A recent notification from
the Reserve Bank of India (RBI) has allowed Indians
to sell their stakes in Indian companies to foreign
companies, without prior approval from the FIPB
or the RBI. The reverse i.e. sale of foreign holding
in Indian companies to Indians, is also allowed
by the banking regulator.
However, the RBI notification
states that the revised rules do not include financial
services companies, including banks, non-banking
finance companies and insurance companies. Transfers
under the new norms should also adhere to the
take-over rules of the Securities and Exchange
Board of India (SEBI) and must be within the sectoral
caps under the foreign direct investment 9FDI)
rules.
The notification also specified
that these sectors should be under the automatic
route for FDI. Additionally, in case of transfer
of shares of listed companies, the price of transfer
should be in accordance with the pricing guidelines
prescribed by SEBI and the RBI.
Cases involving increase in
foreign equity participation by fresh issue of
shares, as well as conversion of preference shares
into equity capital, have been brought under the
new rules. However such increase should also come
under the respective sectoral caps and be allowed
the automatic route.
Industry sources opine that
the revised guidelines will reduce the time taken
to complete take-overs involving foreign investors
by 6-8 weeks, which is usually the time taken
to get FIPB approval. Moreover, this will also
save the investors and companies involved in the
process the jurisdictions they had to give to
the FIPB for taking over an Indian company. There
is also a shift in the responsibility with the
guidelines on chartered accountants involved in
the deal, the companies and the people involved
in the process and authorised foreign exchange
dealers.
