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TMI BlogForeign Investment in India – Guidelines for calculation of total foreign investment in Indian companies, transfer of ownership and control of Indian companies and downstream investment by Indian companiesX X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in Indian companies and for establishment of Indian companies/ transfer of ownership or control of Indian companies from resident Indian citizens to non-resident entities, in sectors with caps. Further, DIPP, vide their Press Note 2 (2012 series) dated July 31, 2012, had made certain other changes. The Consolidated FDI Policy Circular 1 of 2013 dated April 5, 2013 , available at www.dipp.gov.in comprehensively incorporates the contents of the Press Notes. 3. (i) The regulatory framework comprises: (A) definitions; (B) concept of direct and indirect foreign investment; (C) method of calculation of total foreign investment; (D) guidelines for establishment of Indian companies and transfer of ownership or control of Indian companies, from resident Indian citizens and Indian companies to non-resident entities, in sectors with caps; (E) downstream investment by an Indian company which is not owned and/or controlled by resident entity/ies. These guidelines, summarised in the Annex, shall come into force from the date(s) mentioned in the Notification No.FEMA.278/2013-RB dated June 07, 2013 and notified vide G.S.R.393(E) dated June 21, 2013. (ii) Any foreign in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Company Owned by non-residents means an Indian company where more than 50% of the capital in it is beneficially owned by non-residents; Company Controlled by non-residents means an Indian company where non-residents have the power to appoint a majority of its directors in that company; (ii) Direct foreign investment shall mean investment received by an Indian Company from non-resident entities regardless of whether the said investments have been made under Schedule 1, 2, 3, 6 and 8 of the Notification No. FEMA. 20/2000-RB dated May 3, 2000, as amended from time to time; (iii) Downstream investment means indirect foreign investment, by one Indian company into another Indian company, by way of subscription or acquisition; (iv) 'Holding Company would have the same meaning as defined in Companies Act 1956 ; (v) Indian Company' means a company incorporated in India under the Companies Act, 1956 ; (vi) Indirect foreign investment means entire investment in other Indian companies by an Indian company (IC), having foreign investment in it provided IC is not owned and controlled by resident Indian citizens and/or Indian Companies which are owned and controlled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. This exception has been made since the downstream investment of a 100% owned subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company. This exception, however, is strictly for those cases where the entire capital of the downstream subsidiary is owned by the holding company. (iii) The methodology for calculation of total foreign investment would apply at every stage of investment in Indian companies and thus in each and every Indian company. (iv) Additional requirements (A) The full details about the foreign investment including ownership details etc. in Indian company /ies and information about the control of the company /ies would be furnished by the Company /ies to the Government of India at the time of seeking approval. (B) In any sector/activity, where Government approval is required for foreign investment and in cases where there are any inter-se agreements between/amongst share-holders which have an effect on the appointment of the Board of Directors or on the exercise of voting rights or of creating voting rights disproportionate to shareholding or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian citizen, the same shall be counted as foreign investment. 4. The above mentioned policy and methodology would be applicable for determining the total foreign investment in all sectors, except in sectors where it is specified in a statute or a rule there under. The above methodology of determining direct and indirect foreign investment therefore does not apply to the insurance sector which will continue to be governed by the relevant Regulation. D. Guidelines for establishment of Indian companies/ transfer of ownership or control of Indian companies, from resident Indian citizens and Indian companies to non-resident entities, in sectors with caps. 5. In sectors/activities with caps, including, inter-alia, defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecommunications and satellites, Government approval/FIPB approval would be required in all cases where: (i) An Indian company is being established with foreign investment and is not owned by a resident entity or (ii) An Indian company is being establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating. Note: with effect from 31st day of July 2012 Downstream investment/s made by a banking company, as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949, incorporated in India, which is owned and/or controlled by non-residents/ a non-resident entity/non-resident entities, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign investment. However, their 'strategic downstream investment' shall count towards indirect foreign investment. For this purpose, 'strategic downstream investments' would mean investment by these banking companies in their subsidiaries, joint ventures and associates. (ii) Downstream investments by Indian companies will be subject to the following conditions: (a) Such a company has to notify Secretariat for Industrial Assistance, DIPP and FIPB of its downstream investment in the form available at http://www.fipbindia.com within 30 days of such investment, even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by in the subsidiary companies at second level and so on and so forth would obtain a certificate to this effect from its statutory auditor on an annual basis as regards status of compliance with the instructions on downstream investment and compliance with FEMA provisions. The fact that statutory auditor has certified that the company is in compliance with the regulations as regards downstream investment and other FEMA prescriptions will be duly mentioned in the Director s report in the Annual Report of the Indian company. In case statutory auditor has given a qualified report, the same shall be immediately brought to the notice of the Reserve Bank of India, Foreign Exchange Department (FED), Regional Office (RO) of the Reserve Bank in whose jurisdiction the Registered Office of the company is located and shall also obtain acknowledgement from the RO of having intimated it of the qualified auditor report. RO shall file the action taken report to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, Central Office, Central Office Building, Shahid Bhagat Singh Road, Mumbai 400001. - Circular - Trade Notice - Public Notice - Instructions - Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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