The union cabinet approved the alignment of the definition of “control” under the foreign direct investment (FDI) policy with the definitions under the guidelines of Securities and Exchange Board of India and Companies Bill 2012.
Accordingly, under the FDI policy, ‘control’ would be defined as “the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholder agreements or voting agreements.”
Thus, the revised definition of control widens the scope of the term to cover management and policy decisions, shareholding, management rights, shareholders agreements.
It may be noted that according to the present FDI policy, a company is said to be ‘controlled’ by an Indian resident if the Indian investor holds more than 51 per cent stake and can appoint the majority directors in the firm.
The shareholders’ agreement or voting agreements would be empowered by the new definition, which would take effect prospectively.
It will also be in line with definition provided in the Substantial Acquisition of Shares and Takeovers Regulations, 2011 and the Companies Bill, 2012.
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