Government Approval Route for Investment in India from Countries sharing land border with India

The Government of India vide Press Note 3 of 2020 issued by Department for Promotion of Industry and Internal Trade has amended para 3.1.1 of the Consolidated FDI policy, 2017.

3.1.1(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

3.1.1(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.

The list of countries sharing a land border with India have not been shared by the Government in the said Press Note.

Section 2(28) of The General Clause Act, 1897 defines “India” shall mean – (c) as respects any period after the commencement of the Constitution, all territories for the time being comprised in the territory of India. Further, Article 1 of the Constitution of India read with The First Schedule to the Constitution of India also articulates the Territory of India.

Accordingly, the following is the List of countries that share a land border with India, as per Department of Border Management, Ministry of Home Affairs, Government of India.

  1. Pakistan
  2. Afghanistan
  3. China (Tibet)
  4. Nepal
  5. Bhutan
  6. Myanmar (Burma)
  7. Bangladesh
International Land Borders of India – as per the Ministry of Home Affairs, Department of Border Management.

Sri Lanka & Maldives are Maritime neighbours not sharing a land border with India.

The Minister of State in the Ministry of Commerce and Industry, Shri Som Parkash, in a written reply in the Lok Sabha dated 23 March, 2022 has stated :

As per Para 5.2(i) of the FDI Policy, the onus of compliance of provisions of the FDI Policy are on the investee company. Further, as regards to violation of FDI regulations, Para 3 of Annexure 5 of the FDI Policy provides that FDI is a capital account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA. Reserve Bank of India administers the FEMA and Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA and takes up investigation in cases of contravention of FEMA.

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1808806

Implications for Practising Professionals such as Chartered Accountants

Chartered Accountants are engaged by Legal Entities including Companies for advisory & certification including Formation / Incorporation under Indian Laws.

Thus it is pertinent for Chartered Accountants so engaged to have a general understanding of the legal and regulatory framework applicable to the entity; evidence regarding compliance; and reporting of Identified or Suspected Non-Compliance to Those charged with Governance and To Regulatory and Enforcement Authorities.

The Hindu newspaper has on 18 June, 2022 reported that around 400 chartered accountants, company secretaries are under scanner of Ministry of Corporate Affairs for flouting norms to incorporate Chinese “shell” companies in India.