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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

A single FPI, together with its investor group, holds 9.6% of the paid-up equity capital of Kaveri Textiles Ltd, a listed company. It buys further shares taking its holding to 10.8%. What is the regulatory consequence under the FPI framework?

Since the FPI's holding crossed the 10% single-investor ceiling, it must either divest the excess within the permitted period or have the whole holding reclassified as FDI, subject to FDI conditions. The purchase is not void, and no fresh category registration solves the breach.

  1. AThe excess holding beyond 10% must be divested or the investment reclassified as FDI within the permitted timeCorrect
  2. BThe purchase is void ab initio and the whole holding must be sold immediately
  3. CNo consequence, because the limit is 24% for a single FPI
  4. DThe FPI must obtain a fresh registration as a Category III FPI

Explanation

A single FPI or investor group may hold below 10% of the total paid-up equity capital on a fully diluted basis. On breach, the investor may divest the excess within five trading days or have the entire holding reclassified as FDI, subject to FDI conditions. It is not void, and 24% is not the single-FPI limit.

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