Review of the policy on foreign direct investment-definition of the term “control”, for calculation of total foreign investment i.e. direct and indirect foreign investment in Indian companies

The Cabinet Committee on Economic Affairs has approved the proposal of the Department of Industrial Policy & Promotion for amendment to the existing definition of “control” under the FDI policy. The revised definition will be as follows:

Until now, the definition of “control”, in the extant FDI policy is as under: “A company is considered as “controlled” by resident Indian citizens if the resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens, have the power to appoint a majority of its directors in that company”.

The CCEA has now approved to define “control” as below:

” `Control` shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.”

The revised definition of `control` will expand the definition of `control` to cover `control` exercisable inter-alia through management and policy decisions, shareholding, management rights, shareholder agreements and ensure alignment with the definition as per the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 and the definition proposed in the Companies Bill, 2012.

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