SRIT India Limited discloses 10% border-country approval rule

SRIT India says India’s revised border-country approval rule requires prior government approval when specified country-linked citizens or entities hold, directly or indirectly, more than 10% of an Indian investee entity’s shares, capital or profits, or exercise control. The prospectus says the revised test took effect on May 2, 2026 and also covers qualifying later ownership transfers.

What does SRIT India’s 10% border-country approval rule cover?

SRIT India says the approval requirement applies where citizens or entities of a country sharing a land border with India hold, individually or cumulatively, more than 10% of the shares, capital or profits of an Indian investee entity. The stated test includes both direct and indirect holdings, so the disclosed threshold is not confined to an investor’s immediate legal shareholding.

SRIT India says approval is also required if those citizens or entities exercise control over the investee entity or exercise ultimate effective control over it. Control and ultimate effective control are separate triggers in the prospectus, meaning the stated requirement can apply without relying only on a holding above 10%.

The wording disclosed by SRIT India is “more than 10%.” A position at exactly 10% is not described as exceeding the ownership threshold, although the prospectus does not provide the underlying definition of beneficial owner or the detailed tests for control. The result in a particular case therefore depends on the amended policy and the Foreign Exchange Management Act, or FEMA, Rules cited in the filing.

How did the 2026 amendment change the previous policy?

SRIT India describes the March 2026 amendment as replacing the earlier broad formulation with stated ownership and control triggers. Press Note No. 2 (2026 Series), dated March 15, 2026, amended the Consolidated Foreign Direct Investment Policy to define “beneficial owner” and introduce the more-than-10% threshold, control test and ultimate-effective-control test.

The prospectus says the amendment became effective on May 2, 2026, the date of notification of corresponding FEMA Rules amendments. The filing attributes Press Note No. 2 (2026 Series) to the Department for Promotion of Industry and Internal Trade, or DIPP, which it identifies as formerly the Department of Industrial Policy and Promotion.

SRIT India says the earlier restriction followed Press Note No. 3 (2020 Series), dated April 17, 2020, and FEMA Rules effective from April 22, 2020. The earlier wording reported in the prospectus focused on the relevant investor’s or beneficial owner’s connection to a country sharing a land border with India, whereas the 2026 wording specifies the 10% and control conditions.

The prospectus also repeats a general statement that investments by entities from land-bordering countries, or investments whose beneficial owner is situated in or a citizen of such countries, require approval. SRIT India’s more specific disclosure of the May 2, 2026 amendment says approval is required only when the stated more-than-10% ownership, control or ultimate-effective-control conditions are met; the filing does not reconcile the general statement separately.

Can a later ownership transfer require government approval?

Yes. SRIT India says a direct or indirect transfer of ownership of any existing or future foreign direct investment, or FDI, in an Indian entity requires government approval if the resulting beneficial ownership falls within the revised restriction. The obligation therefore extends beyond the original investment transaction.

The transfer provision covers a later change in beneficial ownership that results in the relevant country-linked citizens or entities holding more than 10% of shares, capital or profits, or exercising control or ultimate effective control. SRIT India describes the requirement as applying to ownership transfers in “any existing or future” FDI, which makes the test relevant to changes after an initial investment is made.

SRIT India does not state a separate percentage threshold for transfers. Instead, the prospectus links a subsequent transfer to the same revised restriction effective May 2, 2026. A transfer assessment must therefore consider direct and indirect holdings, cumulative positions and whether governance or other rights amount to either form of control disclosed in the policy.

Which foreign investment routes can apply to SRIT India?

SRIT India says 100% FDI is permitted under the automatic route in the sector in which it operates, subject to the border-country approval requirement and applicable conditions. The automatic route is the route under which a permitted investment generally does not need prior approval, while an investment meeting the revised border-country test needs government approval.

The prospectus says the Industrial Policy, 1991 establishes sector-specific limits and conditions for foreign investment, while FEMA regulates the manner in which such investment can be made. It also identifies the Reserve Bank of India, or RBI, and relevant ministries or departments as authorities responsible for granting foreign-investment approvals.

For a transfer between an Indian resident and a non-resident, SRIT India says prior RBI approval is not required if the investee company is in the automatic route, the transfer does not attract Securities and Exchange Board of India takeover regulations, non-resident ownership remains within sectoral limits, and pricing follows Securities and Exchange Board of India or RBI guidelines. Those conditions do not remove the separate government-approval requirement where the May 2, 2026 beneficial-ownership or control test is met.

A multilateral bank or fund of which India is a member receives a specific exception under the FEMA Rules described by SRIT India. The prospectus says such a bank or fund is not treated as an entity of a particular country, and no country is treated as the beneficial owner of its investments in India. This provision affects whether an investment is treated as country-linked for the disclosed restriction.

What must bidders in SRIT India’s issue do?

SRIT India says a bidder that requires prior government approval must obtain it and notify SRIT India and the registrar to the issue in writing during the bid or issue period, enclosing a copy of the approval. The filing advises every bidder to seek independent legal advice on its ability to participate because the assessment may involve indirect ownership and control.

SRIT India also says overseas corporate bodies, or OCBs, cannot participate in the issue under the government’s existing policy. This restriction is separate from the revised more-than-10% ownership and control test described in Press Note No. 2 (2026 Series).

The prospectus says the offered equity shares are not registered, listed or otherwise qualified outside India. It further says the shares have not been registered under the U.S. Securities Act of 1993 and are offered and sold outside the United States only in offshore transactions as defined in, and in reliance on, Regulation S under that Act.

Conclusion

SRIT India’s prospectus presents the May 2, 2026 border-country approval rule as a more specific framework: government approval is required above 10% direct or indirect, individual or cumulative ownership, or where control or ultimate effective control exists. The filing contrasts that formulation with the broader April 2020 wording for investments connected to countries sharing a land border with India.

The next matter to watch is whether an investor’s ownership chain, aggregate positions or a later transfer creates more than 10% relevant beneficial ownership or conveys control. SRIT India’s disclosed process requires a bidder that needs approval to notify the company and registrar during the issue period, while the prospectus says laws and regulations may change after its date.