Permission under FEMA is Required to Offer Securities to Companies of Neighboring Countries or Countries sharing Borders with India

The Government of India to curb unscrupulous activities and to  protect Indian business dysphoria from Chinese investors has changed FDI Regime.  Since Chinese Investors all over world are keen to acquire companies and involved in money laundering, tax evasion, fraudulent practices and the most important they are doing spying activities through companies they have acquired. 

The Ministry of Corporate Affairs (MCA) has notified the Companies (Prospectus and Allotment of Securities ) Amendment Rules, 2022 and has made some changes in Foreign Direct Investment (FDI) regime.

The Notification  said that “ No offer or invitation of any securities under this rule shall be made to a body corporate incorporated in or a national of a country which shares a land border with India, unless such body corporate or the national , as the case may be , have obtained government approval under the FEMA ( Non-debt Instruments) Rules ,2019.”

THE AMENDMENTS

The  Companies (Prospectus and Allotment of Securities) Rules, 2014, namely:-

1. (1) These rules may be called the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022. (2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Companies (Prospectus and Allotment of Securities) Rules, 2014, ―

(i) in rule 14, in sub-rule (1), after the fourth proviso, the following proviso shall be inserted, namely :-

“Provided also that no offer or invitation of any securities under this rule shall be made to a body corporate incorporated in, or a national of, a country which shares a land border with India, unless such body corporate or the national, as the case may be, have obtained Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached the same with the private placement offer cum application letter.”

(ii) in Annexure, in Form PAS-4, in Part-B, after serial number (vii), the following shall be inserted, namely :

“(viii) Tick whichever is applicable:

(a) The applicant is not required to obtain Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares.

(b) The applicant is required to obtain Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares and the same has been obtained, and is enclosed herewith.

CONCLUSION:  this is an appreciable step of the government ; it is necessary to  protect Nation from these cross – border entities. If we have to win economic war in the world , then we have to give attention on each and every and activities of our neighbors. We cannot change or replace our neighbors but we shall be vigilant while dealing with our border countries. The FDI regime has been changed and companies are now required FEMA approval before inviting or offering any securities to investors residing in border countries.  In case companies have offered securities to such entities , they must give a declaration that approval has been given for the transaction and should attach approval letter along with the private placement offer cum application letter. 

DISCLAIMER  the article presented here is only for sharing  information with readers. The views expressed are the personal views of the author. In case of necessity do consult with professionals.