Dear Members,
In terms of the recent amendment to FCRA under the Finance Act, 2016, Indian companies with more than 50% foreign shareholding will no more be considered a foreign source under the FCRA provided that the the nominal value of share capital in such companies is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999. Therefore, an Indian company with more than 50% foreign shareholding will be able to make contributions/grants/donations to other organizations without the requirement of FCRA approval. Will it impact anyhow on the companies having 100% foreign shareholding private limited companies.
Regards
N K Sinha
Referring to Mr. Sinha’s specific query, I would like to share my views.
I am also of the opinion that even if the ‘Indian’ Private Ltd. company ( or a Public Ltd. Co. or ‘Indian’ subsidiary of a foreign Company) has 100% foreign shareholding (or nominal value of share capital as termed in the FCRAct) it will not be classified as a ‘foreign source’ as per the amended section 2(1)(j)(vi) of FCRAct as it continues to remain an Indian Company falling under the Indian legal jurisdiction.
Compliance to remain within the prescribed FDI limits clause, however, is the responsibility of the Company and the NGO should not be responsible to verify the same, in my opinion.
Therefore, where such Private Companies come within the CSR criteria of Net profits/Net Worth/Turnover limits, CSR Grants to Non-FCRA entities can be given by such Companies without FCRA prior approvals..
Personally, it seems that through this amendment, only a long over due lacunae in the FCRAct has finally been removed. The 50% limit had been prescribed way back since the old FCRAct1976 when political conditions were very different…. I remember that we had raised the query reg. the continuation of the 50% limit during the SRRF meet in 2010 called to discuss the draft of FCRAct 2010 and Rules … Examples of ICICI Bank, INFOSYS etc. had been given even during that time…
Anyway as they say ‘Deer aye Durust aye’!
Bharat Gupta
Mr Sinha issue is not of a private Ltd company or public company. It basically if foreign holding of a share capital is in compliance with FDI norms as defined under FEMA. If they comply which they should generally (check your RBI approval for share capital subscription) then the company should be able to give grants to non-FCRA organisations too.
However please note that Foreign Source is defined under S. 2(1)(j) apart from a Indian incorporated company also includes amongst others several sub-clauses:
(iii) a foreign company
(v) a MNC as referred to under sub-clause (iv) of clause (g)
One needs to be careful that the amendment made is only for sub-clause (vi) and does not cover several others like a MNC under clause (v) below or a foreign company.
rgds
Just would like to further emphasise that there is a bit of contradiction since amendment through Finance Act 2016 has been made under 2(1)(j)(vi), this leaves 2(1)(j)(iii) a subsidiary unchanged. In other words there is contradiction in the same clause. some school of thought feels that wherever there is a contradictory provisions, a company can choose the provision which is most suitable to it.