Lately, the Ministry of Corporate Affairs (“MCA)” has made certain amendments in rules under the Companies Act, 2013 to align the provisions of the Companies Act, 2013 with the provisions of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“FEMA Regulations”)
As per the Press note 3 (2020) issued by Department of Promotion of Industry and Internal Trade (“DPIIT”), the Indian entity shall require prior Government approval if it receives Foreign Direct Investment(“FDI”) from 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. The approval is also applicable in case of transfer of ownership of any existing or future FDI.
In order to align the FEMA regulations with the provision of the Companies Act, 2013, the Ministry of Corporate Affairs has made amendment in following rules:
- Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Prospectus and Allotment Rules”)
- Companies (Share Capital and Debentures) Rules, 2014 (“Share Capital Rules”)
- Companies (Appointment and Qualification of Directors) Rules, 2014 (“Appointment of Directors Rules.
The implications of amendment in above rules under Companies Act, 2013 are as follows:
- Requirement to Enclose Copy of Government Approval with Private Placement Offer Letter, Where Applicable
- An Indian Company shall not make an offer or invitation to subscribe securities through Private Placement, to a body corporate incorporated in, or to a national of, a country which shares land border with India, unless such body corporate or the national, has obtained Government approval.
- The format of Form PAS-4 (Offer letter) which is issued by the Company for inviting subscription of securities under private placement, has been revised to include the condition of Government approval in applicable cases as per the FEMA regulations. The Form PAS-4 also necessitates that the approval be attached with it.
- Requirement to Enclose Copy of Government Approval with Share Transfer Form, Where Applicable
- The format of Form SH-4 (Share Transfer Deed), which is executed between transferor and transferee, for transfer of securities, has also been revised to include the condition of Government approval in applicable cases as per the FEMA regulations. The Government approval is necessary to be enclosed with Form SH-4 also.
- Consent to Act as Director to Comprise Copy of Government Approval, Where Applicable
- If a person seeking appointment as Director is a national of a country which shares land border with India, then necessary security clearance from the Ministry of Home Affairs (“MHA”), Government of India has to be attached along with the consent letter to become director.
- Director Identification Number (DIN) shall not be generated in case the person applying for the same is a national of a country which shares land border with India, unless necessary security clearance from the MHA has not provided along with application of DIN.
- The formats of Form DIR-2 (Consent to become Director) and Form DIR-3 (DIN application) have been amended to include the condition of MHA approval.
The Press Note 3 (2020) was issued by the Government of India during the pandemic days in 2020 to counter the possibility of opportunistic takeovers/acquisitions of Indian entities in the prevailing situation. In addition to passing the amendment, the Ministry of Corporate Affairs also established its alignment with the rues of Companies Act, 2013 so that there may be no negligence on the part of Indian companies in ensuring compliance of the Press Note and the FEMA regulation.
To download the pdf version of this blog please click on the button below.
About Our Regulatory Advisory & Support Services
DPNC Global LLP is a full service consulting firm providing multi-disciplinary services to clients ranging from MNCs, Indian Corporates from across industries to Family Offices and UHNIs, both in and outside India.
Our Regulatory Advisory & Support Services team consistently works towards providing simple and practical solutions to complex issues. Any entity operating in India would need to navigate the dynamic eco system and endeavor to ensure due regulatory compliance with the wide spectrum of applicable legislations. We advise & assist clients to be fully compliant with a wide spectrum of applicable regulations including Company Law, Limited Liability Partnerships (LLP) Act, SEBI Regulations, Non-Banking Financial Companies (NBFCs) Law etc. To know more about our services, visit https://dpncglobal.com/regulatory-advisory-support/
The summary information herein is based on MCA Notifications dated May 04, 2022, May 05, 2022 & June 01, 2022 and Press Note no. 3 (2020 Series) dated April 17, 2020 by DPIIT, Government of India. While the information is believed to be accurate, we make no representations or warranties, express or implied, as to the accuracy or completeness of it. Readers should conduct and rely upon their own examination and analysis and are advised to seek their own professional advice. This note is not an offer, advice or solicitation. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies upon it.