The Department of Promotion of Industry and Internal Trade, under the Ministry of Commerce & Industry, Government of India, has on April 17, 2020, issued Press Note No. 3 (2020 series) (hereinafter referred to as “Press Note 3”)[1], amending the Foreign Direct Investment Policy as contained in the Consolidated FDI Policy, 2017 (“FDI Policy”).
Para 3.1.1 of the FDI Policy, prior to Press Note 3 read as:
“A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.”
The extant paragraph, vide Press Note 3, has been revised to read as:
“(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.
(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.”
The relevant portion of the amendment that needs emphasis is “… an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.” While the Press Note 3 clearly mentions that, it is aimed curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic, it does not provide for any cut off dates, to address issues, pertaining to ongoing transactions. Further, the Press Note 3 appears to even include and restrict, without approval, minority investment into Indian companies, which under the circumstances may be financially strained. We need to wait and watch for the FEMA notification for the Press Note 3 to come into effect and also these restrictions play out going forward and until when these restrictions remain, which are in line with similar steps taken / proposed to be taken by other global economies such as Japan.
