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In an effort to bring more clarity in foreign direct investment policy, the Government has approved new definition of ‘control’ of an Indian company.
The new definition will be used for calculating the direct and indirect foreign investment in a company.
Normally control would mean anyone having more than 50 per cent shares will steer the company. The new definition of control includes the right to appoint majority of directors.
It also includes “control of the management or policy decisions by virtue of shareholding or management right or shareholder agreement or voting agreement.”
This new definition will come into effect from the date of notification.
A decision in this regard was taken in the meeting of Cabinet Committee on Economic Affairs (CCEA) on Thursday.
The existing definition prescribes a company is controlled by resident Indian who will have the power to appoint majority of its directors in that company.
But, there were apprehensions in the proposed new definition that, even if a foreign company does not appoint majority of directors, it can exercise control over the Indian company in indirect ways such as lien over voting rights or shareholder agreement.
To remove this apprehension the definition has been expanded to cover possible instruments of control.
These include management and policy decisions, shareholdings, management rights and shareholder agreements. The new definition will also ensure alignment with SEBI’s takeover regulations and provisions of proposed Companies Bill.
The new development is taking place at a time, when the Foreign Investment Promotion Board (FIPB) gave its nod to Jet-Etihad deal after lot of debate on control and effective control. shishir.sinha@thehindu.co.in
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