Govt redefines `control’ under FDI policy

The Cabinet Committee on Economic Affairs (CCEA) has approved the proposal of the Department of Industrial Policy and Promotion for amendment to the existing definition of "control" under the FDI policy in order to bring more clarity.

The decision was taken by the CCEA headed by Prime Minister Manmohan Singh at its meeting today.

As per the amended definition '''Control' shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements."

Until now, the definition of "control", as per the extant FDI policy, "A company is considered as "controlled" by resident Indian citizens if the resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens, have the power to appoint a majority of its directors in that company".

The revised definition of 'control' will expand the definition of 'control' to cover 'control' exercisable inter-alia through management and policy decisions, shareholding, management rights, shareholder agreements and ensure alignment with the definition as per the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 and the definition proposed in the Companies Bill, 2012, an official release said.

The amendment will provide more clarity to foreign investors for the purpose of mergers and acquisitions involving overseas companies.

There have been uncertainties about the exact definition of 'control' with respect to various deals in recent times including the proposed Rs2,058 crore Jet-Etihad transaction, which was cleared by the Foreign Investment Promotion Board (FIPB) recently.