Press notes 2 and 3 of the Department of Industrial Policy and Promotion (DIPP) have been notified by the Reserve Bank of India (RBI) recently.
The notes, which have been pending for the last four years, relate to guidelines for foreign direct investment (FDI), defining control over the company and transfer of ownership.
The press notes provide definition of 'owned or controlled', a term which is essential to determine whether a company is a foreign firm or a domestic entity.
According to the press notes, a company is considered as 'controlled' by resident Indian citizens if the power to appoint a majority of the directors on its board is held by Indian companies and citizens.
On the other hand, a company is considered as 'owned' by resident Indians if more than 50 per cent of the equity is held by the entities in India. The notification will be used to ensure that foreign direct investments comply with FDI ceilings and other norms.
The notification would lead to increase in reporting requirement for an investor. They have increased the reporting requirement for investments made between February 2009 till now and also the scrutiny of compliance of Press Note 2 and 3, said an advisor on FDI with corporate law firm said.