Foreign investment into an Indian company engaged only in the activity of investing in the capital of other Indian companies will require prior government approval, regardless of the amount or extent of foreign investment.
Those companies, which are core investment companies (CICs), will have to additionally follow RBI's Regulatory Framework for CICs.
For undertaking activities which are under automatic route and without foreign Investment-linked performance conditions, Indian company which does not have any operations and also does not have any downstream investments, will be permitted to have infusion of foreign investment under automatic route.
However approval of the government will be required for such companies for infusion of foreign investment for undertaking activities which are under government route, regardless of the amount or extent of foreign investment.
Further, as and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.
Foreign investment into other Indian companies/LLPs would be in accordance/compliance with the relevant sectoral conditions on entry route, conditionalities and caps.
Downstream investment by an eligible Indian entity, which is not owned and/or
controlled by resident entity, into another Indian company, would be in accordance with the relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the latter Indian company is operating.
Downstream investment/s made by a banking company incorporated in India, which is owned and/or controlled by non-residents/a non-resident entity/non-resident entities, under corporate debt restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign investment. However, their 'strategic downstream investment' will count towards indirect foreign investment.
For this purpose, 'strategic downstream investments' would mean investment by these banking companies in their subsidiaries, joint ventures and associates.
For downstream investments by an eligible Indian entity/LLP, such an entity should notify RBI and Foreign Investment Facilitation Portal of its downstream investment within 30 days of such investment, even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansion programme).
Downstream investment by way of induction of foreign investment in an existing Indian company should be duly supported by a resolution of the board of directors as also a share-holders agreement, if any.
Issue/transfer/pricing/valuation of capital should be in accordance with applicable Sebi/RBI guidelines.
For the purpose of downstream investment, the eligible Indian entities making the downstream investments would have to bring in requisite funds from abroad and not leverage funds from the domestic market. This would, however, not preclude downstream companies/LLPs, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are permissible, subject to various provisions.