Chinese funds and board appointments to face further scrutiny in India

As investors from China and Hong Kong have found ways to circumvent FDI laws in place from April 2020, the government wants to increase scrutiny on board appointments.

In an update to FDI( foreign direct investment) laws implemented in effect from April 2020, the government released a note on June 1 stating that individuals appointed as directors on boards of Indian companies from bordering countries will need a security clearance.

Individuals from Hong Kong will also be within the purview of this new regulation. First reported by Economic Times, this change will most likely affect Chinese or Hong Kong-based manufacturing firms with subsidiaries in India as well as venture firms with investments in Indian-situated companies.

In April 2020, the government declared that all FDIs from bordering countries would need to secure prior approval to prevent opportunistic takeovers of companies. However, with organisations circumventing these laws through a variety of means such as convertible note investments and special purpose vehicles based in Europe, America, or the Cayman Islands, the government has seen fit to expand the regulation.

Earlier, on May 30, the government had declared that any company seeking to merge or be acquired by a firm based in a bordering country would require prior governmental approval.

Edited by Affirunisa Kankudti