The Department of Industrial
Policy and Promotion (DIPP) has on 31st October 2011, issued Corrigendum to the
Consolidated FDI Policy Circular (Circular 2 of 2011) deleting much discussed Para 3.3.2.1 from the semi-annual circular on
foreign direct investment policy. The DIPP had on September 30, 2011 come out
with the new FDI Policy effective from October 1, 2011.(Click here & here to know more)
This new Para 3.3.2.1 stated that instruments with
in-built option of any type would not qualify as an eligible instrument of FDI.
This particular clause had generated a huge debate creating lot of uncertainty
for exit of foreign investors and private equity players.
Para 3.3.2.1 stated as follows: “Only
equity shares, fully, compulsorily and mandatorily convertible debentures and
fully, compulsorily and mandatorily convertible preference shares, with no
in-built options of any type, would qualify as eligible instruments for FDI.
Equity instruments issued/transferred to non-residents having in-built options
or supported by options sold by third parties would lose their equity character
and such instruments would have to comply with the extant ECB guidelines.”
The PE investors had met
officials of DIPP last week and received a positive nod regarding the removal
of the clause. Indian Private Equity & Venture Capital Association (IVCA)
said it would continue to follow up the matter with the Department of Economic
Affairs (DEA), finance ministry and the RBI. “After all, the insertion has been
made primarily at the behest of the RBI,” said IVCA president Mahendra Swarup.
Following IVCA’s meeting, officials of DEA also agreed that while a decision on
this matter was under consideration, any insertion in the policy must only be
prospective and not made in retrospective effect applicable to already valid
transactions, according to PE investors who are involved in the discussion, as reported by Business Standard.
Click here to view Corrigendum to
Circular 2 of 2011 - Consolidated FDI Policy
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