Beware of flouting FDI norms!

the fipb is for the first time considering action against companies which have violated the foreign direct investment norms. such a decision has been taken in the case of tcw/icici investment partners llc, mauritius, a venture fund which had sought post factor clearance from the fipb for its investments in the chennai-based pharma company, medicorp (reported by et on december 11). the decision has been taken in the context of tcw-icici and other foreign investors who have been approaching the fipb for post facto clearances for investments already made by them. following several such violations, the fipb has decided to examine the procedures for dealing with such violations. it has also set up a committee comprising members from department of policy and planning, industry ministry, department of economic affairs and the reserve bank of india to examine the whole issue both from monitoring as well as the regulatory angle. such a course of action was considered some time ago when an mnc was suspected of operating in the reserved sector, but nothing had come of it when it was discovered that fipb had no teeth of its own. instead, it had to approach the rbi to proceed against the company for fera violations. fema has since been replaced by a milder fema. it is not clear what powers the fipb has at this point of time to proceed against the violators. the committee has probably been set up, keeping in mind all these issues. tcw-icici had made the investments in medicorp under the automatic approval route. its investments in medicorp was within the sector cap. the reserve bank of india had however taken objection to the investment since the tcw-icici already held stake in ajanta pharma, a mumbai-based pharma company. the rbi had pointed out that though tcw-icici's investments in medicorp qualified for automatic approval under the sectoral cap, the investor still had to approach fipb for clearances since it already held stake in ajanta pharma. this was because the fdi policy required foreign investors making fdi investments in another venture in the same sector to furnish a no-objection certificate from its original partner. by not subscribing to this norm (prescribed in what is popularly known as press note 18), the company had violated fdi norms. twc-icici had subsequently approached fipb. it had also furnished the no objection certificate from ajanta pharma. but it had also argued that press note 18 did not apply to it since it was a foreign venture fund and not a company. the tcw-icici proposal had been interesting because it had raised fundamental issues relating to the treatment of investments by a foreign venture fund as an fdi investor. it had also raised the policy issue of whether foreign venture funds required a different treatment within fdi investors. as of now, the fipb has not addressed either of these issues though the committee may come up with guidelines for treating foreign venture funds differently from the normal fdi investors.

Beware of flouting FDI norms!

THE FIPB is for the first time considering action against companies which have violated the Foreign Direct Investment norms. Such a decision has been taken in the case of TCW/ICICI Investment Partners LLC, Mauritius, a venture fund which had soug...

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