Boosting infrastructure M&A in India: the case for ‘minimum necessary, maximum feasible’ regulation

Recently, while munching through my early morning diet of pink newspapers, I came across snippets of the Finance Minister’s address at the annual day commemoration of the Competition Commission of India. Elaborating on her ‘light touch regulatory framework’ commandment in the Union Budget 2025-26, she emphasised the importance of regulators such as the CCI striking a balance between regulatory vigilance and a pro-growth mindset for building a resilient, innovation-driven economic framework. It is here that she wanted regulators to be guided by the principle of ‘minimum necessary, maximum feasible’.

As a practitioner of corporate commercial laws who has advised on transactions in infrastructure and energy sectors where regulators and government arms play a major role in mergers and acquisitions, this got me thinking—an active adoption and implementation of this principle can give a leg up to M&A in these sectors and help capital recycling, which is an absolute imperative for most infrastructure sectors given their capex-hungry nature. The capital recycling I refer to is the ability of an equity capital contributor to an infrastructure project to recover their capital with returns by selling their investments to an incoming investor, rather than waiting for the entire project lifecycle to play out. A regulatory framework which allows such recycling with ease ensures a healthy alignment between infrastructure project developers, who have the technical wherewithal and risk appetite for greenfield development, and capital investors, who are in the market for operational brownfield infrastructure assets offering stable returns during their operational phase. Certainty in monetisation avenues for infrastructure project developers enhances their ability to redeploy capital in new projects and expand their portfolio. In fact, the National Monetisation Pipeline of the government itself is essentially a recognition of its own capital recycling requirements to fulfil its role as the principal capital expenditure provider for infrastructure projects.

In a country where debt for infrastructure projects is in short supply, and measures aimed at addressing the shortfall, be it through a deeper bond market or establishing infrastructure-focused lending institutions, are taking time to bear transformational results, the equity side is always an easier fix with low-hanging fruits. Not to say that measures to ease capital investments and divestments in infrastructure have escaped the government’s attention. Major infrastructure-specific interventions, such as its inclusion as a sector eligible for foreign venture capital investment (allowing foreign investors to structure their investments through the use of more returnable capital instruments as against equity shares or instruments compulsorily convertible to them, required for foreign direct investments), or the introduction of infrastructure investment trusts (a vehicle providing an additional mode of monetisation to project sponsors while introducing a more regulated investment vehicle for financial investors both onshore and offshore), have been successful and well received by the infrastructure investment community.

Even on processes for M&A-specific approvals, the government has been nimble in addressing industry concerns. Recent legislative interventions include amendments to the Competition Act (2002) requiring the anti-trust regulator (Competition Commission of India) to consider transaction approval requests in a time-bound manner, with the overall review period having been shortened, as well as tweaks to the legislative framework for fast-track mergers where fixed timelines have been imposed for regulatory objections to a merger proposal. Similar and multiple interventions have also been made within the Insolvency and Bankruptcy Code-governed framework to ensure the timely completion of insolvency resolutions, but with limited success.

The regulatory interface that an M&A transaction needs to go through with the Competition Commission of India or the Company Law Tribunals in the above instances, or for that matter any other statutorily constituted regulator such as the exchange control regulator (the Reserve Bank of India) or the securities market regulator (the Sebi), is still bound by a well-established legal and regulatory framework with sufficient guidelines or jurisprudence which impart a degree of certainty to the process and its outcomes, be it positive or negative. However, for M&A transactions involving a substantial change in capital structure or ownership of an infrastructure asset, the parties are faced with an additional layer of pre-approval requirements from government bodies or corporations stemming from their contracts with the asset operator. These contracts can range from concession arrangements governing the development, usage, and reversion of the concessioned infrastructure asset (say, your airports, ports, or highways) to guaranteed procurement arrangements which render an infrastructure project bankable (for instance, a power purchase agreement with a power generation project).

Sticking with the same examples to illustrate, a highway concession contract with the National Highway Authority of India requires a concessionaire to obtain prior approval for not only transactions involving a change in control until a pre-defined period of operations, but also an overarching and perpetual pre-approval requirement for any change in shareholding in the concessionaire beyond 15%. The latter restriction is intended and mentioned as an approval right limited to a check from a national security perspective, but in the absence of any prescription of timelines for deciding on such approval requests, or at least issuing a speaking order within a definite timeline conveying a rejection or reasons for requiring more time, the provision results in requests languishing without any certainty of outcome or timelines, even where the incoming investors are entities which have been operating other highway assets or have been granted similar approvals for other assets in the past.

The lack of definitive guidelines on the manner in which such approvals are to be granted, or the timelines within which these should be granted or deemed granted, results in unbound discretion in the hands of a contractual counterparty, which can use this as a means to force the concessionaire to align on other matters. For instance, it is common knowledge that such approvals are granted by concessioning authorities in many instances only upon the concessionaire affirming certain positions in relation to contractual claims, despite there being no such requirement under the concession contract. On the other hand, if we were to look at a standard long-term power purchase agreement typically utilised by state-backed utilities or power procurers, these impose an equity lock-in restriction on the majority shareholding in the entity developing the power generation project for a definite period post its commercial operations. This restriction justifiably pre-empts fly-by-night operators from bidding and trading their awards without actually developing the project, while a minority stake is kept free from lock-in to allow the developer sufficient avenues for raising equity for project development. That said, while the contract permits developers to approach the power procurer to permit changes in locked-in equity prior to expiry of the prescribed lock-in period, in the absence of any guidelines around the manner in which such discretionary approvals are to be granted by the power procurers, most of them are not ready to even consider such requests. This, in turn, results in ingeniously structured transactions during the lock-in period where, in letter, the lock-in restrictions are not triggered, while, for all intents and purposes, commercially, the entire equity in the project can stand divested during the lock-in period.

The two contrasting instances above demonstrate the hidden and perhaps unintended impediments for an M&A transaction, which create uncertainties around a transaction that can be avoided by firstly evaluating in detail the scope of such prior approval requirements and consequently prescribing in detail the process through which requests for such approvals need to be considered, the grounds on which these can or cannot be rejected, and a definitive time frame within which the decision needs to be communicated along with reasons. In this regard, in fact, it is the Competition Commission of India which has led the way in evolving a procedure for transactional approvals, which inspires confidence and imparts certainty for parties and stakeholders involved in an M&A transaction. Befitting it is then that it was on their platform that the Hon’ble Finance Minister enunciated such a powerful principle for our regulators.

Views expressed are personal. The writer is a partner at Shardul Amarchand Mangaldas & Co.