April is normally a time when transactional lawyers look forward to breathing easy and recovering from year-end closings and attendant hectic times of March. But this new financial year, the government has kept us all busy with ample food for thought in the form of a new circular intended to be a definitive one-stop foreign direct investment (FDI) manual.
Circular 1 of 2010 heralds a new mechanism for the notification of all FDI policy, which will be available for the convenience of investors in one comprehensive document, to be reviewed and revised every six months. Such a mechanism will lend certainty, clarity and much needed predictability to a policy framework that has thus far been subject to frequent changes by policymakers. Although a commendable initiative, the new document is not free from ambiguities and leaves unresolved some concerns. We discuss a few of these.
The circular disallows the issue of warrants to non-residents. The earlier policy contained no explicit instruction on warrants and foreign investors invested in them with prior approval from the Foreign Investment Promotion Board (FIPB). It is unclear whether the FIPB will continue to entertain these applications. If not, the embargo will close the door for all non-residents seeking to evaluate the performance of Indian targets before becoming stakeholders.
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Saket Shukla is a partner in the Delhi office of Phoenix Legal. Akanksha Midha is an associate at Phoenix Legal in Mumbai. They can be reached at saket.shukla@phoenixlegal.in and akanksha.midha@phoenixlegal.in.
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