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  • Aashee Somani

Hinduja Group’s Acquisition of Reliance Capital: The Insurance Perspective

[Aashee is a student at NALSAR University of Law.]

The Insurance Regulatory and Development Authority of India (IRDAI) regulates any transactions concerning insurance business entities through the newly introduced IRDAI (Registration, Capital Structure, Transfer of Shares, and Amalgamation of Insurers) Regulations 2024 (Regulations). These Regulations govern the control, capital structure, and transfer of shares of insurance companies. While largely retaining the framework from the previous regulations, the IRDAI has introduced substantial key changes, including removing the prior approval requirement for listing of shares, introducing a number of relaxations to the lock-in period on shareholders, and restricting investors from appointing a director in case they have already appointed a director in any other insurer in the same line of insurance. While the Regulations are not a drastic overhaul to the existing insurance related regime in India (and are essentially a compilation of various earlier regulations), the Regulations interestingly apply to the recently approved Hinduja Group’s acquisition of Reliance Capital (RCap).

Understanding the Deal

The Hinduja Group’s acquisition of RCap has been eagerly anticipated since the approval of its initial structure in November 2023. As one of India's largest financial services firms, RCap operated on a holding-subsidiary model, with subsidiaries offering specialized services, including various lines of insurance. The acquisition comes as a result of distress sale of the debt-ridden entity, guided by the National Company Law Tribunal (NCLT). Pertinently, the group had to reimagine the transaction just 2 weeks before the NCLT deadline of 27 May 2024, due to regulatory issues flagged by the IRDAI. Today, while it has successfully completed all procedural formalities, it has been granted extensions to fulfil financial ones.

The earlier structure for the acquisition had envisioned two implementing entities, IIHL BFSI (India) Ltd and Aasia Enterprises LLP. RCap’s entire shareholding was to be transferred to holding company IIHL BFSI (India), and certain assets held by RCap were to be transferred to Aasia Enterprises. However, post restructuring, four new entities have been introduced and the new structure is represented by Figure 1.

Figure: New deal structure

This restructuring forms the focus of the article, commenting on the commercial and legal considerations behind this. A brief background of the relevant provisions of the Regulations is also provided to facilitate the conclusions drawn.


Control Structure: FDI Limits

In 2021, the foreign direct investment limits under insurance companies was increased from 49% to 74% by the Ministry of Finance. However, this may be breached by employing the specific structure granted under the Regulations at regulation 17. This regulation provides the understanding of control by a foreign company over an insurance business, by calculating the amount of direct equity stake and the stake through another owned or controlled entity. As per the second proviso, the latter would not be considered to be control if the entity is regulated under Securities and Exchange Board of India, Reserve Bank of India and / or National Housing Bank. Thus, a potential workaround the foreign direct investment (FDI) limit would be by providing the 26% investment through an Indian listed company over which the foreign investor is able to exercise indirect control.

This is another provision in the Regulations in support of the IRDAI’s push for listing of insurance companies, supplemental to removal of permissions and other integral compliances such as lock-in periods. However, the Hinduja structure applies a different, creative structure to skirt this 74% limit.

In the revamped structure available above, the holdings company of IIHL has set up two entities to route the acquisition of RCap. These are IIHL BSFI Holdings and IIHL BSFI India Ltd. Interestingly, all three of these companies are based offshore, in Mauritius. This becomes relevant in the context of the life insurance arm of RCap, which was incorporated as a JV with 49% shareholding by a Japanese entity, Nippon Life Insurance. Thus, when RCap is acquired by the Mauritian entity, the foreign shareholding of the JV goes up to 100%, breaching the FDI limit of 74%. This is where the new entities come into the picture.

Despite being synonymous with the Hinduja Group, the brothers own only about 9.9% of IIHL. This makes them minority shareholders, free to find creative ways to retain control in their acquisition. In light of this, the brothers have proposed to set up the 100%-owned Cyqure India Private Limited, a holding company for Aasia Enterprises. As elaborated above, FDI is calculated only through subsidiaries or “controlled” entities. Therefore, since Cyqure is not a subsidy of IIHL but only an affiliated company through shareholding, the FDI norms are complied with. Thus, Cyqure India is able to provide the remaining 26% shareholding to RCap through their SPV, Aasia Enterprises LLP, which allows the Hinduja Group to maintain effective control.


Investment Structure: Regulatory Implications

Aasia Enterprises has been characterised as an SPV since it is an instrumental entity, set up only to facilitate the ownership in various subsidiaries of RCap, and has no business activity of its own. However, when we scrutinise the structure of IIHL’s investment in RCap, parallels start to emerge.

The business operations of RCap have always rested on the holding-subsidiary model, with no commercial activities and operations by RCap. In light of this, the RCap acquisition becomes only an instrument to acquire the subsidiaries it owns, which are the actual cash cows. This essentially turns RCap into an SPV.

While such a model is structurally sound, issues arise around the insurance businesses RCap owns. Under Regulation 8 of the Regulations, investments through SPVs result in stricter scrutiny. Since SPVs are usually created to escape obligations by the primary investor, the Regulations seek to extend these to the parent company level. Pertinent here is the restriction on transfer of shares till a certain time period, or lock-in, which is applicable on the shares of the SPV under Regulation 8(iv).

Usually, a lock-in on a company older than 10 years would operate for 2 years, restricting transfer of each insurance business of RCap. However, due to the unique nature of this deal, it is noteworthy that up till this timeline, the larger entity of RCap cannot be transferred by IIHL. Any potential exit option for IIHL must either dissect the RCap investment structure or be delayed by at least 2 years.


Funding Structure: Regulatory (In)Consistency

The last issue that stems here is inherently controversial. The Regulations are explicit when they provide that no investment into an insurance business can be on the basis of borrowings, and must be on equity, to ensure protection of the insured policyholders. This is also why IIHL’s proposal to pledge shares of RCap to provide for the funding was rejected by IRDAI, extending the rule of no encumbrances to the shares of all three insurance providers as well.

However, in the newest proposal, which also enjoys IRDAI approval, the funding model is to raise 75% of the amount through debt instruments. One way to justify this inconsistency is if the debt is being raised not by RCap or another investor of the insurance businesses but through another vehicle. For example, if debt is raised not by Aasia Enterprises but by Cyqure Ltd., the model would be permitted. This would also explain the introduction of Cyqure and IIHL BSFI into the structure at the eleventh hour.

Nevertheless, a clarification from the regulator would be helpful to alleviate ambiguity and investor concerns. Much-needed clarity about the acceptable methods and ways of borrowings is awaited from the IRDAI.



In conclusion, the acquisition of RCap by the Hinduja Group is a prime example of legal craftsmanship, expertly circumnavigating provisions of the Regulations for commercial exigencies. However, this also betrays the loopholes in the law. IIHL’s skirting of the FDI limits goes beyond the routes envisaged by the Regulations and must be addressed to maintain policyholder interests. Further, the ambiguity around debt financing of insurance deals must be clarified by the regulator, since the deal has introduced new questions on acceptable structuring. The last conclusion of the author directs to the investor rather than the regulator, who must be mindful of how the legal character of entities may shift to an SPV, bringing its own implications and obligations. As stakeholders await further guidance from the IRDAI, the case of RCap serves as a timely reminder of the adaptation required within the insurance industry to foster investor confidence and regulatory compliance.


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