Regulations
DIPP permits LLPs to make downstream investments
This should make LLPs happy and we can expect a notification from RBI amending Regulation 14 (6) of the Foreign Exchange Management Regulations for transfer or issue of security by a person resident outside India
 
With the aim of improving the ease of doing business in the country and to fast-tack the projects that are stuck, the Department of Industrial Policy & Promotion (DIPP) has issued press note no. 12 (http://dipp.nic.in/English/acts_rules/Press_Notes/pn12_2015.pdf) dated 24 November 2015 (shall come into effect immediately) thereby liberalising FDI in favour of 15 major sectors.
 
Prior to the press note, only an Indian company having foreign direct investment (FDI) was permitted to make downstream investment in limited liability partnerships (LLPs), subject to conditions that both (i.e. the company and LLP) shall be operating in a sector where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. The conditions remain the same post issuance of press note, however, permissibility has changed as explained hereunder:
 
Internal accrual was not explained formerly. As evident from the meaning provided, accumulated profits will not be regarded as internal accrual unless transferred to reserves. Downstream investments using internal accruals will be subject to relevant sectoral caps and conditionalities. Further, such investment cannot be made in an investment company unless Government approval has been obtained. This is to be complied irrespective of the amount or extent of foreign investment.
 
The change has definitely rendered a reason to cheer to the LLPs. In this regard, we can expect a notification from RBI amending Regulation 14 (6) of the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000.
 
In this article, we have discussed the liberalisation with respect to downstream investments in/by LLPs.
 
Downstream investment: Meaning
 
Para 3.10.2 of the FDI Policy defines the term downstream investment as follows-
 
‘Downstream investment’ means indirect foreign investment, by one Indian company, into another Indian company, by way of subscription or acquisition in terms of Paragraph 4.1. Paragraph 4.1.3 provides the guidelines for calculation of indirect foreign investment, with conditions specified in paragraph 4.1.3 (v).
 
Relevant provisions for downstream investments formerly:
 
“3.2.5 FDI in Limited Liability Partnerships (LLPs)
 
FDI in LLPs is permitted, subject to the following conditions: 
(c) An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.
(d) LLPs with FDI will not be eligible to make any downstream investments.”
 
“3.10.3 Foreign investment into an Indian company engaged only in the activity of investing in the capital of other Indian company/ies (regardless of its ownership or control): 
 
3.10.3.3 For infusion of foreign investment into an Indian company which does not have any operations and also does not have any downstream investments, Government/FIPB approval would be required, 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.”
 
“3.10.4.2 Downstream investments by Indian companies will be subject to the following conditions: 
 
(i) Such a company is to notify SIA, DIPP and FIPB of its downstream investment in the form available at http://www.fipbindia.com 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); 
(ii) Downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors as also a shareholders‟ agreement, if any; 
(iii) Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines; 
(iv) For the purpose of downstream investment, the Indian companies 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, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are permissible, subject to the provisions of paragraphs 3.10.3 and 3.10.4.1. “
 
Scenario post amendment
 
“3.2.5 FDI in Limited Liability Partnerships (LLPs)
 
FDI in LLPs is permitted, subject to the following conditions: 
(a) FDI is permitted under the automatic route in LLPs operating in sectors/ activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.
(b) An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.”
 
“ 3.10.3 Foreign investment into an Indian company engaged only in the activity of investing in the capital of other Indian company/ies (regardless of its ownership or control): 
3.10.3.3 For undertaking activities which are under automatic route and without FI 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.”
 
“3.10.4.2: Downstream investments by Indian companies/LLPs will be subject to the following conditions:
 
 (i) Such a company/LLP is to notify SIA, DIPP and FIPB of its downstream investment in the form available at http://www.fipbindia.com within 30days 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);
(ii) Downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors as also a shareholders agreement, if any;
(iii) Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;
(iv) For the purpose of downstream investment, the Indian companies/LLPs 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 the provisions of paragraphs 3.10.3 and 3.10.4.1.For the purpose of FDI policy, internal accruals will mean as profits transferred to reserve account after payment of taxes.
 
(Niddhi Parmar works in Corporate Law Services Group at Vinod Kothari & Co)

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AirAsia plane crash caused by faulty component, crew action
A faulty component and the way the pilots responded to a technical malfunction caused AirAsia Flight QZ8501 to plunge into the Java Sea in December 2014, killing all 162 people on board, Indonesian officials said on Tuesday.
 
The ill-fated plane was en route to Singapore from the Indonesian city of Surabaya on December 28, 2014, when it crashed into the Java Sea, CNN reported.
 
The plane's flight control computer had a cracked solder joint that kept malfunctioning, Indonesia's National Transport Safety Committee (NTSC) said in a report. 
 
Aircraft maintenance records found it had malfunctioned 23 times in the year before the crash, and the interval of those became shorter in the three months prior to the crash.
 
"Subsequent flight crew action resulted in inability to control the aircraft causing the aircraft to depart from the normal flight envelope and enter a prolonged stall condition that was beyond the capability of the flight crew to recover," the report said.
 
The investigation, a joint effort involving Australian, French, Singaporean and Malaysian authorities, points to weaknesses in pilot training, which heavily emphasises on take off and landing, an aviation expert said.
 
Preliminary findings from the NTSC earlier this year said roughly 35 minutes into the two hour flight, the pilot asked air traffic control for permission to climb to avoid stormy weather.
 
The plane went from cruising at 32,000 feet, ascending steeply to 37,400 in about 30 seconds -- something commercial planes are not designed to do. It may have been climbing at a rate twice as fast as it could and should.
 
Minutes later, the plane disappeared from radar.
 
Although the area was experiencing turbulent weather patterns, seven other planes flying nearby landed safely.
 
Malaysia-based AirAsia did not have the clearance to fly the route on that particular day.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Man tweets about ailing father to railways, Prabhu helps
A man who tweeted to Railway Minister Suresh Prabhu seeking help to deboard his father, suffering from paralysis, was pleasantly surprised to find assistance waiting for him on his arrival at a Rajasthan station.
 
Pankaj Jain, a businessman born in Rajasthan but now settled in Karnataka, wanted to deboard the Yeshwantpura-Bikaner Express train at the Merta Road railway station. But he faced a problem as the train halted for a mere five minutes there.
 
"I was concerned about how I will manage to get my father and luggage down from my coach in five minutes. My mother and sister were also travelling with me. One of my friends suggested that I should tweet to the Indian Railways," Jain told IANS on Monday.
 
On Saturday, he tweeted to the Indian Railways and also tagged Prabhu.
 
"Within a few minutes, I got a reply from the railways. I was asked to send my coach and PNR number. Soon, I got a reply which said I won't face any problems," Jain said.
 
To his utter surprise, a railway official told him that help for him has been organised at the Merta Road station.
 
"I could not believe it. The station master, a porter and other staff waited for us at the station with a wheelchair," he said, adding the train halted for nearly 10 minutes there.
 
"It was a total surprise for me that a tweet requesting help for my ailing father would result in fast and helpful service at the station in Rajasthan," an elated Jain added.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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