NISHITH.TV
  • Mumbai
  • Silicon Valley
  • Bengaluru
  • Singapore
  • Mumbai BKC
  • New Delhi
  • Munich
  • New York

Locations

  • Mumbai
  • Silicon Valley
  • Bengaluru
  • Singapore
  • Mumbai BKC
  • New Delhi
  • Munich
  • New York
  • Content
  • Home
  • ABOUT US
  • NDA in the Media
  • Areas of Service
  • Research and Articles
  • Opportunities
  • Contact
  • NDACloud
  • Client Access
  • Member Access
  • Events and Calender
  • How we perform
  • Knowledge anywhere, anytime
  • See our recent deals
  • Up to date legal developments
  • Case studies in M&A

Research and Articles

HTMLPDF

  • Research at NDA
  • Research Papers
  • Research Articles
  • NDA Think Tanks
  • NDA Hotline
  • New Ali Gunjan
  • Japan Desk ジャパンデスク

NDA-Hotline


  • Capital Markets Hotline
  • Companies Act Series
  • Climate Change Related Legal Issues
  • Competition Law Hotline
  • Corpsec Hotline
  • Court Corner
  • Cross Examination
  • Deal Destination
  • Debt Funding in India Series
  • Dispute Resolution Hotline
  • Education Sector Hotline
  • FEMA Hotline
  • Financial Service Update
  • Food & Beverages Hotline
  • Funds Hotline
  • Gaming Law Wrap
  • GIFT City Express
  • Green Hotline
  • HR Law Hotline
  • iCe Hotline
  • Insolvency and Bankruptcy Hotline
  • International Trade Hotlines
  • Investment Funds: Monthly Digest
  • IP Hotline
  • IP Lab
  • Legal Update
  • Lit Corner
  • M&A Disputes Series
  • M&A Hotline
  • M&A Interactive
  • Media Hotline
  • New Publication
  • Other Hotline
  • Pharma & Healthcare Update
  • Private Client Wrap
  • Private Debt Hotline
  • Private Equity Corner
  • Real Estate Update
  • Realty Check
  • Regulatory Digest
  • Regulatory Hotline
  • Renewable Corner
  • SEZ Hotline
  • Social Sector Hotline
  • Tax Hotline
  • Technology & Tax Series
  • Technology Law Analysis
  • Telecom Hotline
  • The Startups Series
  • White Collar and Investigations Practice
  • Yes, Governance Matters.
  • Japan Desk ジャパンデスク

Corpsec Hotline

November 10, 2006

'Road Closed' For FII Investment In IPOs Of Retail Companies

As reported in the Business Standard, the Government has, while clarifying on the policy guidelines for the sectoral cap in the retail sector, conveyed to the investment bankers that the FIIs will be prohibited from participating in the book-building process in retail sector IPOs, as buying shares through the primary market is considered as Foreign Direct Investment (FDI). The FIIs will, however, be allowed to buy shares up to 24% only from the secondary market, after the listing of the shares.

Regulatory Provisions

Schedule 1 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (RBI Regulations), which provides for investment under the FDI scheme, allows FDI up to 49% in single-brand retail chains, but prohibits FDI in multi-brand retail chains.

As against the above, Schedule 2 of the RBI Regulations, which provides for investment by FIIs under the Portfolio Investment scheme, allows the SEBI-registered FIIs to invest up to 24% of the total paid-up capital of an Indian company, both through primary as well as secondary market. The Indian company is allowed to increase this limit up to the sectoral cap / statutory ceiling, by passing a resolution by the board of directors followed by a special resolution by its general body.

The Schedule 2 simultaneously allows the FIIs to purchase shares of an Indian company through offer / private placement, subject to the ceilings specified therein, provided that in case of a public offer, the price of the shares to be issued to the FIIs is not less than the price at which shares are issued to residents.

Implications

While the intention of the Government may be to impose the restrictions on the FIIs in line with the FDI policy, it goes against the provisions of Schedule 2 of the RBI Regulations.

Further, the news report seems to suggest that the restriction is only on multi-brand retail companies. In fact, the Foreign Investment Promotion Board, while issuing clarifications in respect of FII investment in the real estate companies which have non-FDI compliant projects, have clarified their position that the FDI is distinct from the FII investment and hence, it is unclear why the ratio should differ in respect of retail companies.

It, however, looks that the proposed restriction would hamper the business plans of Reliance Industries, Bharti and Aditya Birla group, who are planning to enter the multi-brand retail industry in a big way.

  - Kishore Joshi & Siddharth Shah
You can direct your queries or comments to the authors

 

 

Source:  The Business Times, November 10, 2006 - Singapore edition

Mission and Vision


Distinctly Different

What's New


Amity University Maharashtra Hosts its Convocation Ceremony at Mumbai Campus
Quotes: March 24,2023
India loosens restrictions on foreign lawyers
Quotes : March 23,2023

Events


Webinars

Sovereign Wealth Fund and Pension Funds investments in India: Unique Considerations and Critical Issues
March 09,2023 - March 09,2023

This event is over. For event material please click here


Seminar

Fund Structuring and Investments in 2023 - Luncheon and Knowledge Sessions
March 24,2023 - March 24,2023

This event is over. For event material please click here


Round Table

Investing In Net Zero
July 22,2022 - July 22,2022

This event is over. For event material please click here

News Roundup


News Articles

Shareholder Activism: An ESG tool or a Founder’s curse?
October 13,2022

Quotes

Amity University Maharashtra Hosts its Convocation Ceremony at Mumbai Campus
March 24,2023

Newsletters


Regulatory Hotline

Australia and India’s education Framework – What it means for stakeholders
March 20,2023

Regulatory Hotline

Intimation of Material Changes by Foreign Portfolio Investors: The Timeline Turbulence
March 17,2023

New Publication

Doing Business in India
March 16,2023

  • Disclaimer
  • Content
  • Feedback
  • Walkthrough
  • Subscribe
Nishith Desai Associates@2016 All rights reserved.