Share purchases by foreign-owned firms under RBI scanner
NEW DELHI : Several foreign-owned or controlled companies (FOCCs) are under the Reserve Bank of India’s (RBI) scrutiny for alleged violation of foreign exchange rules, two people privy to the development said. The companies have received notices from the regulator inquiring whether they would want to settle the case, the people said on condition of anonymity. If firms don’t settle the case, RBI can pass orders.
In some of these transactions, RBI observed that the investment was made in tranches. According to India’s foreign exchange rules, all share purchases by FOCCs must be made upfront. The development assumes significance as FOCCs generally invest in the startup sector, where there is often uncertainty over a company’s performance.
Hence, investors tend to stagger the total consideration payment depending on fulfilling various targets. FOCCs are normally India-incorporated firms that are subsidiaries of a foreign company where non-residents exercise control. These are generally large multinational companies that open Indian subsidiaries to handle local business.
An email sent to RBI remained unanswered. In one such notice reviewed by Mint, the central bank observed that the firm paid the money in two tranches. “There appears to be a deferment of the consideration amount, which is not in accordance with the guidelines permitted for downstream investments," said the four-page memorandum for compounding sent by RBI.
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