Centre keeps tabs on Chinese investments

Geo-political Investment Risk

- In the wake of the bloody clashes at Galwan in June 2020, Centre had imposed a variety of restrictions on the investors from China, Hong Kong

- Transfer of securities under scrutiny

- Govt amended Companies (Share Capital and Debentures) Rules-2014

New Delhi: Keeping security concerns in mind, the government has stipulated a raft of measures to check investors and investments from China. It has introduced strict rules for this purpose.

The Ministry of Corporate Affairs (MCA) has made security clearance from the Ministry of Home Affairs mandatory for a national of a country which shares land border with India wanting to become a director in a company. Although countries like Pakistan and Nepal also share a land border with India, the target here is China, official sources told Bizz Buzz.

The Ministry of Corporate Affairs notified that no application number shall be generated in case the person applying for Director Identification Number is "a national of a country which shares land border with India," unless necessary security clearance from the Ministry of Home Affairs has been attached along with application for Director Identification Number.

In a similar move, the Ministry of Corporate Affairs has also put "the transfer of securities where the entities involved are from the countries which share land border with India" under scrutiny. The government has already amended the Companies (Share Capital and Debentures) Rules, 2014. Now, such transfer of securities will need suitable declarations and verification.

Further, the issuance of securities by such entities will also need suitable declarations and verification. For this purpose, the Companies (Prospectus and Allotment of Securities) Rules, 2014, have been amended.

The incorporation of companies will also be under similar scrutiny where the entities involved are from the countries which share land border with India. The Company (Incorporation) Rules, 2014, have been amended accordingly.

Mergers and acquisitions (M&As) will also be scrutinized by the Ministry of Corporate Affairs. An amendment has been made to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

It may be recalled that in the wake of the bloody clashes at Galwan in June 2020, the government had imposed a variety of restrictions on the investors from China and Hong Kong. In response, they reportedly began bypassing the restrictions. One way was by setting up companies in a third country, and using it to route the investment into India.

Officials believe that the new rules will help them stop the entry of Chinese investment into India.