Sunday, June 26, 2022
BusinessChina will no longer have 'dominance' on Indian companies, this is how...

China will no longer have ‘dominance’ on Indian companies, this is how the government tightened its screws

The Central Government has made it clear that for the appointment of people from China and Hong Kong in Indian companies along with the countries bordering India's land, now security clearance will be required.

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.

Read Also | Ladakh India deployed at par with China, seven bridges being built on Galwan river

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.

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