RBI defines term ‘control’, notifies FDI guidelines

The Reserve Bank of India (RBI) has notified Foreign Direct Investment (FDI) guidelines pending for past four years as Press notes 2 and 3 of the Department of Industrial Policy and Promotion will be used to ensure that foreign direct investments comply with FDI ceilings and other norms.
The Press note also defines the term ‘control’ or ‘ownership’ of a company. As per the notification:

• A company is considered as ‘controlled’ by resident Indian citizens if the power to appoint a majority of the directors on its board is held by Indian companies and citizens.
• A company is considered as ‘owned’ by resident Indians if more than 50 per cent of the equity is held by the entities in India.
• If over 50% of the equity of a company is held by a non-resident Similarly, it would be a foreign company.
• As regards investments made b/w February 13, 2009 and the date of publication of the notification, Indian companies are required to intimate, within 3 months, the detailed position where the issue of shares or downstream investment is not in conformity with the regulatory framework now being prescribed.

Note: The recent notification by the RBI has come amidst debate over control of Jet Airways post-UAE’s Etihad buying stake. Various ministries and department including the market regulators Securities and Exchange Board of India have raised concerns about the ultimate control of Jet once the deal with Etihad goes through.

Month: Current Affairs - July, 2013