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Indirect foreign investment query

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ARJUN RAJAGOPAL

7 Points Posted on 29 June 2021

Dear learned members,

Request your view if the investment made is a Downstream Investment in the following scenario under Rule 23 of FEMA (Non-Debt Instruments) Rules, 2019

A Ltd is a JV company having shareholding as follows:

B Ltd (Indian Company): 50.07%

C Ltd (Foreign Company):49.93% treated as FDI under FEMA and complied with FEMA.

Now A Ltd has made 100% investment in its WOS - D Ltd (Indian Company).

My understanding is that since A Ltd is having foreign direct investment less than 50% held by C Ltd, then D Ltd would not be considered as having any indirect foreign investment through A Ltd. Please confirm if my understanding is correct.

My query is B Ltd (Indian Company) is ultimately owned (100%) by E Ltd (Foreign Company). Considering this scenario, whether investment by A Ltd in D Ltd will be considered as DI or not. If it is a DI, how much will be indirect foreign investment held by D Ltd through A Ltd.

Regards,

Arjun

Replies (3)

Quick Summary

This discussion seeks clarification on whether an investment by an Indian company (A Ltd) into another Indian company (D Ltd) constitutes indirect foreign investment under FEMA rules. The query arises because A Ltd itself has foreign direct investment (FDI) and is ultimately owned by a foreign entity (E Ltd). The core question is how to determine indirect foreign investment when the investing Indian company has foreign shareholding, and if A Ltd's investment in its wholly-owned subsidiary D Ltd qualifies as a Downstream Investment.