FEMA Clearance must for Securities Offer to Companies in Border Nations

Companies will now have to ensure that they have government approval under the Foreign Exchange Management rules before offering securities to any entity from a country that shares a land border with India.

The ministry of corporate affairs (MCA) has notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022, reflecting the changes in the foreign direct investment regime.

"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 notification said.

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 the approval letter along with the private placement offer cum application letter.

In 2020, the government had placed all FDI from border countries under the approval route to curb opportunistic takeovers during the pandemic.

The latest move is in line with these changes, which were largely aimed at preventing Chinese investors from taking control of Indian companies.

Law enforcement agencies, such as the Enforcement Directorate and the Department of Income Tax, were probing many firms with Chinese links suspected of money laundering and tax evasion, based on their intelligence inputs.

The move puts the onus of compliance on the recipient of investments.

"The recent notification from the ministry of corporate affairs only aligns the corporate laws with this policy restriction and approval requirement. The notification, however, casts an additional procedural compliance on the Indian investee company by requiring it to furnish the approval along with its private placement related filings," Sandeep Jhunjhunwala, M&A Partner at Nangia Andersen LLP, said.

Relaxation for Holding Arm

The MCA has allowed companies to hold annual general meetings via video conference till December 31. The earlier exemption was till the end of June 2022.

In its circular, the MCA has clarified that companies whose AGMs are due in the year 2022 can now conduct such meetings through video conferencing or other audio visual means till December 31.