The Foreign Investment Promotion Board, or FIPB, has approved Bangalore-based Forum Synergies PE Fund Managers' proposal to get Rs 651 crore (Rs 6.51 billion) investment from Mauritius-based India Knowledge Manufacturing Company.
The board had rejected it twice in the past. This time, it has cleared it with the condition that IKMC will accept neither money nor equity from a source within India - be it a company or a resident. The proposal will now be put up to the Cabinet Committee of Economic Affairs, or CCEA, for approval, as all proposals are if they involve foreign direct investment of more than Rs 600 crore (Rs 6 billion).
Forum Synergies, a private equity fund registered under the India Trusts Act, has been promoted by three individuals: Smair Inamdar, Sudhir Kant and Prashant Goyal with IL&FS Trust Company as its trustee.
The trust focuses on privately-negotiated equity, quasi equity and equity-related instruments of small- to mid-sized enterprises in growth phase and pre-IPO (initial public offering) companies with a sector focus on engineering and bio-technology manufacturing.
Once the CCEA approval comes, Forum Synergies will issue units of the trust with a face value of Rs 100 each to the offshore fund.
Besides doubts relating to round tripping of investments through Mauritius, the proposal was earlier rejected on the ground that there were no details about the offshore entity and that Focus Synergies was not registered as a venture capital fund. But the company later clarified that it had the approval of the Securities and Exchange Board of India, or Sebi, the stock markets regulator, as a venture capital fund.
Sources said FIPB overruled the objections of the department of revenue regarding treaty shopping on the ground that it was generic in nature and the rider would prevent round tripping of investment.
The department of economic affairs, however, was of the view that IKMC should be registered with Sebi as a foreign venture capital investor "in order to maintain oversight over the sectors wherein downstream investments are being made and on the proportion of foreign investment in the trust". It also said the offshore fund was in negotiations for investment with companies based in the US, the UK and other countries. Investment would be pooled in Mauritius.
