Entry routes for investments in India
Under the FDI Scheme, investment can be made in equity shares, mandatorily and fully convertible preference shares and mandatorily and fully convertible debentures of an Indian company by non-residents through two routes:
Automatic Route: Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. It is applicable in case 100% FDI is allowed in activity carried on by the India company.
Government Route: Under the Government Route, the foreign investor or the Indian company should obtain prior approval of the Government of India.
Eligibility to invest in India
- A non-resident person or entity (except citizen of or an entity incorporated in Bangladesh/ Pakistan which can only invest with prior approval of Government of India) can invest in India in accordance with FDI Policy and Foreign Exchange Management Regulations.
- NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in shares and convertible debentures of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.
- Erstwhile Overseas Corporate Bodies (OCB) (since OCBs have been de-recognized as a class of investor in India with effect from September 16, 2003) which are incorporated outside India and are not under adverse notice of the Reserve Bank can make fresh investments under the FDI policy as incorporated non-resident entities, with the prior approval of Government of India if the investment is through the Government Route; and with the prior approval of the Reserve Bank, if the investment is through the Automatic Route. However, before making any fresh FDI, an erstwhile OCB should through their AD bank, take a one-time certification from RBI that it is not in the adverse list being maintained with the Reserve Bank of India.
- Foreign Institutional Investors (FIIs) registered with SEBI are eligible to purchase shares, convertible debentures and warrants issued by Indian companies under the Portfolio Investment Scheme (PIS) subject to a limit of 10% of the capital of the company and the aggregate limit for FII investment to 24% of the capital of the company.
Acquisition of shares under Scheme of Merger/ Amalgamation
Mergers and amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the scheme submitted by the companies undergoing merger/amalgamation. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a Court in India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India, subject to the conditions that :
- the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap, and
- the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI policy.