India – Press Note 3 Update

by | Jun 28, 2024

A recent press report suggests that the Indian government is likely to clear joint venture proposals involving Chinese companies like Haier, Suzhou Innovance, China Highly Group and others where the Indian partner has a majority shareholding in the joint venture.

In April 2020, the Indian government issued Press Note 3 (PN3) under which prior government approval was made mandatory for all direct or indirect investments coming into India from countries sharing a land border with India (including China). PN3, thus, made it very difficult for Chinese investors to invest in India, and it also impacted foreign investors having Chinese/ Hong Kong funds or other Chinese owners in their cap table.

While the government’s relaxation is welcome, given the challenges faced by Chinese investors, the government should consider revisiting PN3 to clarify certain ambiguities. PN3 should prescribe the threshold for beneficial ownership similar to the thresholds specified for “ultimate beneficial owner” and “significant beneficial owner” under the Companies Act, 2013 (10% or more) and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (25% in case of a company and 15% in other cases), respectively.

PN3 also covers indirect transfers at an offshore level which may have no impact on the Indian entity, especially in cases of restructuring of operations. Such transfers should be exempted. Lastly, it will also help if the government prescribes timelines within which an application will either be approved or rejected. This will ensure greater transparency and assist investors in making informed decisions.

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