This is in continuance of our series on Consolidated FDI Policy of India 2012 by DIPP. In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the FDI in asset reconstruction companies of India under the consolidated FDI policy of India 2012.
Foreign investment in other financial services, other than those discussed in the present and subsequent articles would require prior approval of the Government. For the purposes of FDI, Asset Reconstruction Company (ARC) means a company registered with the Reserve Bank of India (RBI) under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
FDI in ARC is allowed up to 49% of paid-up capital of ARC through government approval route.
(i) Persons resident outside India, other than Foreign Institutional Investors (FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank only under the Government Route. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs.
(ii) However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest up to 49 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue.
(iii) Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.