Miscellaneous: Bangladesh Investments, IDRs, Goa SEZs

1. Investments from Bangladesh eased

The Economic Times reports that Bangladeshi investors are now allowed to Indian companies, albeit with the approval of the Foreign Investment Promotion Board (and not under the automatic route). This removes a previous embargo on such investments. The report states:

“India has opened its door for investments from Bangladesh by dropping the country from the negative list. The Foreign Exchange Management Act (Fema) has been amended allowing Bangladeshi companies to invest here. Citizens and companies from Bangladesh and Pakistan are not permitted to make investments as per Fema rules. Sri Lanka, which was also in the negative list, was dropped in 2004. However, the restrictions will continue for investments from Pakistan. “The government had decided to drop Bangladesh from the negative list and changes to this effect in the FEMA regulations have been notified recently,” an official said. Investments from Bangladesh will, however, be approved on case-to-case basis through FIPB, even for sectors where 100% FDI is permitted on automatic route. Individual investments from the country would continue to face restrictions.”

This is an important step in promoting further trade and investment among the SAARC nations.

2. Regime on Indian Depositary Receipts Receives Lacklustre Response

Indian Depository Receipts (IDRs) are instruments that enable foreign companies to access the Indian capital markets. It also provides avenues for Indian investors to make investments in foreign companies. In order to facilitate this process, the Companies (Issue of Indian Depository Receipts) Rules, 2004 were promulgated. Even after three years had elapsed, no single foreign company had availed on this route to access the Indian capital markets. Upon finding that the conditions for an IDR offering were too stringent, the Rules were amended in July 2007 to relax some of the conditions. However, status quo continues with no takers yet.

An article by Deeptha Rajkumar in the Economic Times surveys the views of market participants who attribute this to a combination of lack of appropriate marketing and continued stringency in the legal regulations.

3. SEZs and the Goa Episode

The Law and Other Things Blog contains two posts (SEZ Troubles … Again and Opposing editorial analyses of the scrapping of SEZs in Goa) by Arun Thiruvengadam that set out the key issues involved in the scrapping of SEZ projects in Goa.

With certain ministers and officials of the Central Government having expressed displeasure at the actions of the Goa Government, this episode is likely to bring to light issues relating to the interpretation of the Special Economic Zones Act, 2005 and the accompanying Rules, specifically on whether State Governments possess the power to cancel projects by de-notifying them once they have already been notified by the Central Government. One will have to wait and watch as events unfold, especially if the issue is taken to court by one of the affected developers of the SEZs.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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