What changed
RBI incorporated a formal definition of 'group company' into the FEMA regulations via Notification FEMA.292/2013-RB. The definition aligns with DIPP's Press Note No. 2 (2013 Series) and sets two thresholds: 26% or more voting rights, or appointment of more than 50% of board members in another enterprise.
What it means for you
Banks must now apply this clear, quantitative test when determining if an investor qualifies as a 'group company' for FDI purposes. This reduces ambiguity in compliance checks and ensures uniform treatment across AD Category-I banks. It also impacts how downstream investments and indirect ownership structures are evaluated under FEMA.
What you must do
- Update internal FEMA compliance checklists to include the 26% voting rights and >50% board appointment thresholds for group company determination.
- Train AD bank staff handling FDI remittances and reporting on the new definition and its application.
- Advise customers/constituents about the definition when they seek to route investments through group entities.
- Ensure all FDI-related filings (e.g., Form FC-GPR) correctly reflect group company status where applicable.
Who it affects
AD Category-I banks processing FDI transactions, Foreign investors and their Indian subsidiaries, Compliance and legal teams handling FEMA reporting
What is the exact definition of 'group company' under this circular?
Two or more enterprises where one directly or indirectly holds 26% or more voting rights in the other, or can appoint more than 50% of the other's board of directors.
Does this definition apply to all FDI transactions?
Yes, it applies to investments under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, as amended.
When did this definition become effective?
The amendment was notified via FEMA.292/2013-RB dated October 4, 2013, and published in the Gazette on October 11, 2013.