A Knight in Shining Armor against Opportunist Takeover OR Capitulation for Growth

The Government of India revised the Foreign Investment Policy foreseeing the threat of opportunistic takeovers due to the COVID-19. Knight Shield against Opportunist Takeover, ‘a non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment’.

Interpretation of Knight Shield against Opportunist Takeover:

1. An entity situated in a country which shares a land border with India, or any person who is a beneficial owner of investment into India, and is situated in or is a citizen of any such Bordering Country, can invest in India (except in sectors/activities prohibited for foreign investment) only with prior Government approval.

2. Also, transfer of ownership in any existing or future FDI in an Indian entity, whether directly or indirectly, which results in the beneficial ownership falling in the hands of entities/citizens of countries, which share a border with India, shall also require prior Government approval.

The issue may turn out to be a double-edged sword:

1. Concept of Beneficial Owner or Control not defined.

2. The clarity for Right Issue subscriptions.

3. Disinvestment norms.

4. Guided principles on Foreign Portfolio Investments.

5. Treatment of Special Administrative Region.

Conclusion

These issues need to address with the utmost wisdom, to overcome any unforeseen situation that may creep up, considering the financial position and growth of aspects of Our Country.

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Name: AkhilesH
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