Foreign firms may've to declare beneficial ownership
Govt is examining a proposal to make it mandatory for foreign investors to file a declaration about beneficial ownership in Indian ventures. Business Humour
By Deepshikha Sikarwar, TNN |
NEW DELHI: The government is examining a proposal to make it mandatory for foreign investors to file a declaration about ‘beneficial ownership’ in Indian ventures. The concept is part of the changes being considered to update the FDI policy.
A proposal to make such a declaration compulsory under the FDI policy has been mooted by the ministry of corporate affairs. The ministry has written to the department of industrial policy & promotion (DIPP) which is undertaking a review of the foreign direct investment norms, particularly with regard to indirect holding and beneficial ownership.
The Foreign Investment Promotion Board (FIPB) had asked the government to hold a complete review of existing FDI guidelines and tighten norms related to both direct and indirect shareholding. The review being undertaken by DIPP is aimed at plugging the loopholes that were highlighted during the Hutch-Vodafone wrangle.
If the proposal goes through, it would mean that in sectors where foreign direct investment is restricted, foreign investors would have to declare to the government if they hold any stake indirectly for which funds have been provided through loans or any other means.
So foreign investors owning stake in through an ‘Indian front’ may have to give a declaration to this effect. Under Section 187(C) of the Companies Act, if someone holds shares for the benefit of any other person, a declaration has to be filed.
Experts say if such a provision is brought into the FDI policy it would mean that every foreign company which invests in India through a entity in another country (a holding company in Mauritius, for instance), will have to give a declaration to this respect.
The ministry of corporate affairs is against DIPP’s proposal that if the Indian company has shareholding of less than 10% in an applicant company, the foreign holding in the Indian company should not be considered for calculation of indirect equity in the applicant company. It may be pointed out that companies in restricted sectors have to get FIPB clearance even if the stake involved is less than 1%.
A proposal to make such a declaration compulsory under the FDI policy has been mooted by the ministry of corporate affairs. The ministry has written to the department of industrial policy & promotion (DIPP) which is undertaking a review of the foreign direct investment norms, particularly with regard to indirect holding and beneficial ownership.
The Foreign Investment Promotion Board (FIPB) had asked the government to hold a complete review of existing FDI guidelines and tighten norms related to both direct and indirect shareholding. The review being undertaken by DIPP is aimed at plugging the loopholes that were highlighted during the Hutch-Vodafone wrangle.
If the proposal goes through, it would mean that in sectors where foreign direct investment is restricted, foreign investors would have to declare to the government if they hold any stake indirectly for which funds have been provided through loans or any other means.
So foreign investors owning stake in through an ‘Indian front’ may have to give a declaration to this effect. Under Section 187(C) of the Companies Act, if someone holds shares for the benefit of any other person, a declaration has to be filed.
Experts say if such a provision is brought into the FDI policy it would mean that every foreign company which invests in India through a entity in another country (a holding company in Mauritius, for instance), will have to give a declaration to this respect.
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The ministry of corporate affairs is against DIPP’s proposal that if the Indian company has shareholding of less than 10% in an applicant company, the foreign holding in the Indian company should not be considered for calculation of indirect equity in the applicant company. It may be pointed out that companies in restricted sectors have to get FIPB clearance even if the stake involved is less than 1%.
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