The new definition, which the Cabinet Committee on Economic Affairs is expected to approve on Thursday, will replace the existing one under the FDI policy, thereby aligning it with the Companies Bill and the view of the Securities and Exchange Board of India. After cabinet approval, the Reserve Bank of India will notify the new definition and repeal the earlier notification.
The cabinet note under discussion defines 'control' 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", sources said. This is from the final note prepared by the department of policy and promotion and circulated to the Planning Commission, department of economic affairs, ministry of corporate affairs (MCA) and department of legal affairs, among others.
Sources said the new definition would apply prospectively from the date of notification of the new Press Note. In the interim period, the present definition of 'control' as given in the FDI policy, will be valid. In 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.
On calculation of FDI is concerned, under the proposed new rules, an Indian company will be considered a foreign entity if the majority stake is held by foreign investors or is foreign-controlled. Any investment by such a company will also be considered foreign investment. MCA has not responded to the cabinet note despite repeated reminders.
It is expected to provide its comments during the meeting. The new definition, sources said, will help in "checking entry of indirect foreign investments into those sectors where there are sectoral caps".
Earlier this week, the government approved a $379-million deal between Jet Airways and Etihad where the Foreign Investment Promotion Board upheld the shareholders' agreement as the basis of ascertaining whether the Abu Dhabi-based airline, which has a minority stake, will have the decisive power in running Jet.