| MCA notifies amendments to keep a check on FDI from neighboring countries |
The Ministry of Corporate Affairs (MCA) has recently notified certain amendments to various provisions of the Companies Act, 2013 (Act) and the Rules made thereunder.
All the amendments are made with an intent to put in place a mechanism to keep a check on foreign direct investment from countries sharing a land border with India.
The gist of all such notifications is summarized below:
| Amendment |
Comments |
Amendment to the Companies (Share Capital and Debentures) Amendment Rules, 2022.
Date of notification and effective date: 4 May 2022 |
- Pursuant to an amendment, the share transfer deed, i.e., Form SH-4, has been amended.
- The amendment has inserted a declaration in Form SH-4 to the effect that:
- the transferee is not required to obtain the government approval under the FEM (Non-debt Instrument) Rules, 2019 prior to the transfer of shares; or
- the transferee is required to obtain the Government approval under FEM (Non-debt Instrument Rules), 2019, and the same has been approved.
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Amendment to the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022.
Date of notification and effective date: 5 May 2022 |
- Pursuant to an amendment, the fifth proviso is inserted to rule 14.
- Accordingly, a company shall not make an offer or invitation to subscribe to securities through private placement to a body corporate incorporated in, or a national of, a country that shares a land border with India unless such body corporate has obtained prior approval of government under FEM (Non-debt Instrument) Rules, 2019.
- Furthermore, Form PAS-4 has an amendment to confirm that either such approval is not required or, if it is required, it is duly obtained.
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Amendment to the Companies (Incorporation) Second Amendment Rules, 2022.
Date of notification: 20 May 2022
Effective date of notification: 1 June 2022 |
- Pursuant to an amendment, Form INC-9 (declaration by subscribers and first directors) is substituted at the time of incorporation. Also, form INC-32 (SPICe+ - dealing with incorporation documents) is amended.
- Both the forms incorporate declarations to the above effect that necessary compliance with FEM (Non-debt Instrument) Rules, 2019, as aforesaid is, complied with.
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Amendment to the Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2022.
Date of notification and effective date: 30 May 2022 |
- Pursuant to an amendment, rule 25A dealing with cross-border mergers has been amended.
- Accordingly, it is required to submit a declaration in Form No. CAA-16 at the stage of submission of an application for cross-border merger under Section 230 of the Act in case of a scheme between an Indian company and a company or body corporate which has been incorporated in a country that shares a land border with India.
- The declaration in Form CAA 16 stipulated confirmation by the company/body corporate regarding compliance with the provisions of FEM (Non-debt Instrument) Rules, 2019.
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Our Comments
The Central Government, through Press Note 3 of 2020, has made changes to the FDI Policy that an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest in or transfer shares of Indian company only with the prior approval of the government. The move was aimed to curb opportunistic takeovers/acquisitions of Indian companies due to the pandemic. The aforesaid amendments recently notified by MCA further aid the procedural self-compliance to keep a check on FDI when dealing under the provisions of the Act. It is pertinent to note that previously, the FDI Policy expressly stated that any transfer of shares in an Indian company would be effective/taken on record only when the Form FC-TRS is taken on record by the Reserve Bank of India. However, in due course, such express stipulation was omitted from the FDI Policy, which implied that the Board of Indian company need not wait for FC-TRS approval to approve/take on record transfer of shares involving a foreign party. The amendment again reinstates the position according to which now India company has to ensure the due compliance with FDI Policy and FEM (Non-debt Instrument) Rules, 2019 before approving the transfer. This also indicates that there is no likelihood of relaxing the rigor of Press Note 3 of 2020 in the near future and FDI from neighboring countries will be subject to prior government approval.
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