The Department of Economic Affairs notified the new norms under the Foreign Exchange Management Act (FEMA), days after the Department for Promotion of Industry and Internal Trade (DPIIT) issued Press Note 3 detailing the changed rules.
“Provided also that 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 or purview of the above provisos, such subsequent change in beneficial ownership shall also require government approval,” DEA said in the notification.
The move, aimed to curb opportunistic takeover due to the Covid-19 pandemic, especially from China, now puts all investments from India’s neighbors under the approval route.
“The question of who is beneficial owner has been left unanswered – this was quite critical. This will lead to uncertainty and foreign investors don’t like that. Only time will tell how this will progress as practice evolves,” said Sameer Sah, Partner, Khaitan & Co.
Sah added that the change has been brought about in the rule pertaining to foreign direct investment and not FPIs.
“This begs the question that does this change really resolve the so-called problem of neighbourly investors mopping up stake in listed companies,” he said.
