& )r. K(+46 S>4+?4r K>41r, of ).Com ' I
*anking and Finance emester I +,-/',-01 has successfullycompleted project on N3+ B4+?1+- F1+4+/146 C3@54+* w.r.t R(r46
E6,/r11/4t13+ C3r53r4t13+ L1@1t,) under the guidance of #rof. Amit
#rajapati.
8/19/2019 Project Marge (1)
4/30
DECLARATION
I )r. K(+46 S>4+?4r K>41r, the student of Dr. Ambedkar College of
Commerce 2 Economics& studying in ).Com 3 I *anking 2 Insurance
+emester I1& hereby declare that I have completed the project report on
N3+ B4+?1+- F1+4+/146 C3@54+* w.r.t St()* O+ M,r-,r A+)
A/(11t13+ O V3)43+, in the academic year ,-4 3 ,-5.
%he information submitted is genuine and practical to the best of myknowledge.
#lace6 77777777777777
"unal hakar "haire
+ !oll 8o.*9,:1
Date677777777777777777
8/19/2019 Project Marge (1)
5/30
Index
SR. NO CONTENTS PAGENO.
INTRODUCTION "2
2 $ISTORY ;":
; FACTS OF T$E CASE "0
: PRODUCT AND SERVICES "2
! LEASE FINANCING ;"#
# MUTUAL FUNDS "2
TREASURY MANAGEMENT 22";
LOAN SYNDICATION ;2";:
REC % $B LEASING AND FINANCE COMPANY ;!";
0 CONCLUSION ;";
RECOMMENDATIONS :0":
8/19/2019 Project Marge (1)
6/30
INTRODUCTION
In an increasingly open global economy& where old prejudices against foreign ;predators< and oldfears of economic coloni=ation have been replaced by a hunger for capital& )ergers and
Ac(uisitions +)2A1 are welcome everywhere.
In human aspects of )2As we used a not'too'original distinction between mergers& ac(uisitions
and joint ventures. )2As represented a ;marriage
8/19/2019 Project Marge (1)
7/30
to its revenue .?hile India
8/19/2019 Project Marge (1)
8/30
$ISTORY'
Hutchison-Essar
Y,4r 4+) E,+t
: $utchison )a@ %elecom imited +$)%1& a joint venture between $utchison and )a@&
wins the licence to provide cellular services in )umbai. C. ivasankaran sells 4G stake in
Delhi
8/19/2019 Project Marge (1)
9/30
200 $utchison puts in the bid to provide cellular licences in Chennai& Andhra #radesh&
"arnataka and )aharashtra. It wins all e@cept )aharashtra.
200; Essar %eleholdings sells its operations in !ajasthan& Jttar #radesh +East1 and $aryana to
$utchison Essar. Essar was running these operations through group company& Aircel Diglink
India td. $utchison ac(uires licence to provide cellular services in #unjab. %his is bought from
Escotel.
200: Essar picks France %elecom
8/19/2019 Project Marge (1)
10/30
FACTS OF T$E CASE
In 200& odafone Broup bought the Indian telecom assets of $ong "ongMs $utchison
%elecommunications International td. It paid JL billion for a 5G stake in $utchison Essar.
%he latter was the operating company in India for what is now the third'largest operator with
million users. odafone was the buyer. $utchison& the seller& made huge capital gains. Ket since
then& odafone has been battling it out in the courts against the Indian Income %a@ +I%1
department& which has saddled it with a JL,. billion ta@ claim. $utchison& which pocketed the
capital gains& is nowhere in the picture.
%he transaction was e@ecuted through a $utchinson company located in the Cayman Islands
Round 1: began in S,5t,@,r 200& when the %a@ Department issued a show cause notice to
odafone that said odafone was liable to pay withholding ta@ on the purchase amount.
Round 2: odafone filed a writ at the *ombay $igh Court disputing the ta@ departmentMs
jurisdiction in an overseas transaction. *ut the petition was dismissed and odafone then
appealed to the upreme Court marking the third round of hostilities.In J4+(4r* 200& the upreme Court sent the case back to the %a@ Department to decide on the
jurisdiction issue.
$utchison held call options over companies controlled by Asim Bhosh and Analjit ingh as also
over )) Investments #vt. td. aggregating to appro@imately 4G of the shareholding of
$E. %he benefit of these options enured in favour of a corporate entity called / Blobal ervices
#rivate td.& a company registered under the CompaniesM Act& 45.
)any important documents relevant to the deal have never been made public& so it is unclear if
the ta@ claim is a result of odafoneMs overlooking a key issue or overconfidence. In such
transactions& the buyer is supposed to deduct ta@ at source +or withholding ta@1 and pay that to
the government. %his is a transaction involving foreign companies and the seller can easily
disappear once the money is in the bank. %he buyer& on the other hand& has the Indian assets and&
in a worst case scenario& those can be attached if there is any default.
8/19/2019 Project Marge (1)
11/30
VODAFONE
odafone is a mobile network operator with its head(uarters in 8ewbury& *erkshire& England&J". It is the largest mobile telecommunications network company in the world by turnover and
has a market value of about N4 billion +August ,--:1. odafone currently has operations in ,4
countries and partner networks in a further 0, countries. %he name odafone comes from oice
data fone& chosen by the company to Oreflect the provision of voice and data services over
mobile phones.
odafone Essar is owned by odafone 4,G& Essar Broup //G& and other Indian nationals& 4G.
n February & ,--& odafone agreed to ac(uire the controlling interest of 5G held by i "a
hing $oldings in $utch'Essar for JL. billion& pipping !eliance Communications& $induja
Broup& and Essar Broup& which is the owner of the remaining //G. %he whole company was
valued at JD :.: billion. %he transaction closed on )ay :& ,--.
As of 8ov ,--: odafone Essar has 4:5050 or ,/.4G of total ,0/00/5 B) mobile
connections in India. odafone India
8/19/2019 Project Marge (1)
12/30
$UTC$"ESSAR
$utch Essar was a leading Indian telecommunications mobile operator with ,/./ million
customers at / December ,--5& representing a 5.0G national market share. $utch Essar
operates in 5 circles and has licenses in an additional si@ circles. In the year to / December
,--4& $utch Essar reported revenue of JL&,:, million& E*I%DA of JL04 million& and
operating profit of JL// million. In the si@ months to /- Hune ,--5& $utch Essar reported
revenue of JL-: million& E*I%DA of JL, million& and operating profit of JL,,5
million.
Jp until Hanuary ,--5& $utch Essar had licenses in / circles& of which nine have -- )$=
spectrum. In Hanuary ,--5& $utch Essar ac(uired *#& thereby adding three circles& each
operating with -- )$= spectrum. In ctober ,--5& $utch Essar ac(uired pacetel& adding si@
further licenses& with operations planned to be launched during ,--.
R,43+ 3r $(t/> S46,
%here are two main reasons which are responsible for i "a'shing to leave India. %hey are
P$utch'Essar6 )utual Distrust.
PA right time to (uit Indian operations to finance other operations i "a'hing was the -th
richest man globally in ,--5& is known as a businessman who spots an opportunity early& invests
in it and e@its at a neat premium. It is only after he e@its that the rush begins. In the early -s&
he sold his stake in tar % to !upert )urdoch for L:,4 million. %he $utch Essar deal has netted
him a neat L:.0: billion. ?hat could he do with that moneyQ i is a major player in the ports and
retail businesses. Betting access to the ports business in India is difficult& thanks to being from
China. $owever& with retail being the new mantra in India& i could be looking at a third entry.
$is retail outfits include ?atson
8/19/2019 Project Marge (1)
13/30
Industry sources say that several incidents revealed the deepening rift between $utch and Essar.
%hey say that as telecom valuations in India started rising& Essar tried to increase its stake in the
joint venture. $owever& in December ,--4& rascom of Egypt bought a ./ per cent stake in
$utchison ?hampoa. %his indirectly gave it control of ,./ per cent stake in $utchison Essar.
%he stake sale decision was reportedly taken without Essar
8/19/2019 Project Marge (1)
14/30
FINANCING T$E DEAL
DAF8E
8/19/2019 Project Marge (1)
15/30
SYNERGIES CLAIMED
• odafone gets access to the fastest growing mobile phone market in the world that is e@pected
to touch 4-- million subscribers by ,--.
• Cellular penetration in rural India is below ,G& but 5G of India
8/19/2019 Project Marge (1)
16/30
IMMEDIATE C$ALLENGES
$utch is going to be a tough battle ahead as the world
8/19/2019 Project Marge (1)
17/30
8/19/2019 Project Marge (1)
18/30
S,,r46 6,-46 1(, 4r1, r3@ t>, /4,'
+i1 ?hether a non'resident seller +odafone International1 is liable to ta@ in India on sale of
shares of the foreign #Q
+ii1 Is a non'resident purchaser +$%I1 liable for deduction of ta@ on purchase of shares of the
foreign # while making payment to the non'resident sellerQ
+iii1 ?hether an Indian company can be treated as ;agent< of the non'resident purchaser and held
liable for deduction of ta@Q
+iv1 Can the law impose ta@ retrospectivelyQ
8/19/2019 Project Marge (1)
19/30
S/35, 3 T446, I+/3@, 3 4 N3+"r,1),+t'
#ursuant to ection 4+,1 of the Act& the ta@able income of a non'resident includes income
Oreceived or deemed to be received in IndiaS and income that Oaccrues or arises or deemed to
accrue or arise in IndiaS. $owever& it does not include income that accrues or arises or is deemed
to accrue or arise outside India. #ursuant to ection +1 of the Act& income is deemed to accrue
or arise in India if such income is due to transfer of an asset situated in India or through or from
business connection in India.
#ursuant to ection 4 of the Act every person paying any sum& which is chargeable to ta@ in
India to a non'resident must deduct income'ta@ at source at the time of payment or credit. %he
liability to deduct ta@ applies to non'residents as well as residents. %he I% Department has argued
that this transfer represents a transfer of beneficial interest in the shares of the Indian company
and hence& any gain arising from it would attract ta@ in India.
In the case of transfer of shares in an Indian company by companies established in certain
countries such as )auritius& Cyprus and ingapore withholding ta@ on capital gains is not liable
to be levied in India pursuant to the relevant D%AA.
CB# +the company that was sold to odafone1 was a Cayman company and there is no India'
Cayman D%AA. It is an interesting (uestion as to whether the sale of )auritius # would
attract a similar ta@ notice or whether a )auritius intermediate # interposed between the
Cayman # and the Indian subsidiary would act as a successful blocker entity.
8>3 1 4+ A-,+tQ
According to ection 5-+1 of the Act& ;agent< of the non'resident is ;representative assessee
8/19/2019 Project Marge (1)
20/30
P41+- 3 L4w R,tr35,/t1,6*6
In the 4 $industan )achine %ools case& the upreme Court held that the legislature could
pass laws retrospectively& with the e@ception that this power could be challenged if the law was
discriminatory. %his same principle was reaffirmed in in Arooran ugars td case& where
the upreme Court that if the law does not discriminate& it may be retrospective.
%his is perhaps the first time ta@ authorities are attempting to ta@ a transaction between two
foreign companies involving transfer of an Indian asset. If the ta@ liability is established& it could
result in a ta@ liability of appro@imately L. billion. Investors will be keeping a close eye on the
upcoming )umbai $igh Court verdict. Either way& the ne@t battle may be fought in the upreme
Court.
8/19/2019 Project Marge (1)
21/30
$(t/> V3)43+, M,r-,r – A+ I(, 3 T4 P64++1+- U+),r I+/3@, T4 A/t9
#
It is a landmark case that will severely impact the )ergers 2 Ac(uisitions +)2A1 landscape in
India. 8o matter which way it goes& the odafone versus I% department ta@ case will have an
indelible impact on the )2A landscape of India. ast year *ritish %elecom giant odafone paid
$ong "ong based $utchison International over JD billion to buy $utchison
8/19/2019 Project Marge (1)
22/30
because they paid income to $utch. %hose are the two different issues. %he case was mainly
about the second issue where the odafone was liable or not and in principleT it is possible that
the department is right on the first and yet not right on the second.
8/19/2019 Project Marge (1)
23/30
8/19/2019 Project Marge (1)
24/30
8/19/2019 Project Marge (1)
25/30
involved was the transfer of one share of an upstream overseas company which was in a position
to e@ercise control over a )auritian company. %he transaction between I$ * and $%I was a
composite transaction which covered a comple@ web of structures and arrangements& not
referable to the transfer of one share of an upstream overseas company alone. %he transfer of that
one share alone would not have been sufficient to consummate the transaction. %he transaction
documents are ade(uate in themselves to establish the untenability of the #etitionerMs
submissions.
%he submission of I$ * that the transaction involves merely a sale of a share of a foreign
company from one non' resident company to another cannot be accepted. %he edifice of the
submission has been built around the theory that the share of CB#& a company situated in the
Cayman Islands was a capital asset situated outside India and all that was transferred was that
which was attached to and emanated from the solitary share. It was on this hypothesis that it was
urged that the rights and entitlements which flow out of the holding of a share cannot be
dissected from the ownership of the share. %he purpose of the discussion earlier has been to
establish the fallacy in the submission. %he transfer of the CB# share was not ade(uate in itself to
achieve the object of consummating the transaction between $%I and I$ *. Intrinsic to the
transaction was a transfer of other rights and entitlements. %hese rights and entitlements
constitute in themselves capital assets within the meaning of ection ,+01 which e@pression is
defined to mean property of any kind held by an assessee.
Jnder ection 4+,1 the total income of a non'resident includes all income from whatever source
derived which +a1 is received or is deemed to be received in India or +b1 accrues or arises or is
deemed to accrue or arise to him in India. #arliament has designedly used the words Uall income
from whatever source derivedU. %hese are words of width and amplitude. Clause +i1 of ection
e@plains the ambit of incomes which shall be deemed to accrue or arise in India. #arliament has
designedly postulated that all income accruing or arising whether directly or indirectly& +a1
through or from any business connection in India or +b1 through or from any property in IndiaT or
+c1 through or from any asset or source of income in India or +d1 through the transfer of a capital
asset situate in India would be deemed to accrue or arise in India. ?here an asset or source of
income is situated in India or where the capital asset is situated in India& all income which
accrues or arises directly or indirectly through or from it shall be treated as income which is
deemed to accrue or arise in India.
8/19/2019 Project Marge (1)
26/30
I$ *s disclosure to the FI#* is indicative of the fact that the consideration that was paid to
$%I in the amount of J L .- *illion was for the ac(uisition of a panoply of entitlements
including a control premium& use and rights to the $utch brand in India& a non'compete
agreement with the $utch group& the value of non'voting non convertible preference shares&
various loan obligations and the entitlement to ac(uire subject to Indian foreign investment rules&
a further 4G indirect interest in $E.
%he manner in which the consideration should be apportioned is not something which can be
determined at this stage. Apportionment lies within the jurisdiction of the Assessing fficer
during the course of the assessment proceedings. Jndoubtedly it would be for the Assessing
fficer to apportion the income which has resulted to $%I between that which has accrued or
arisen or what is deemed to have accrued or arisen as a result of a ne@us within the Indian ta@ing
jurisdiction and that which lies outside. uch an en(uiry would lie outside the realm of the
present proceedings. *ut once this Court comes to the conclusion that the transaction between
$%I and I$ * had a sufficient ne@us with Indian fiscal jurisdiction& the issue of jurisdiction
would have to be answered by holding that the Indian ta@ authorities acted within their
jurisdiction in issuing a notice to show cause to the #etitioner for not deducting ta@ at source.
In assessing the true nature and character of a transaction& the label which parties may ascribe to
the transaction is not determinative of its character. %he nature of the transaction has to be
ascertained from the covenants of the contract and from the surrounding circumstances. In
8ational Cement )ines Industries td. vs. C. I. %.& +51 0, I%! 5 5 Indlaw C 4 )r.
Hustice H.C. hah speaking for the upreme Court emphasi=ed the principles of interpretation to
be adopted by the Court in construing a commercial transaction 6
U*ut in assessing the true character of the receipt for the purpose of the Income'ta@ Act& inability
to ascribe to the transaction a definite category is of little conse(uence. It is not the nature of the
receipt under the general law but in commerce that is material. It is often difficult to distinguish
whether an agreement is for payment of a debt by installments or for making annual payments in
the nature of income. %he court has& on an appraisal of all the facts& to assess whether a
transaction is commercial in character yielding income or is one in consideration of parting with
property for repayment of capital in installments. 8o single test of universal application can be
discovered for solution of the problem. %he name which the parties may give to the transaction
which is the source of the receipt and the characteri=ation of the receipt by them are of little
http://login.westlawindia.com/maf/wlin/app/document?src=doc&linktype=ref&&context=11&crumb-action=replace&docguid=I1EC42DA0006E11DFBEF1C9F02835E615http://login.westlawindia.com/maf/wlin/app/document?src=doc&linktype=ref&&context=11&crumb-action=replace&docguid=I014006A0006E11DFA9B79C2097992CEBhttp://login.westlawindia.com/maf/wlin/app/document?src=doc&linktype=ref&&context=11&crumb-action=replace&docguid=I014006A0006E11DFA9B79C2097992CEBhttp://login.westlawindia.com/maf/wlin/app/document?src=doc&linktype=ref&&context=11&crumb-action=replace&docguid=I1EC42DA0006E11DFBEF1C9F02835E615
8/19/2019 Project Marge (1)
27/30
moment& and the true nature and character of the transaction have to be ascertained from the
covenants of the contract in the light of the surrounding circumstances.U
T>, B3@4* >1-> /3(rt has affirmed the ta@ department
8/19/2019 Project Marge (1)
28/30
jurisdiction to proceed against odafone.
?hile accepting the ta@ department
8/19/2019 Project Marge (1)
29/30
transferred in law. Another issue is that it would be very difficult to (uantify the cost of
ac(uisition of the various rights identified by the ta@ department.
Further& under principles of private international law& the legal situs of many of these rights
cannot be said to lie in India and& hence& there may not be sufficient ne@us for the transaction to
be ta@ed in India. %hese legal aspects are likely to have a crucial bearing on the final outcome of
the case.
%his time& the I+/3@, T4 ),54rt@,+t has launched a / pronged attack against odafone. %he
first offensive is one that harks back to the first show cause notice of ,--.
%hen and now ' the ta@ department holds odafone as an assessee in default for not making its
withholding ta@ payments on time. %he department insists that whether an income is chargeable
or not& withholding ta@ must be paid. 8ow this argument has been tested in court (uite fre(uently
this past year.
peaking of ta@ liability& that brings me to the most important aspect of this case ' the one
regarding jurisdiction. %he ta@ department claims it is the actions of odafone itself that gives it
grounds to claim jurisdiction over the odafone'$utch transaction. %his change in brand& filings
with the FI#*& due diligence of $utch& a sale purchase agreement centered around $utch& and
disclosures to the stock e@changes. %he %a@ Department claims all these actions by odafone
prove that the subject matter of the transaction with $utch was an Indian asset& even if the
transaction was done offshore.
T>, B3@4* $1-> C3(rt has attempted a difficult distinction. n the one hand are the actual
shares +in the odafone case& just one share of Cayman Island registered CB# Investments
$oldings was transferred1. %his is not ta@able. *alanced against this are the assets& brand value&
goodwill and other intangibles owned by the company in India. %his is ta@able. %he problem is to
figure out how much it is worth. %he court has passed the buck on this and left the valuation
e@ercise to the I% assessing officer. %he court has also bounced the ball back to the upreme
Court. It has barred action by the ta@ation authorities for eight weeks& while odafone files an
appeal. %he company didnMt take that longT it went to the upreme Court on eptember 0. U%he
8/19/2019 Project Marge (1)
30/30
appeal challenges the recent $igh Court judgment on the issue of jurisdiction. odafone remains
convinced that there is no ta@ to pay on the $utchison transaction and we will continue to defend
this position vigorously&U