The anatomy of corporate control

"Control" sits at the heart of India’s corporate regulatory framework. Everything from open offers to competition approvals and foreign investment rules can depend on whether someone actually controls a company. What makes this particularly interesting is that Indian law does not recognise a single, uniform definition of 'control'. Instead, the meaning of 'control' varies depending on the statute, regulations or judicial interpretation.

Company law and securities rules usually identify the person steering the ship or who can drive management or policy decisions as the one in control. On the other hand, competition law focuses not just on formal control, but about who holds "material influence", setting much wider standard on control tests. Foreign investment rules borrow bits and pieces from company law but have their own standard, especially when it comes to inbound and outbound investments from India.

It is pertinent to note that under (Indian) Companies Act, 2013, control is defined broadly. It is determined on the basis of who gets to appoint most directors or who actually takes decisions regarding the management or operations, whether directly or from behind the scenes, with a group or alone, and whether through shareholding, management rights or specific agreements. SEBI’s takeover rules very much echo this idea: if you control a company, you might have to make an open offer, even if you have not crossed 26% shareholding percentage.


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On the other hand, competition law gets even broader. Since the 2023 amendments, the Competition Act says "control" includes anyone with "material influence" over management decisions. Under competition legal framework, material influence is actually the lowest bar for control and it analyses everything starting from shareholdings, board seats, special deals or anything that is out of the ordinary. For instance, one might not qualify as having control under company law but may still trip the wire under competition law.

Under the recently released draft (not notified yet), Foreign Exchange Management (Foreign Investment) Rules, 2026 (2026 Rules), India’s foreign investment regime is adding another layer to this anatomy of control. The 2026 Rules propose to update the current foreign investment regulations, replacing the old Non-Debt Instruments Rules of 2019 (2019 Rules). While on paper 2026 Rules are intended to simplify things, in reality it introduces a significant conceptual shift in determining what constitutes a "foreign investment".

Under the existing 2019 Rules, any investment made by an entity incorporated outside India constitutes foreign investment, irrespective of the size of its shareholding or voting rights. The 2026 Rules, however, liberalise this position by providing that an investment by a non-resident entity would be regarded as indirect foreign investment in Indian equity only if more than 10 per cent of the voting rights of such non-resident investing entity is in turn held by another non-resident. Thus, by inference, if more than 90 per cent voting rights of such non-resident investing entity is in turn held by any Indian resident (commonly known as round-tripping structures) then the investment by such non-resident entity would not be regarded as indirect foreign investment in Indian equity.

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One of the most consequential changes introduced by 2026 Rules is the entire overhaul of the foreign owned and controlled company (FOCC) construct. Until now, whether an Indian entity qualifies as a FOCC is determined by reference to a dedicated definition of 'control' under 2019 Rules relying on the definition of control contained in (Indian) Companies Act, 2013. 2026 Rules, however, mark a significant departure from this framework replacing the existing FOCC construct with the concept of a 'Foreign Controlled Entity' (FCE) and, more importantly, abandon the uniform company law-based test for determining foreign control.

Instead, the determination of 'control' is now proposed to be governed by the applicable sectoral law and, where no sector-specific definition exists, by the relevant provisions of the Companies Act, 2013 or the regulations framed by SEBI. This shift from a single, uniform test to a cross-referenced, context-dependent standard has the potential to materially alter the downstream investment analysis for many Indian entities particularly operating in asset management, financial services, telecom and insurance sectors. This is likely to have significant implications for foreign investment structuring, particularly in relation to downstream investments, the classification of Indian entities as FCEs, and the determination of foreign control over fund management structures.

Besides, Indian courts and regulators have always adopted a qualitative approach when examining whether control exists. Perhaps the most influential articulation of this principle is found in Subhkam Ventures (I) Private Limited v. SEBI (“Subhkam Ventures”), where the Securities Appellate Tribunal (SAT) distinguished between positive control and negative or protective rights. SAT observed that control denotes a proactive ability to direct the affairs of a company rather than a reactive ability to prevent certain actions.

Investor protections such as affirmative voting rights, board representation, quorum requirements or reserved matters were viewed as mechanisms intended to safeguard an investment rather than confer managerial control, provided they did not enable the investor to direct the company's affairs.

Although the precise contours of control continue to be assessed on a case-by-case basis, the broader jurisprudence on this subject has remained relatively consistent. Across company law and securities regulation, the inquiry has always focused on the substance of managerial control and governance rights rather than the numerical percentage of voting power held by an investor.

The 2026 Rules are part of a welcome effort to simplify and modernise India’s foreign investment regime. But "control" demonstrates why simplification involves more than consolidating provisions.

India increasingly operates with multiple regulatory gradations of influence such as majority control, positive control over management or policy, material influence and, potentially, contractual voting arrangements receiving specific treatment under India’s foreign exchange regime. There is nothing inherently problematic about different statutes adopting different standards. A competition regulator examining market concentration need not apply the same threshold as a securities regulator examining a change in corporate control.

The problem is uncertainty at the boundaries. For investors and Indian companies, control is not an abstract legal classification. It determines transaction conditions, regulatory approvals, downstream investment consequences, governance negotiations and, ultimately, the deal economics. While 2026 Rules -- currently in draft form -- lays down the broader framework, greater clarity is expected only once the revised Annexure II (Consolidated FDI Policy) is issued by RBI in due course.

In particular, stakeholders would benefit from further guidance on the application of the new FCE framework, including its intersection between sector-specific laws, the Companies Act, 2013 and the SEBI regulations.


Shah is Senior Partner at IC RegFin Legal, a law firm based in Mumbai, while Dhody and Singh are Partner and Senior Associate respectively. Views are personal.