India Panel Defines ‘Control’ in M&A Deals to Help Ease Inflows

A panel of Indian ministers today approved changes to the definition of “control” of a company under the nation’s foreign direct investment rules to help close mergers and acquisition deals faster.

Taking control of an Indian company will now mean the right to appoint a majority of directors or to control the management or policy decisions, the government said in a statement after the Cabinet Committee on Economic Affairs approved the new definition.

The government’s move to define what constitutes control will remove international investors’ doubts caused by different interpretations in the nation’s FDI policy, Foreign Exchange Management Act and the Companies Act, Arindam Ghosh, a partner at Mumbai-based law firm Khaitan & Co., said in an interview before the government statement was released.

India is tidying up rules as it seeks to attract funds from abroad to finance a record current-account deficit that pushed the rupee to an all-time low against the dollar last month. Foreign-direct investment into Asia’s third-biggest economy slid about 21 percent to $36.9 billion last fiscal year from the 12 months through March 2012.

The Foreign Investment Promotion Board in June deferred a decision Jet Airways (India) Ltd.’s agreement to sell a stake to Etihad Airways PJSC as authorities sought more information on Jet’s ownership. The $340 million deal, the first share sale by an Indian airline to a foreign carrier after the nation eased investment rules,later won the panel’s approval July 29.

Jet’s plan to sell a 24 percent stake to Etihad still needs approvals from the finance ministry and the Cabinet Committee on Economic Affairs. Etihad will have two representatives on Jet’s board, according to Economic Affairs Secretary Arvind Mayaram.

The Indian government had on July 16 eased foreign direct investment rules and allowed overseas investors to own all of a phone carrier. The changes would also permit foreign investment in defense production exceeding the current 26 percent cap, if India stands to gain from access to modern technology.

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