FIPB rejects proposals from firms that have not divulged details of beneficial ownership or source of funding
Amid talks of some foreign investors abusing double taxation avoidance treaties, the Foreign Investment Promotion Board (FIPB) has rejected foreign direct investment (FDI) proposals from firms that have not divulged details of “beneficial ownership” or “source of funding”.
This is seen as a significant move because concerns were being raised, especially by the Department of Revenue (DoR), that there was no clarity on the source of funds routed from certain countries — such as Mauritius — with which India had double taxation avoidance agreements.
Besides, in many cases, even after FIPB’s recommendation for clearance, applications have been brought back to the table after Finance Minister P Chidambaram’s direction to the board that such details be sought.
As many as five applications came under scrutiny at the FIPB meeting last month. Of those, three — from a Warburg Pincus group company, insurance broking firm Alliance Insurance Brokers and Multi Commodity Exchange (MCX) — were rejected. The other two — filed by Soma Tollways and Scripbox.com India (both getting investment via Mauritius) — were deferred. These companies were requested to provide details of beneficial ownership and source of the funds of their foreign investors.
In the case of MCX, based on the deliberations, the company had asked for post-facto approval in respect of the investment (390,754 shares) made by Alexandra Mauritius Ltd, a subsidiary of Alexandra Global Master Fund, a British Virgin Islands company, in 2007.
Though it had been told to do so by RBI and FIPB had recommended clearance of the proposal, the finance minister pointed out Alexandra Mauritius was a subsidiary of another company based in the British Virgin Islands. So, the applicant was asked to explain the source of funds of the investor. But the applicant failed to give details.
The minister then noted that the company should be asked to obtain the details of the holding company and of Alexandra Mauritius, besides the names of principal shareholders and directors, as well as the source of their funds.
The proposal, after that, was once again taken up by FIPB and rejected for want of details of beneficial ownership and source of funds.
In the case of Highdell Investment, Mauritius, part of the Warburg Pincus group, the company had proposed to invest in a company in India to carry investment holding activities.
The investee company was proposed to invest in securities of other Indian companies engaged in sectors where 100 per cent FDI was allowed. So, it had sought approval to invest up to 100 per cent in the investee company.
However, FIPB rejected the proposal on the ground that beneficial ownership details with regard to 62.6 per cent of the shareholding were not made available, despite repeated opportunities being given.
Alliance Insurance Brokers, on the other hand, had sought approval for Mayfield FVCI Ltd, Mauritius — which is engaged in making financial investments in early-stage companies — to invest 25.1 per cent in such companies in India. DoR had raised objections to this, saying the company had not provided details of the ultimate beneficiaries or explained the availability of funds, despite repeated opportunities being given. FIPB rejected the proposal, as it did not see these details forthcoming.
