COMPANY LAW
| Norms for non-cash shares to foreign firms soon Wed, 29 Sep 2010 |
| The Hindu Norms for non-cash shares to foreign firms soon NEW DELHI: The Centre is considering guidelines on domestic companies issuing shares to foreign entities for considerations other than cash with a view to checking possible FDI policy violation and money laundering. The Department of Industrial Policy and Promotion (DIPP) on Tuesday released a discussion paper seeking suggestions from stakeholders. The need for such norms is being felt in the wake of an increasing number of cases where shares are issued against non-cash considerations like trade payables and import of capital goods. The proposed guidelines will cover share swaps, which take place in mergers and acquisitions. An increasing number of Indian companies are expanding their operations in overseas markets. “Such companies often undertake share swap transactions which are based on the mutual benefits accruing to both Indian as well as foreign entities,” the paper says. In the wake of the Foreign Investment Promotion Board (FIPB) receiving a number of cases of share swap, it is felt that such transactions can be allowed in accordance with the overseas direct investment rules, the paper says. However, the government wants to make sure that the shares in lieu of cash to foreign entities do not dilute the objective of FDI policy by decelerating the flow of physical capital into the country. The DIPP is also examining whether there is a possibility that issue of shares for non-cash considerations “could be misused especially in the context of money laundering.'' As per the existing policy, shares can be issued to a non-resident against receipt of funds through normal banking channels. However, Indian companies at times are given permission for conversion of external commercial borrowings (ECBs) into shares and preference shares subject to FDI and SEBI regulations. The DIPP has come out with a series of discussion papers on amending the FDI policy relating to defence, multi-brand retail, pharmaceutical and limited liability partnership. |
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