TMI BlogGuidelines 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 ..... d by resident Indian citizens if more than 50% of the investment in such an LLP is contributed by resident Indian citizens and/ or entities which are ultimately owned and controlled by resident Indian citizens and such resident Indian citizens and entities have majority of the profit share; (b) A company owned by non-residents shall mean an Indian company that is not owned by resident Indian citizens. (ia) Control shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. For the purpose of Limited Liability Partnership, control shall mean right to appoint majority of the designated partners, where such designated partners, with specific exclusions to others, have control over all the policies of Limited Liability Partnership.] (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 6 [Schedule 1,2,2A,3, 6 and 8] of the Notification No. FEMA.20/2000-RB dated May 3, 2000 , as ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... koned as foreign investment.] 2. Investment in Indian companies can be made by both non-resident as well as resident Indian entities. Any non-resident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise both resident and non-resident investments. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The indirect investment can also be through multi-layered structure. Guidelines for calculation of total foreign investment, i.e., direct and indirect foreign investment in an Indian company. 3.(i) Counting of Direct foreign investment: All investments made directly by non-resident entities into the Indian company would be counted towards 'Direct foreign investment'. (ii) 12 [ Counting of indirect foreign investment: For the purpose of computation of indirect foreign investment, foreign investment in an Indian company shall include all types of foreign investments regardless of whether the said investments have been made under Schedules 1, 2 (FII holding as on March 31), 2A (FPI holding as on March 31), 3, 6, 8, 9 and 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this clause, will include any or a combination of the following: (i) In the case of an individual shareholder, (aa) The individual shareholder, (bb) A relative of the shareholder within the meaning of Section 2 (77) of Companies Act, 2013. (cc) A company/group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest. (ii) In the case of an Indian company, (aa) The Indian company (bb) A group of Indian companies under the same management and ownership control. (b) For the purpose of this Clause, Indian company shall be a company which must have a resident Indian or a relative as defined under Section 2 (77) of Companies Act, 2013 / HUF, either singly or in combination holding at least 51% of the shares. (c) Provided that, in case of a combination of all or any of the entities mentioned in Sub-Clauses (i) and (ii) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company. ] (E) If a declaration is made by persons as per section 187C of the Indian Companies Act about a beneficial interest b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence shares/debentures, regardless of whether the said investments have been made under Schedule 1 , 2 , 2A , 3 , 6 , 8 , 9 and 10 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 . (vi) Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 will be deemed to be domestic investment at par with the investment made by residents. (vii) A company, trust and partnership firm incorporated outside India and owned and controlled by nonresident Indians will be eligible for investments under Schedule 4 of FEMA (Transfer or issue of Security by Persons Resident Outside India) Regulations, 2000 and such investment will also be deemed domestic investment at par with the investment made by residents.] 6. (i) Downstream investment by an Indian company, which is not owned and/ or controlled by resident entity /ies, into another Indian company, would be in accordance/compliance with the relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the latter Indian company is operating. Note : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on activities approved for FDI, will be subject to the conditions specified in Annex B of Schedule I to these Regulations. B. Those companies, which are Core Investment Companies (CICs), will have to additional follow RBI's Regulatory Framework for CICs. C. For undertaking activities which are under automatic route and without FDI linked performance conditions, Indian company which does not have any operations and also does not have any downstream investments, will be permitted to have infusion of foreign investment under automatic route. However, approval of the Government will be required for such companies for infusion of foreign investment for undertaking activities which are under Government route, regardless of the amount or extent of foreign investment. Further, as and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps. Note: Foreign investment into other Indian companies would be in accordance/compliance with the relevant sectoral conditions on entry route, conditionalities and caps; e) The FDI recipient Indian company at the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Controlled by non-residents means an Indian company where non-residents have the power to appoint a majority of its directors in that company . 5. Inserted vide NOTIFICATION No. FEMA. 285/2013-RB dated 30 th August, 2013 w.e.f. August 22, 2013 6. Substituted vide Notification No. FEMA. 297/2014-RB dated March 13, 2014 before it was read as Schedule 1,2,3,6 and 8 7. Substituted vide Notification No. FEMA. 297/2014-RB dated March 13, 2014 before it was read as FIIs, NRIs or QFIs 8. Substituted vide Notification No. FEMA. 297/2014-RB dated March 13, 2014 before it was read as Schedule 1, 2, 3, 6 and 8 9. Deleted vide NOTIFICATION NO. 319/2014-RB Mumbai, dated 5th September, 2014 w.e.f. August 26, 2014, before it was read as, and Defence sectors 10. Substituted vide Not. 330/RB-2014 - Dated 15-12-2014 w.e.f. December 15, 2014, before it was read as, under 8 [Schedule 1, 2, 2A, 3, 6 and 8] 11. Inserted vide Not. 354/2015-RB - Dated 30-10-2015. 12. Substituted vide Not. 354/2015-RB - Dated 30-10-2015. before it was read as, Counting of indirect foreign Investment: The entire indirect foreign investment by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956 . (aaiii) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest. (ab) In the case of an Indian company, (abi) The Indian company (abii) A group of Indian companies under the same management and ownership control. (b) For the purpose of this Clause, Indian company shall be a company which must have a resident Indian or a relative as defined under Section 6 of the Companies Act, 1956 / HUF, either singly or in combination holding at least 51% of the shares. (c) Provided that, in case of a combination of all or any of the entities mentioned in sub-clauses (aa) and (ab) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company. 15. Amended vide Not. 362/2016-RB - Dated 15-2-2016 before it was read as, 5. In sectors/activities with caps, including, inter-alia, defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore it was read as, (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 expansion programme); (b) downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of its Board of Directors as also a Shareholders Agreement, if any; (c) issue/transfer/pricing/valuation of shares shall continue to be in accordance with extant SEBI/RBI guidelines; (d) For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not use funds borrowed in the domestic market. This would, however, not preclude downstream operating companies, from raising debt in the domestic market. 2 [Downstream investments through internal accruals are permissible by an Indian compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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