In line with the initiative of the Government of India (‘GOI’) to amend the existing Foreign Direct Investment (‘FDI’) regime, the Department for Promotion of Industry and Internal Trade (‘DPIIT’) has issued Standard Operating Procedures (‘SOPs’) dated November 9, 2020 for processing FDI proposals. The SOPs set out a framework for online filing of applications seeking prior approval for investments in sectors or activities that require prior approval under the Consolidated FDI policy dated October 15, 2020 (FDI Policy) and Foreign Exchange Management (Non-Debt Instrument) Rules, 2019. Annexure 1 to the SOP provides the list of documents to be submitted with the application, including the details of the significant beneficial owners of the investor entity. Additionally, the proforma for application for security clearance for FDI Proposals requires disclosure of “ultimate beneficial ownership” (without defining this term) of the investor company and details of shareholders of the investor company holding more than 10% shares. These details are also relevant in the context of the Government’s recent amendment to the FDI regime, which requires prior approval of the Government for investments from countries sharing land border with India (details of which can be accessed here).

As per the SOP, applications for approvals must be filed through the Foreign Investment Facilitation Portal (‘FIFP’). In this regard, the following points are key:

i.      The GOI has identified the FIFP as the nodal online application point for all future proposals under the FDI Policy;

ii.    The SOPs identify the specific timelines/ steps to be followed for processing applications that are filed online;

iii.  The SOPs also provide a list of competent authorities for processing foreign investment proposals. The SOPs clarify that in respect of sectors/activities which are presently under the automatic route but required earlier Government approval, the concerned administrative ministry/department (as identified by DPIIT) would be the competent authority for the grant of post facto approvals. However, the post facto approval process will not automatically condone any past breaches of regulations (applicable at the time of such investments), which will be dealt with by the regulators on a case to case basis;

iv.   The SOPs have replaced the inter-ministerial group discussion process, with a simpler and expeditious procedure to decide proposals, which involves the competent authority, the Reserve Bank of India (‘RBI’), the Ministry of External Affairs (‘MEA’), and additionally the Ministry of Home Affairs (‘MHA’) (only if such proposal for foreign investment requires security clearance under the FDI Policy);

v.     The SOPs have prescribed timelines for internal consultations of the DPIIT, the competent authority, MEA and MHA. Broadly, a timeline of six to eight weeks has been envisaged for internal discussions of the concerned Governmental bodies on any proposal. The SOPs specify that the competent authority must convey its decision on the proposal to the applicant, within four weeks of completing its internal consultations;

vi.   In case of proposals involving total foreign equity inflow of more than Rs 5,000 crore (approx. US$ 684 million), the competent authority is required to place the same for the consideration of the Cabinet Committee on Economic Affairs (‘CCEA’) within the aforesaid timelines. The CCEA’s decision has to be conveyed to the applicant within one week thereof;

vii.   The SOPs have also rationalized and specified the documents that have to be submitted along with the application, as well as the approval letter formats typically to be issued by the relevant competent authority. The standard approval letter format shared in the SOPs provides additional conditions which inter alia relate to valuation, taxability and compliance with the prevention of money laundering guidelines; and

viii.  DPIIT may be approached for obtaining clarifications (on a need only basis regarding specific issues on the FDI policy).