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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Instruments, Laws and Procedures

Nirmal Textiles Ltd, an Indian company, wants to issue equity shares to a Singapore investor in a sector where FDI is permitted under the automatic route up to 100%. Which statement is correct?

Because the sector is under the automatic route up to 100%, the Singapore investor can subscribe without prior Government approval. The company must still comply with sectoral conditions, pricing norms and the post-investment reporting requirements.

  1. APrior Government approval is required for any investment above 49%
  2. BThe company needs prior RBI permission for each tranche of shares issued
  3. CThe investment can be made without prior Government approval, subject to sectoral conditions and reporting requirementsCorrect
  4. DThe investment is allowed only after the Board's report under the Companies Act, 2013 is approved by the Central Government

Explanation

Where a sector is under the automatic route up to a cap, investment within that cap needs no prior Government approval. The company must still meet sectoral conditions, pricing guidelines and post-issue reporting. The 49% threshold applies only to sectors capped at that level, not to this one.

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