DPIIT Registration for Chinese and other border sharing countries

India has land border with seven countries- China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Out of these, China has been biggest trading and procurement partner. However, the relations turned frosty after June, 2020 Galwan valley clashes. Post Galwan, India has tightened the economic and regulatory requirements for Chinese entities. However, the Chinese entities are still very much present in Indian infrastructure, electronic, railway and other projects. In this article, let us explore the entry and regulatory landscape for a Chinese entity in India in the following sequence:

• Legal Basis
• Regulatory Timeline
• Who Needs Registration & Beneficial Ownership
• Process Flow for Registration
• Sensitive Sectors & Technologies (Schedules I, II, III)
• Scope & Applicability incl. GeM & State Govts
• Practical Implications — Sector Analysis

1. Legal Basis: The government of India came up with a change in General Financial Rule, 2017. Rule 144 of GFR states the foundation principle of public procurement. The sub-rule (xi) reads as

“Notwithstanding anything contained in these Rules, the Department of Expenditure may, by order in writing, impose restrictions, including prior registration and/or screening, on procurement from bidders from a country or countries, on grounds of defence of India, or matters directly or indirectly related thereto including national security; no procurement shall be made in violation of such restrictions.”

The language of this Rule is very broad, without specifying any country. This changed rule empowered the government to come up with Public Procurement Orders. Subsequently, four Public Procurement Orders were issued since July, 2020. The current Order is PP Order No. 4 dated 23^rd February, 2023

2. Regulatory Timelines:

• Public Procurement Order No. 1 dated 23^rd July, 2020. This was the foundational order.

This order was very broad and any bidder from a land-border country was eligible to bid only if registered with DPIIT Registration Committee, that is the Competent Authority. It was applicable to all procurement of goods or services of all Central government ministries and departments, autonomous bodies and public sector undertakings. The biggest issue is that for national security reasons, the Competent Authority is not required to give reasons for acceptance and rejections. The 10 copies of original documents were required to be submitted to DPIIT. Imagine that each set has 70 to 80 pages. The huge documents were submitted to DPIIT.

• PP Order No. 2 and 3 dated 24^th July, 2020: They contained transitional provisions and Government E-Marketplace (GeM) requirements
• Official Memorandum Dated 8^th February, 2021: It gave scope clarification and Transfer of Technology (ToT) early guidance.
•  PP Order 4 dated 23^rd February, 2023: It supersedes all prior Orders and clarifications and is the current governing instrument. It added ToT provisions, Sensitive Sectors and Technologies and representation of National Security Council Secretariat (NSCS)’s representation in the Registration Committee.
•  1^st April, 2023: ToT provisions became effective for tenders issued/publishes on or after that date.

3. Who Needs Registration & Beneficial Ownership

(A) Direct Bidders:

• Entity incorporated/registered in land-border country. So, a Chinese company directly coming within this scope.
• India Subsidiary of such Chinese entity
• Entity substantially controlled by border-country entity
• Entity whose Beneficial Owner is in border country
• Indian (or other) Agent of such entity. If an Indian entity is procuring finished goods from a Chinese manufacturer and supplying them to a public entity in India, that Indian entity is an agent. But procuring raw materials or components and converting into other goods are excluded from definition of agent.
• Natural person — citizen of border country
• Consortium/JV with any above member

(B) Beneficial Owner Threshholds

• Company / LLP: >25% shares, capital or profits
• Partnership Firm: >15% capital or profits
• Unincorporated body: >15% property/capital/profits
• If none identified: Senior Managing Official
• Trust: Author, Trustee, Beneficiaries >15%

(C) ToT Extension (PP Order No. 4)

• ANY bidder (incl. Indian) with Specified ToT from border-country entity
• Transfer of know-how, skills, processes, trade secrets enabling independent manufacture
• Covers Indian defence, pharma, infra, electronics firms with Chinese technology licensing

4. Process Flow for Registration

• Application to DPIIT: The applicant needs to prepare set of documents in prescribed format, attach Indian CA certificates, give details of products, earlier supplies made, Management details, Beneficial ownership details and declarations and notes as required. This is the most crucial step. Your documents must be flawless, as any small mistake will render you to refile the application. Please note that there are about 20-25 documents which are required to be filed. It is advised to take support of professionals who are specializing in this area. On submission, DPIIT will put a stamp on the cover and you need to file the soft copy of documents as soon as possible.
• DPIIT seeks political and security clearance from Ministry of External Affairs and the Ministry of Home Affairs. Appendix E and Appendix F are crucial documents for this clearance.
• Registration Committee evaluates the application — may seek additional information or documents
• NSCS representative participates in evaluation (for applications received after 01.04.2023)
• Committee grants or rejects registration — the decision is final and no reasons need be provided on national security grounds
• Registration may be granted for all kinds of tenders, or for specified types of goods/services, or for a specified/unspecified duration

5. Sensitive Sectors and Technologies:

PP Order No. 4 introduces a very important tiered classification of sensitive sectors and technologies in three schedules

• Schedule I — Category I Sensitive Sectors. These are — Atomic Energy, Broadcasting and Print and Digital Media, Defence, Space, and Telecommunications. For bidders with ToT arrangements in any technology in these sectors, registration is mandatory. And I will be candid with you — for Telecommunications, which is Category I, the approval rate since 2020 has been extremely low. We have a rejection in our practice from the telecom sector.
• Schedule II — Category II Sensitive Sectors. This is a much longer list — Power and Energy, Banking and Finance, Civil Aviation, Ports and Dams, Electronics and Microelectronics, Railways, Pharmaceuticals and Medical Devices, Health, Urban Transportation, Mining, Agriculture, and Meteorology. For these sectors, ToT in the Schedule III sensitive technologies triggers registration.
• Schedule III — Sensitive Technologies. These include — Additive Manufacturing or 3D Printing, equipment with programmable or autonomous components like SCADA systems, data upload and streaming technologies including satellite communication, Chemical Technologies, Biotechnologies, Information and Communication Technologies, and Software.

So for example — if an Indian company in the Railways sector has a ToT arrangement with a Chinese firm involving SCADA systems — that is a double hit — Railways is Category II, SCADA falls under Schedule III. Registration is mandatory.

6. Scope & Applicability incl. GeM & State Govts

(A) Mandatory Registration:

• All Central Ministries & Departments
• Attached & Subordinate Bodies
• All Autonomous Bodies
• Public Sector Banks & Financial Institutions
• Central Public Sector Enterprises (CPSEs)
• PPP Projects receiving Govt/PSU financial support
• Union Territories, NCT Delhi & their agencies
• State Govts & their agencies/public enterprises
• GeM Portal — non-compliant vendors have been removed

(B) Key Exemptions:

• Projects with international funding approved by DEA/Ministry of Finance (follow project-specific procurement rules)
• Procurement by Indian Missions and govt agencies located outside India
• Bidders from countries where India has extended Lines of Credit or is undertaking development projects (check MEA website)
• Spare parts, AMC/CMC, consumables for closed systems from OEMs or authorized agents — exempt from registration

7. Practical Implications:

• Railways: They face intense scrutiny. Railways is Category-II sensitive — registration mandatory for all metro and freight corridor tenders.
• Telecommunications is Category-I — highest scrutiny. Indian distributors of Chinese electronics on GeM must comply.
• Medical Device and Pharma: Category-II sensitive sector. Chinese-origin cardiac, diagnostic and API equipment suppliers face extended timelines for MEA/MHA clearance.
• Indian Agent and JV Partners: Indian co. procuring & re-supplying Chinese finished goods = ‘Agent’ under the Order. Those with Chinese beneficial ownership >25% must obtain registration.

Please note that registration is sector-sensitive. Mechanical and industrial products generally fare better. Telecom is near-impossible. Railways has mixed outcomes. Medical devices are slow. And the same group company in a different avatar can get a different result.

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If you have any query or concern or needs any support for DPIIT registration, you may connect with me.

Abhinarayan Mishra, FCA, FCS, IP, RV; Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; 9910744992, ca.abhimishra@gmail.com;@crossbordertaxindia; www.crossbordertaxindia.com