| Originally posted by :Shabnam |
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'A' company is a Wholly Owned Subsidiary of 'B'.Company 'C' which is a Foreign company, is having 74% stake in Company 'B' under FIPB approval.As per the queries raised to FIPB it has been directed to Company 'A' that it should apply for a separate FIPB approval as it has become the subsidiary of Company 'C'.My question is
"Should Company 'A" need to give such undertaking (while appying for FIPB approval) that in future it will issue further shares to its Holding company only and no other party? Does FIPB or RBI has issued such kind of guidelines?If yes then which proviso say so? |
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Hi Sabnam
Pls ref to Pressnote 4 read with Press note 2 of 2009 series(dipp.nic.in), which classified three way of investment and which restrict the INDIRECT holding by same Foreign PARENT CO(say C) in its INDIAN SUB-SUBSIDIARY(say A) through its INDIA SUBSIDIARY (say B) which exceed the SECTORIAL CAPITAL LIMIT as per FDI circular.Till that it was a practice by some foreign company(C) takes 60% directly in A & 50% directly in B(Indian co) which may in turn takes40% in A.on this configure this is not a violation of FDI since foreign direct participation in indian subsidiry(A) is within limit that is 74% for Telecom company(with a special aproval 74% otherwise 49 % for telecom).But after Pressnote 4 the total participation by same Foreign Parent will be 60% +20%(40% * 50%)= 80% which is more than 74% that is maximumsectorial cap.
So answear to ur question that since it has already gone for FIPB aproval it has already exceed the limit(direct+Indrect) OR it specifically fall under the category as explained by Pressnotwe 4.But giving such undertaking is NOT required becoz it will be again a CONDITIONAL APPROVAL..Suppose say that You have already exhusted the 74% sectorial cap in Telecom company A.Now further allotment to A is not allowed OR you have to seek another special approval from FIPB when you intent to exceed 74%.So the aproval given by FIPB/RBI is not a BLANKET aproval that you always keep issuing shares to Parent (Unless 100% FDI allowed on that sector in which A is operating) neither it can be CONDITIONAL.So it depends on case to case...Pls wrote the exact nature of business of A,B,C and the exact % of holding along with date of investment so that it could be analysed fromFEMA as wel as FDI angle and a solution to your case will be found out.(Read FDI pressnotes particularly 2 & 4 & FEMA regulation for Transfer or issue of share to Non Resident)
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