Bypass FIPB, face tough action

NEW DELHI: Companies seeking post-facto approval for foreign investment would face detailed probe by the government. The Foreign Investment Promotion Board (FIPB) is getting tough on companies bringing in investment first and seeking clearance later. Officials are in favour of a tough stand after it was found that a company claiming to have brought FDI through the automatic route had cited a period when the automatic route was not open.

The department of industrial policy & promotion (Dipp) has been asked to probe the case and FIPB may recommend levy of penalty on the company by RBI for alleged Fema violation. In several sectors, prior approval from FIPB is necessary to bring in foreign investment.

Cook Islands-based company Rish Pte had sought FIPB approval to sell 66% stake in its polyester yarn trading joint venture company with Ahmedabad-based Global Pacific Nominees Ltd. The share capital of Rish in the JV is held partly through repatriable shares and partly through non-repatriable shares.



While vetting the proposal, FIPB found that in 2000 and 2001, Rish had acquired 51% in the JV through automatic route. Dipp also noted that during the period, no automatic route was available for trading activity and, hence, accessing that route amounts to violation of the then-FDI policy. The foreign company owns 66% in the Indian JV, 51% being on repatriable and rest on non-repatriable basis.

Now, apart from examining sanctity of funds infusion by the company in 2001 and 2002, both RBI and Dipp are examining whether the present FDI policy allows transfer of shares held on repatriable basis through automatic route. The decision is expected to bring companies under the axe who had pumped in funds without mandatory FIPB approval and now want to exit their India operations.

According to government sources, the company has argued that it picked up 51% in the Indian JV through repatriable equity and the balance 12% on non-repatriable basis, as there was a ceiling of 51% on repatriation in 2000 and 2001. As the board was not satisfied with the information furnished by the company, it has directed RBI and Dipp to evaluate whether the proposal was in line with policy guidelines.