Tuesday, November 24, 2020

FDI SOP: Inter-ministerial panel for delayed proposals, strong review mechanism, crisp timelines

FDI SOP: Inter-ministerial panel for delayed proposals, strong review mechanism, crisp timelines

NEW DELHI: All mergers and acquisitions involving foreign direct investment will require approval of the National Company Law Tribunal as a “necessary precondition,” the government said.

Investors are required to submit 23 documents, of which nine are mandatory instead of 20 earlier, according to the updated Standard Operating Procedure for Processing FDI Proposals issued by the Department for Promotion of Industry and Internal Trade. The documents include details of ownership, control and significant beneficial owners of the entities involved, and registration of outlets with states.

“It is for the first time that the SOP has mentioned that M&A cases need an approval from NCLT first. While it has been a practice for some time, it is important to have them in the instructions. Similarly, outlets get registered with states under the Shops and Establishments Act, but the clause has been included in the SOP now,” said an expert on investment related issues.

As per the SOP, investments from an entity of a country that shares a 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, would require clearance from the home affairs ministry. India had on April 18, via Press Note 3, made prior government approval mandatory for any foreign investment, including indirect, from countries with which it shares a land border.

The SOP seeks to reduce delays in processing of foreign investments by reviewing pending FDI proposals every 4-6 weeks instead of three months at present. An inter-ministerial committee comprising secretaries of DPIIT, Department of Economic Affairs and the ministries of corporate affairs and home affairs will take stock of the situation.

The government, however, will process FDI proposals that need security clearance within four weeks instead of two earlier. DPIIT will clarify specific issues of FDI policy within two weeks.

“These timelines are only indicative and can never be adhered to in practice. These are not regulatory timelines,” said another expert on investment issues.

ET reported last month that the government was preparing new guidelines to expedite FDI approvals because the existing SOP was issued in 2017 and needed to be updated.

“Inter-ministerial coordination is key and it is a step in the right direction, especially in terms of providing clarity on timelines,” said Suneeth Katarki, founding partner of IndusLaw.

For better monitoring of clearances, the new SOP requires the administrative ministries to update information regarding date of physical receipt of the application and decisions taken on the portal, furnish a fortnightly report on pending proposals and maintain an updated database of all proposals dealt by them.

“The inter-ministerial committee for assessing delayed proposals and proposals escalated for quicker disposal, a stronger review mechanism before rejection of a proposal, regular review of pending proposals by DPIIT along with the concerned departments, updating of all decisions with respect to the proposals on the online portal and fortnightly reports on pending proposals are encouraging signs of transparency,” said Gautam Shahi, a New Delhi-based lawyer specialising in regulatory laws. He termed the timelines in the new SOP for closing of an application as crisp.

The SOP also details the compounding of contraventions because FDI is a capital account transaction and any violation of FDI regulations is covered by the penal provisions of FEMA.

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