Sneak peek into india’s latest fdi policy

Unanticipated outbreak of the global pandemic and nationwide- lockdown caused by the Novel Coronavirus (COVID-19) has jeopardized individuals and economy as a whole. In order to abate the impact on the general public, business establishments, and managing the current situations, the Government of India is diligently tracking all possible routes through which situation can be controlled by way of issue of amendments, advisories and various announcements, amongst the others.

Department for Promotion of Industry and Internal Trade (DPIIT) vide its Press note 3 (2020), dated April 17, 2020 (“Press Note”) has revised the existing regulatory framework on foreign investments in India.

The Press Note highlights the concerns of the probable unaccredited hostile takeovers resulting from the economic turbulence across the globe. Therefore, in order to curb the opportunistic takeovers/acquisitions of Indian companies, the current FDI Policy now mandates ‘prior Government Approval’ (Approval Route) for all foreign investments in case if the origin of such foreign investments is from such countries that “share land borders” with India.

Countries sharing land borders with India are China, Bangladesh, Nepal, Pakistan, Bhutan, Myanmar and Afghanistan (as per Ministry of Home Affairs data).

Now, foreign investment by any entity situated in above-mentioned countries or in case the beneficial owner of the investment, either entity or is a citizen of such above-mentioned countries, then it shall require prior Government Approval (as per Press Note). It is pertinent to mention herein that transfer or existing or future FDI in an Indian entity (directly/indirectly) which results in change in beneficial ownership shall also require prior Government Approval.

Changes effected by the Press Note

Earlier FDI policy:

As per Para 3.1.1: A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities, which are prohibited.

Exceptions: Citizen/Entities of Bangladesh can invest only under Government Route. Also, Citizen/Entities of Pakistan can invest, only under the Government Route in sectors other than defense, space, atomic energy and sectors prohibited for foreign investments.

Modified FDI policy:

As per Para 3.1.1 (a): A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities, which are prohibited.

Exceptions:

#1. An entity of 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.

#2. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defense, space, atomic energy and sectors/activities prohibited for foreign investment.

As per Para 3.1.1 (b): In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the Para 3.1.1(a), such subsequent change in the beneficial ownership will also require Government Approval.

Therefore, the modified and newly inserted lines of the Press Note clarifies that the intent of Government is to regulate and bring foreign investments under the Government/Approval route in order to curb potential opportunistic takeovers, acquisition of Indian Companies due to the current COVID-19 pandemic.

Grey areas: from the point of view of companies act, 2013

Any new (proposed) company whose investors/beneficial owners are from countries sharing land borders with India would require Government Approval. Currently, name approval process would not require any prior government approval except CRC/MCA requirements.

Clarity is still to be provided by Government in case of Companies, which are already under the process of Incorporation or Incorporation certificates are yet to be issued, on whether prior government approval would be required in case of those companies which involves foreign investors who are situated in Countries sharing land borders with India.

Disclaimer: The contents of this publication are for general information only and should not be relied upon as a substitute for professional legal advice, which should always be sought concerning any specific matter before acting or reliance upon any such information. The opinions, estimates, and information given herein are made for best judgment, utmost good faith, and as far as possible based on data or sources, which are, believed to be reliable. Notwithstanding we disclaim any liability in respect of any claim, which may arise from any error or omissions or from providing such advice, opinion, judgment, or information.

Author Bio

Qualification: CS
Company: LAWgically Yours
Location: New Delhi, New Delhi, IN
Member Since: 04 May 2020 | Total Posts: 4
Mr. Arora is a qualified member of the Institute of Company Secretaries of India (‘ICSI’) and a Law graduate. He qualified his CS course in the year 2015 and has sound experience of 5 years of thorough and rigorous work culture of LAW firm, Corporate and Independent Practice. During his pre-memb View Full Profile

My Published Posts

More Under Fema / RBI

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031