Instead, the finance ministry has decided to adopt the definition of control as prescribed in the new Companies Bill, 2012, a government official told The Indian Express, for all foreign direct investment (FDI) across sectors. This will replace the definitions that stretch across three FDI notifications issued in 2009.
We have decided to align the definition of control for the FDI policy purpose with that proposed in the new Companies Bill. With this we hope to remove all ambiguity, the official said. Currently, control for the purpose of FDI was linked only to right to appoint majority of directors.
By adopting the definition prescribed in the Bill, the finance ministry has widened the scope of control, bringing under its ambit all the sectors having FDI caps along with the multi-layered structures having foreign investment. All sectors having sectoral FDI caps are likely to be impacted.
According to the Bill, control includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
The issue of control will put to rest to the controversy on downstream investment by Indian companies. Indian-owned and controlled companies can make downstream investments in sectors with FDI caps without seeking approval from the Foreign Investment Promotion Board (FIPB).
This will empower the government to go beyond the obvious structure of a company, with foreign investment, into the minute details like who all are investing, what are the components of the structure, and the quasi-equity instruments being used.
Akash Gupt, executive director, PwC, said that the revised definition would widen the scope of control and would ensure that the essence of control is met in spirit with better compliance. This will also mitigate having inter se arrangements. However, since the definition is broadly worded, it could lead to litigation. There should be a mechanism available to certify, then only it will work, he added.
Earlier, the department of industrial policy and promotion had issued Press Note 2 in 2009 clarifying that the the entire downstream investment by the investing company into the subject Indian company would be considered as indirect foreign investment if the investing company is owned or controlled by non-resident entities.
* The finance ministry has decided to adopt the definition of control as prescribed in the new Companies Bill, 2012 for FDI across sectors
* This has widened scope of control bringing all sectors having FDI caps and multi-layered structures having foreign investment
* Indian-owned and controlled companies can make downstream investments in sectors with FDI cap without FIPB approval.
Foreign investors, Walmart, Singtel, Vodafone, finance ministry, FDI