In order to protect the interests of foreign investors, the department of industrial policy and promotion (DIPP) approved the proposal to route the foreign direct investment (FDI) in shares of Indian companies through an escrow account.
The proposal was mooted by the Reserve Bank of India (RBI) as it found that some Indian companies, who receive FDI, failed to issue shares till the deadline of 180 days nears and on the last day they return the money to foreign investors.
According to the proposal, the fund of foreign investors will flow into an escrow account, which the Indian investee firm will open with an authorised dealer (AD) bank. The Indian company will receive the fund only after shares have been issued to the investor.
Soon, the concerned authority would frame a formal notification on this proposal for final clearance.
It may be noted that the proposal will ensure protection to foreign investors as they become entitled to a say in the management of the company once the shares are issued to them.
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