Worldwide: New Insolvency And Bankruptcy Law Creates Opportunities For Foreign Investment In India

Last Updated: 7 November 2018
Article by Shaun Langhorne and Alexander McMyn
Most Read Contributor in Belgium, August 2019

In 2016, the insolvency and bankruptcy landscape in India was radically overhauled by the introduction of the new Insolvency and Bankruptcy Code (IBC). In addition to consolidating the complex set of existing laws and regulations on insolvency and bankruptcy into a single law, the IBC introduced time bound and creditor driven resolution process for distressed companies overseen by the newly formed National Company Law Tribunal (NCLT).

These changes were supported by amendments to the Banking Regulation Act to enable the Reserve Bank of India (RBI) to force banks to file insolvency applications against defaulting borrowers under the IBC. Since the new law was enacted, more than 500 cases have been admitted by the NCLT with around 1000 applications pending. The restructuring and/or liquidation of these companies under the new system and the accompanying foreign investment reforms has opened up a number of opportunities through different avenues for foreign investors to invest in distressed Indian assets.  Continue reading for a summary of the principal avenues for foreign investment in India.

Investments platforms in India for foreign investors

Asset reconstruction company (ARC)

  • ARCs are specially licensed entities entitled to buy non-performing assets from banks and financial institutions.
  • Foreign investment in ARCs can be achieved by either setting up and owning an ARC; or
    • investing in existing ARCs.
    • As the process for obtaining approvals to set up an ARC can be lengthy, it is more common for investment to occur through existing ARCs.
  • A key way in which ARCs generate funds is by setting up and managing securitisation trusts. To do so, ARCs acquire and transfer non-performing assets into a trust. They then issue security receipts (SRs) to qualified institutional buyers in the trusts. SRs give purchasers the right to receive regular payments throughout the life of the trust and a final payment after all the assets of the trust have been realised. ARCs generate management fees and income by selling and/or enforcing the debt and security which has been transferred into the trust.
  • A key advantage of ARCs is that, subject to certain restrictions, they have enforcement rights in relation to any secured debt they acquire.
  • However, ARCs are extremely limited in terms of the types of assets that they can acquire and are restricted from borrowing outside of India.

Non-bank financial companies (NBFC)

  • NBFC's are companies registered under the Companies Act that provide financial services in India. They are able to undertake a broad range of finance activities, although the most common is as a platform for direct lending.
  • Due to recent regulatory reforms, 100 percent foreign direct investment without any minimum capitalisation norms or government approvals is now permitted.
  • A common way to invest in NBFCs is via the purchase of non-convertible debentures (NCD) issued by these entities. NCDs are unsecured bonds that cannot be converted to equity. NCDs generally have a fixed coupon rate and redemption date.
  • NBFCs, as opposed to ARCs, are able to purchase debt before it is in default for more than 61 days. This means that NBFCs can acquire debt which has a better chance of recovery. There are however restrictions on the amount of stressed debt that an NBFC can hold at any time.

Alternative investment fund (AIF)

  • AIFs are investment funds that can pool foreign and domestic monies for investment in India.
  • Foreign investors can now invest in AIFs without needing to seek government approval. Investment in AIFs can be done passively or actively, for example via joint venture with a local partner.
  • A key advantage of AIFs is that they can invest in SRs issued by ARCs.
  • AIFs also allow foreign investors to invest in listed and unlisted debt instruments which would otherwise require RBI approval.
  • In addition, if structured correctly certain categories of AIFs have "pass through status" under Indian income tax laws. This means that the rate of tax payable by a foreign investor is the same as what the foreign investor would have had to pay if the investment was made directly in the portfolio entity.
  • A disadvantage of AIFs is that they have no special enforcement rights. For this reason it is common for foreign investors to also invest in ARCs and/or NBFCs.

Foreign portfolio investment (FPI)

  • This is investment in shares, bonds, convertible securities, etc. To undertake investing as an FPI, an FPI licence must be obtained.
  • It has been common for investors to use FPI licenses to purchase SRs issued by ARCs and to invest in Indian corporates via NCDs.
  • There are however various restrictions on the level of investment by foreign investors in Indian companies through this platform.

External commercial borrowing (EBCs)

  • ECBs are commercial loans raised from non-resident lenders in either Indian rupees or any freely convertible currencies.
  • ECBs can be made available in many forms, including bank loans, bonds, securitized instruments, buyer's credit, supplier's credit, foreign currency convertible bonds, and foreign currency exchangeable bonds.
  • Recognised foreign investors can purchase existing ECBs or lend directly to Indian entities via ECBs.
  • Some of the key advantages of advantage of ECBs are that:
    • the underlying contract agreements are often governed by English law;
    • they can usually be traded on the secondary market; and
    • the eligibility requirements for foreign lenders/investors are relatively easy to satisfy.
  • A key disadvantage of ECBs is that they are generally subject to a number of restrictions, including limitations on the entities which can be lent to, the uses which the funds can be put toward, and the cost of borrowing.

Key takeways

  1. Economic liberalisation in India has opened up new platforms for foreign investors and/or made these platforms more accessible and attractive.
  2. The suitability of each platform will depend on each investor's objectives and risk appetite. However, it is  common for investors to utilise multiple platforms to enable them to enjoy the benefits of each.

The new time bound restructuring and insolvency process under the IBC has created huge opportunities for investors to acquire distressed assets in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions