The recently released overseas direct investment rules by Indian entities/persons in foreign entities are quite pragmatic. They clarify and have liberalised many ambiguous provisions. At the same time, few new provisions have come which could make overseas investment tough. The Ministry of Finance notified the Foreign Exchange Management (Overseas Investment) Rules, 2022 on August 22. Soon thereafter, Reserve Bank of India (RBI) enacted Foreign Exchange Management (Overseas Investment) Regulations, 2022 and Foreign Exchange Management (Overseas Investment) Directions, 2022.
A key amendment has pegged “control” to a new concept, where an Indian entity acquiring 10% or above of the voting rights of any foreign entity will mean to have acquired its control. This is wider than the existing law that treats control to mean a right to appoint majority directors on a company’s board or to control management or policy decision of an entity. The definition of foreign subsidiary or foreign step-down subsidiary has been linked to this new definition of control. Consequently, now holding of 10% or above will make foreign entity or its step-down subsidiary as a subsidiary of the acquiring Indian entity. Until now, subsidiary meant an entity in which the other entity held majority shareholding (means more than 50% or which had a right to appoint majority directors).
Please click here to read the full article by Lalit Kumar, published in ET Edge Insights.
Lalit is a corporate commercial, M&A and private equity lawyer with a vast experience of twenty-two years. He has successfully led large and complex transactions for Indian and global corporations.