Foreign investors in Indian real estate cannot sell their stakes to another foreign investor before three years, the Foreign Investment Promotion Board (FIPB), the body that clears such proposals, has said.
With this, FIPB has overruled a provision in FDI policy that exempts foreign players from the rule in cases where fund transfer is from one non-resident to another. Till now, this three-year lock-in was applicable only on foreign investment in real estate and not on investors.
The FIPB view is contrary to the stand taken by the department of industrial policy and promotion (DIPP), the nodal agency that formulates FDI rules in the country. DIPP''s view is that a foreign investor can repatriate funds if it offloads its stake to another foreign investor as the actual investment in a project would remain intact and only its ownership would change. However, FIPB has ruled that an investor can''t sell its investment even to a foreign player before the end of three years.
"Though Press Note 2 of 2005 has an enabling clause to permit sale of investment between two non-residents before the end of lock in, it has not been allowed so far," a senior official in the commerce and industry ministry said.
The issue came up in the last FIPB meeting, when the board took up private equity fund 2I Capital''s request to sell its investment in a Delhi-based real estate firm to a Mauritius-based fund.
The company had sought approval for transferring 1.9 crore shares in the Indian real estate company to the Mauritian company. According to the company''s proposal, the fund transfer involved no repatriation of funds but physical transfer of shares from one investor to another.
The company, however, had assured the board that it would continue to comply with the requirements of the PN 2 of 2005. Though DIPP had recommended giving permission for sale of 2I Capital''s shares to ICP Investments, FIPB rejected it. DIPP argued the sale of shares was permissible between two non-residents within the lock-in period, but FIPB rejected it.
Under PN 2, the government allows up to 100% FDI in real estate projects with certain conditions like a three-year lock-in on investments, minimum capitalisation of $5 million and a minimum project size of 10 hectares.
Source:-Economic Times(25-Mar-09)
With this, FIPB has overruled a provision in FDI policy that exempts foreign players from the rule in cases where fund transfer is from one non-resident to another. Till now, this three-year lock-in was applicable only on foreign investment in real estate and not on investors.
The FIPB view is contrary to the stand taken by the department of industrial policy and promotion (DIPP), the nodal agency that formulates FDI rules in the country. DIPP''s view is that a foreign investor can repatriate funds if it offloads its stake to another foreign investor as the actual investment in a project would remain intact and only its ownership would change. However, FIPB has ruled that an investor can''t sell its investment even to a foreign player before the end of three years.
"Though Press Note 2 of 2005 has an enabling clause to permit sale of investment between two non-residents before the end of lock in, it has not been allowed so far," a senior official in the commerce and industry ministry said.
The issue came up in the last FIPB meeting, when the board took up private equity fund 2I Capital''s request to sell its investment in a Delhi-based real estate firm to a Mauritius-based fund.
The company had sought approval for transferring 1.9 crore shares in the Indian real estate company to the Mauritian company. According to the company''s proposal, the fund transfer involved no repatriation of funds but physical transfer of shares from one investor to another.
The company, however, had assured the board that it would continue to comply with the requirements of the PN 2 of 2005. Though DIPP had recommended giving permission for sale of 2I Capital''s shares to ICP Investments, FIPB rejected it. DIPP argued the sale of shares was permissible between two non-residents within the lock-in period, but FIPB rejected it.
Under PN 2, the government allows up to 100% FDI in real estate projects with certain conditions like a three-year lock-in on investments, minimum capitalisation of $5 million and a minimum project size of 10 hectares.
Source:-Economic Times(25-Mar-09)
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