Approval of Ministry of Home Affairs required for appointment of Chinese nationals as directors in Indian companies
In a bid to prevent Chinese companies from bypassing Indian laws to do business in the country, the government has come up with a notification that requires citizens of land border-sharing countries, who are required to obtain security clearance from the companies. is appointed as a Director on the Board of
According to a notification issued by the home ministry on June 1, if a person from countries sharing land borders is seeking appointment in an Indian company, “necessary security clearance from the home ministry will also be required. Consent form”. The MHA notification seeks to amend the Companies (Appointment and Qualification of Directors) Rules, 2014.
The latest decision will have a significant impact on Chinese companies that operate in India through their subsidiaries. The notification was issued after the government learned that Chinese and Hong Kong investors were able to circumvent restrictions on foreign investment from neighboring countries.
The April 2020 guidelines required mandatory government approval for foreign investment coming from countries sharing a land border with the country. Earlier, only investments from Pakistan and Bangladesh faced such restrictions.
The measure at the time was seen as preventing Chinese companies from taking over Indian companies due to the pandemic.
The government later set up a committee to provide case-by-case security clearance for such investments in compliance with the new rule. It was found that Chinese companies managed to invest in India without any restrictions as they were able to circumvent the rule by creating an entity outside their country. These companies later appointed Chinese nationals as senior executives to control operations.
According to the February data of the Ministry of Corporate Affairs (MCA), there are 490 foreign nationals in the country who are registered as directors in various companies. It is believed that about 30 percent of them are Chinese or Hong Kong citizens.
The latest notification from MHA aims to restrict backdoor entry of such Chinese companies or investors into India.