This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.

Date: 14 December 2020
FDI Policy: Government Notified Changes for increasing FDI cap in Defence Sector from 49% to 74% under automatic route
The Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry (DPIIT) vide. Press Note 4 of 2020 dated 17 September 2020 had earlier announced increase in the Foreign Direct Investment (FDI) limit for the defence sector from 49% to 74% under automatic route (i.e. without any Government approval). The decision was to take effect from the date of FEMA notification. Now, vide its notification dated 8 December 2020 (click here to read), the Department of Economic Affairs, Ministry of Finance has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 in exercise of its powers under Section 46 of the Foreign Exchange Management Act (FEMA) for bringing into force the revised FDI limit announced by DPIIT for the defence sector.
FDI in Defence Sector
Hitherto, 49% FDI was permitted in the defence sector under automatic route which could be increased up to 100% under Government approval wherever it was likely to result in access to modern technology or for other reasons to be recorded. Now, the said limit has been increased to 74% under automatic route for companies seeking new industrial licenses. Like earlier position, this can also be further increased up to 100% under Government approval wherever it is likely to result in access to modern technology or for other reasons to be recorded.
  • FDI in defence sector is subject to industrial license under the Industries (Development and Regulation) Act, 1951 and manufacturing of small arms and ammunition under the Arms Act, 1959.
  • FDI up to 74% under automatic route shall be permitted for companies seeking new industrial licenses.
  • Infusion of fresh foreign investment up to 49% in a company not seeking industrial license or which already has government approval for FDI in defence, shall require mandatory submission of a declaration to Ministry of Defence in case of change in equity/shareholding pattern or transfer of stake by an existing investor to a new foreign investor for FDI up to 49% within 30 days of such change. Any proposal for raising FDI beyond 49% from such companies will require Government approval.
  • License applications will be considered by DPIIT in consultation with Ministry of Defence and Ministry of External Affairs.
  • Foreign investment in the sector is subject to security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence.
  • Investee company should be structured to be self-sufficient in the areas of product design and development. The investee/joint venture company along with the manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.
  • Foreign investments in the defence sector shall be subject to scrutiny on grounds of National Security and Government reserves the right to review any foreign investment in the defence sector that affects or may affect national security.
It is must be noted that foreign investment from neighboring countries like China continues to be under approval route as per the changes brought in FDI Policy early this year to combat any opportunist takeover of domestic stressed companies.
CHRI Comment
The Government of India seeks to infuse new capital in the defence sector by notifying the revised and increased FDI cap for the sector. This well help them in accessing and innovating technology and is a huge stride towards Aatmanirbhar Bharat (Self-reliant India) in so far as contribution from the defence sector is concerned. Furthermore, the government has taken right steps to give impetus to growth in the defence sector while blocking a flood of foreign investors which might clog up the sector.
LexCognito - Our Legal Newsletter
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Chambers of Rajan & Indraneel 
T: +91 11 41000224, 41030225| Fax:+91 11 29239074 
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N 103 Greater Kailash - I, New Delhi - 110048, India.
About us
Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.

The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.

We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India. 
This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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