PRESS NOTE 1 OF 2022
On March 14, 2022, the Department for Promotion of Industry and Internal Trade (“DPIIT”) released a Press Note issuing clarifications and amendments to certain provisions of the Consolidated FDI Policy Circular of 2020 (“FDI Policy”). The amendments shall take effect from the date of relevant FEMA notification’ which is yet to be released.
The major amendments in the FDI Policy are as follows-
- The Para 2.1.5 of the FDI Policy has been amended to add the emphasized portion:
- The issuance of equity shares by an Indian Company can be in accordance with the provisions of the Companies Act, 2013 or “any other applicable law”.
- The share Warrant issued by an Indian Company can be in accordance with the regulations made by the Securities and Exchange Board of India (SEBI), the Companies Act, 2013 or “any other applicable law”
- The Para 1.9 of the FDI Policy has been amended to add the emphasized portion:
- The time period within which the repayment or the convertibility of the convertible note can be made, is increased from five to “ten years” from the date of issue of the convertible note.
- The Para 1.17 of FDI Policy has been amended to add the emphasized portion:
- A declaration made by a person about a beneficial interest being held by a person resident outside India, can be as per the provisions of the Companies Act, 2013 or “any other applicable law”.
- The Para 1.27 of FDI Policy has been amended in the following manner:
- The definition of Indian Company is expanded. The amended Para now reads as under:
‘Indian Company’ means a company as defined in the Companies Act, 2013 which is incorporated in India, or a body corporate established or constituted by or under any Central or State Act;
- A new Note for clarification, has been inserted:
It is clarified that reference to company ’or‘ Investee Company or ‘transferee company’ or ‘transferor company’ in the FDI Policy also includes a reference to a body corporate established or constituted by or under any Central or State
- It is further clarified that if the term ‘Company ‘ or ‘Indian company’ or ‘Investee Company’ is qualified by reference to a company incorporated under the Companies Act, such term shall mean a company incorporated under the Companies Act but not a body.
- It is also clarified that ‘Indian Company’ does not include a society, trust or any entity, which is excluded as an eligible investee entity under the FDI Policy.
- A new Para 1.47A is inserted under the FDI Policy, which reads as follows:
- ‘Share Based Employee Benefits’ means any issue of capital instruments to employees, pursuant to share based employee benefits schemes formulated by a body corporate established or constituted by or under any Central or State
- A new Para 1.48A is inserted under the FDI Policy, which reads as follows:
- ‘Subsidiary’ shall have the same meaning as is assigned to it under the Companies Act, 2013, as amended from time to time.
- One of the significant changes is introduced to the definition of the real estate business under the FDI Policy.
- The Para 1(f) of the FDI Policy is amended to add the emphasized portion:
‘Real estate business’ means dealing in land and immovable property with a view to earning profit there from and does not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014. Further, earning of rent/income on lease of the property, not amounting to transfer, will not amount to real estate business.
Accordingly Note (i) to Para 5.2.10.2 of the FDI Policy has been amended to reflect the above change in the definition of ‘Real estate business’.
- A new Para 2.22.1A is inserted under Para 5.2.22.1 of the FDI Policy as follows:
| Sector/ Activity | % of Equity/FDI
cap |
Entry Route |
| 5.2.22.1A
Life Insurance Corporation of India |
20% |
Automatic |
- Para 5.2.22.3 of the FDI Policy on “Other Conditions”, is to be bifurcated in two parts through insertions of new Paras 5.22.3.1 and 5.2.22.3.2 applicable on Indian insurance companies/ intermediaries or insurance intermediaries and LIC, respectively.
- The existing clauses (a) to (j) and amended clause (k) under Para 2.22.3 are placed under Para 5.2.22.3.1 titled ‘Other conditions applicable to Indian insurance companies and intermediaries or insurance intermediaries’.
- In clauses (a) and (b) of Para 5.2.22.3.1 of the FDI Policy, the aggregate holdings in the equity shares of Indian Insurance Company by foreign investors and foreign investment of the total paid-up equity of the Indian Insurance Company allowed on the automatic route has been increased from forty-nine percent to “seventy-four percent”.
- Clause (d) of Para 5.2.22.3.1 of the FDI Policy is amended to be read as under:
(I) In an Indian Insurance Company having foreign investment,-
- a majority of its directors;
- a majority of its Key Management Persons; and
- at least one among the Chairperson of its Board, its Managing Director and its Chief Executive Officer shall be Resident Indian Citizens.
Explanation: For the above purposes, the expression – “Key Management Person” shall have the same meaning as assigned to it in guidelines made by the Insurance Regulatory and Development Authority of India on corporate governance for insurers in India.
(II) An Indian Insurance company having foreign investment shall comply with the provisions under the Indian Insurance Companies (Foreign Investment) Rules, 2015, as amended from time to time and applicable rules/regulations notified by the Department of Financial Services/Insurance Regulatory and Development Authority of India from time to time.
- In clause (e) of Para 5.2.22.3.1 of the FDI Policy, the provisions of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, followed should be “as amended from time to time”.
- The line “However, the condition of Indian owned and controlled, as specified in Clause (d) above, shall not be applicable to Intermediaries and Insurance Intermediaries” has been deleted in the clause (g) of Para 5.2.22.3.1 of the FDI Policy as compared to the old clause.
- Clause (k) of Para 5.2.22.3.1 of the FDI Policy Terms is amended to be read as under
‘Equity Share Capital’, ‘Foreign Direct Investment’ (FDI), ‘Foreign Investors’, ‘Foreign Portfolio Investment’, ‘Indian Insurance Company’, ‘Indian Company’, ‘Non-resident Entity’, ‘Public Financial Institution’, ‘Resident Indian Citizen’ , ‘Total Foreign Investment’ will have the same meaning as provided in the rules notified by the Department of Financial Services under the Insurance Act, 1938 or in the regulations issued by Insurance Regulatory and Development Authority of India from time to time, in respect of foreign investment in Indian Insurance Companies and intermediaries or insurance intermediaries.
- New clauses (a) to (c) and an explanation are inserted under Para 5.2.3.2 titled ‘Other conditions applicable to the Life Insurance Corporation of India (LIC)’
Accordingly, Para 5.2.22.3.2 of the FDI Policy is to be read as under:
- Foreign investment in LIC shall be subject to compliance with the provisions of the Life Insurance Corporation Act, 1956, as amended from time to time (LIC Act) and such provisions of the Insurance Act, 1938, as amended from time to time, as are applicable to LIC as per the provisions of Section 43 of the LIC
- Clauses (e) and (f) of Paragraph 5.2.3.1 above, shall also apply to LIC as if reference therein to an Indian Insurance Company is a reference to LIC.
- The terms referred to in clause (k) of Paragraph 5.2.22.3.1 above, shall have the meaning as referred to
Explanation: For the purposes of Paragraph 5.2.22.3.2 any reference to Indian insurance company or company in the meaning provided to any term (referred to in clause (k) of Paragraph 5.2.22.3.1) in the rules or regulations referred to therein, shall be construed as a reference to LIC.
- Para 4 of Annexure 3 of the FDI Policy is amended to be read as under:
Where a scheme of compromise or arrangement or merger or amalgamation of two or more Indian companies, or a reconstruction by way of demerger or otherwise of an Indian company, or transfer of undertaking of one or more Indian company to another Indian company, or involving division of one or more Indian company, has been approved by the National Company Law Tribunal or other authority competent to do so by law, the transferee company or the new company, as the case may be, may issue capital instruments to the existing shareholders of the transferor company resident outside India, subject to the following conditions:
- the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap; and
- the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI Policy.
Note: Government approval shall not be required in case of mergers and acquisitions taking place in sectors under automatic route.
- Para 5 of Annexure 3 of the FDI Policy is amended with-
- insertion of Share Based Employee Benefits.
- insertion of a Note for clarification, to be read as under:
The form “ESOP Reporting” shall mean the form so named and specified by the Reserve Bank of India for reporting either the statement of shares allotted to Indian employees/ directors under ESOP schemes or the statement of shares repurchased by the issuing foreign company from Indian employees/ directors under ESOP schemes, as the case may be.
- In Clause (e) of Para 1.2(v) of Annexure 4 of the FDI Policy, declaration about a beneficial interest being held by a non-resident entity, made by a person can be under the provisions of section 187C of the Companies Act, 1956 or section 89 of the Companies Act, 2013 or “any other applicable law”, as the case may.