COMPANY LAW
| Group firm tag if affiliate stake above 26 Percent Fri, 19 Nov 2010 01:01:24 GMT |
| The Economic Times Group firm tag if affiliate stake above 26% The government will define the term ‘group company’ clearly to remove the confusion in the foreign investment policy regarding restrictions on sales by wholesale cash and carry companies to related firms. The new definition may be based on the one given in the foreign trade policy and the Competition Act, which says a company with more than 26% investment by another company will be considered a group company of the latter. The department of industrial policy and promotion (DIPP, the policy making body on foreign investment) is expected to go with the definition of the group company in the foreign trade policy and the competition act, a government official told ET. The new definition has implications for wholesale cash and carry ventures such as Bharti Wal-Mart , Tata-Tesco and Future group -Carrefour , which may have to rejig their holding structures to be able to conduct business. “Insertion of a definition is expected to bring clarity in the matter, especially where business-to-business transactions are involved between affiliates and associated enterprises,” said Akash Gupt, partner at consulting firm PwC. He said the definition is still wide and should be made more specific to apply to particular situations, so that it does not constrain business. The current foreign direct investment policy says sales of foreign investment funded cash and carry stores to a group company cannot exceed 25% of their total sales, but did not define group company. Bharti Retail is a 100% subsidiary of Bharti Enterprises. Bharti Enterprises and Wal-Mart have a 50:50 wholesale venture, Bharti Wal-Mart . Under the proposed norms, Bharti Retail and Bharti Wal-Mart will be considered group companies, inviting the restrictions mentioned in the FDI policy. This means Bharti Wal-Mart cannot have more than 25% of its sales going to Bharti Retail. “We would not like to comment until we have seen the government notification,” said a Bharti Wal-Mart spokesperson. The government had, in April this year, put these restrictions to preclude indirect entry of foreigners in multi-brand retail. The current policy prohibits foreign direct investment in multi-brand retail, but allows 100% foreign investment in wholesale trade. After intense lobbying and several industry representations, the government had recently removed the condition that sales to group companies must be for internal use. The 25% clause, however, still remains, making the policy extremely restrictive . These restrictions could, however , become redundant if the government decides to open multi-brand retail to foreign investment. |
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