INTRODUCTION:
With the aim of
enhancing "ease of doing business" and "promoting the principle
of Maximum Governance and Minimum Government", the Government of India
abolished the Foreign Investment Promotion Board ("FIPB") on
May 24, 2017. In its place, the relevant administrative ministry/department in
consultation with the Department for Promotion of Industry and Internal Trade
("DPIIT") are now directly responsible for processing
applications for foreign direct investment ("FDI") in India in
sectors which require prior approval of the Government. However, (DPIIT)
earlier known as Department of Industrial Policy & Promotion (DIIP).
The
Government of India, vide its Notice No. 1/8/2016-FDI
Policy Government of India, Ministry of Commerce & Industry, Department of
Industrial Policy & Promotion on 9th November, 2020 revamp the existing Standard Operating
Procedures (SOPs) for processing foreign direct investment (FDI)
proposals to fast track approvals.
The
Salient features of the updated SOPs for processing FDI proposals, inter alia
includes:
A. Online Filing of Application:
- Proposals for foreign
investment in sectors/activities requiring Government approval as per the
Consolidated FDI Policy dated 15.10.2020, as amended from time to
time (FDI Policy) and
Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 dated
17.10.2019, as amended from time to time (FEM Non-Debt
Instrument Rules 2019) would be filed
online through the Foreign Investment Facilitation Portal (FIFP).
- The applicant would be required to submit the
proposal for foreign investment in terms of the guidelines and
requirements under the FDI Policy, SOP and FIFP. The applicant shall make
the application as per the format and requirements under the FIFP and have
to upload 23 documents of which 9 are mandatory. The documents include
details of ownership, control and significant beneficial owners of the
entities involved, and registration of outlets with states.
- After filing the proposal, DPIIT will identify
the concerned Administrative Ministry/Department and e-transfer the
proposal within 2 days to the concerned Administrative Ministry/Department
(Competent Authority) for processing and disposal of the case. In case if
applications are not digitally signed, upon receipt of the online
communication from DPIIT the applicant would be required to
submit the signed physical copy of the application within 7 days of such
communication from DPIIT. However, additional 7 days may be provided by
the Competent Authority for submission of application.
B. Competent
Authorities for Approval/Rejection of Foreign Investment:
After
the abolition of the FIPB, the DPIIT issued a standard operating procedure
("SOP") for processing FDI proposals with guidelines,
including detailed timelines, to ensure uniformity of approach across sectors.
The SOP identified administrative ministries/departments (the "Competent
Authority") for respective sectors in which FDI requires the prior
approval of the Government.
Investments from
an entity of a country that shares a land border with India, or where the
beneficial owner of an investment into India situated in or is a citizen of any
such country, would require clearance from the Ministry of Home Affairs.
C. Procedure for Processing of Applications Seeking
Approval for Foreign Investment for a simpler and expeditious disposal:
1.
Upon receiving the proposal, DPIIT shall circulate
the same within 2 days to RBI and Ministry of External Affairs for their
comments. Additionally, if security clearance is required the proposal would be
referred to Ministry of Home Affairs (MHA).
2.
If specific issues of proposals requires
clarification in FDI Policy, the same shall be referred to DPIIT for
clarification within 2 weeks of referral.
3.
Consultation with any other Ministry/ Department
will require full justification and approval of the concerned Secretary.
4.
Comments of the concerned ministries/departments
and MHA for security clearance shall be uploaded on the portal within 4 weeks
and 6 weeks from the online receipt of the proposal, respectively.
5.
Within 1 week of scrutinizing the application with
additional comments, the Competent Authority shall raise queries or ask for
additional documents from the applicant. Time taken by applicant to address the
same to be excluded from time limit for disposal of application.
6.
Once the proposal is complete, the
approval/rejection shall be communicated online to the applicant and the
consulted Ministries/ Departments by the Competent Authority within 4 weeks.
7.
In case of proposals involving total foreign equity
flow of more than Rs. 5000 crores, the Competent Authority will place the same
for consideration before the Cabinet Committee on Economic Affairs within the
timelines specified, with the decision to be communicated 1 week from such
consideration concluding.
8.
Proposals which are sought to be rejected, or
proposals stipulating additional conditions, shall require concurrence of DPIIT
by the Competent Authority within 10 – 12 weeks (MHA should be consulted) from
receipt of the proposal.
9.
All Mergers & Acquisitions involving FDI
requires approval of the NCLT/Competent authority as a “necessary
pre-condition”. In case if NCLT/Competent authority approval is not available
the applicant may be advised to resubmit the application along with requisite
approval(s).
10. Secretary,
DPIIT is the competent authority that issued the approval letter in the
prescribed format for rejection of the proposal/stipulation of additional
condition.
11. DPIIT
and each of the Competent Authorities shall maintain a database on the
proposals received along with details such as date of receipt, investor and
investee company details, volume of foreign investment involved, and date of
grant of approval/rejection letter.
12. If
an applicant proposes to surrender an approval letter granted to the investee
entity/investor, then concerned administrative Ministry/Department may accept
the withdrawal of the approval letter and an acknowledgement in this regard has
to be sent to the applicant clearly indicating the date from which the approval
letter stands withdrawn.
D. Monitoring & Reviewing:
- Competent Authorities will hold a regular
monthly review on the foreign investment proposals pending with them.
- Regular Review meeting on pendency of FDI
proposals with concerned Administrative Ministry(ies)/Department(s) would
be convened by Secretary, DPIIT, periodically every four (04) to six (06)
weeks. The Secretary of the concerned Administrative Ministry/Department
may also attend the meeting.
- Administrative Ministries/Departments should
update the information regarding date of physical receipt of the
application and update the decisions taken on the portal.
- Administrative Ministries/Departments should
furnish a fortnightly report on pending proposals. Also, administrative
Ministries/ Departments should maintain an updated database of all
proposals dealt by them.
CONCLUSION:-
DPIIT
has issued a new set of guidelines in place of existing SOP issued in 2017, to
expedite the process for clearances, including security, for processing FDI
proposals on the fast track approval route in terms of the
guidelines and requirements under the FDI Policy, SOP and FIFP.
This
Article has been Compiled by Deepika Sharma (Senior Associate) You
can direct your queries or comments to the author at deepika@factumlegal.com
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contents of this article should not be construed as legal opinion. This article
is intended to provide a general guide to the subject matter. Specialist advice
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