Chinese funds: Now not only China but also the appointment of Hong Kong citizens on the boards of Indian companies is going to be more difficult. The government has made it clear that along with the countries bordering India, people of these two countries will now need to get security clearance for appointment in Indian companies. The government has issued a notification in this regard on June 1.
China’s manufacturing companies will have more impact
This will have a significant impact on Chinese manufacturing companies that have subsidiaries in India. Also, it will also affect China or Hong Kong based private equity or venture funds, which have invested in startups here.
People with knowledge of this development said, the need for this was felt after it was seen that investors from China and Hong Kong are adopting alternative structures to avoid restrictions on foreign investment from neighboring countries implemented in April 2020.
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Uncertainty will arise aboutthe appointment
Moin Ladha of Khaitan & Co said, this will certainly affect the existing management of companies wholly owned by investors from bordering countries and with regards to the reappointment of foreign nationals of these countries after the expiry of their tenure as directors. Uncertainty will arise.
Will have to contactthe Ministry of Home Affairs
The government has amended the Companies (Appointment and Qualification of Directors) Rules, 2014 through a notification on June 1. The notification said that if a citizen of a country whose border meets India, seeks appointment, he will have to obtain security clearance from the Ministry of Home Affairs along with a consent form. The April, 2020 guidelines mentioned the need for government approval for foreign investment coming from countries sharing land borders with India.
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Strictness increased after border conflict
A committee was constituted for the purpose of granting security clearance for such investments. The move was taken mainly keeping in mind the Chinese investment in the aftermath of the border conflict.
In some cases, it was seen that the Chinese company created a US or Cayman Islands based entity, through which investment was made without any restrictions.
