Case Study

Chinese Infrastructure company executing project in India

A Chinese company entered into an Infrastructure contract with an Indian company and one of the stipulations of the contract was that Chinese company must have a status of AOP (Association of Persons) in India and contract must be started within 2 months’ time period.

As per current regulations, any Chinese company intending to go for project office, Branch office, Liaison office or AOP has to get prior RBI approval before it can start operations in India. RBI as a process of approval for Chinese companies going for above forms of registration asks for security clearance from Ministry of Home Affairs. However this process is not to be followed if Chinese parent company incorporates 100% subsidiary company in India. However in present case Chinese company had to start working on the contract within 2 months being one of the stipulations of the contract with Indian company.

Chinese company approached NBC for the solution. Team at NBC went through the contract, nature of activities to be done in India, Indian regulations for sector wise approval, reviewed whether the activities that need to be done in India fall under Automatic or Approval route and other prevalent laws .After going through various contracts and current regulations in place, team NBC advised that the Chinese company should incorporate two Private Limited Companies in India, owned by two different Chinese companies. These two Indian companies would be 100% subsidiary of their two Chinese parent companies. This was so because activity that was intended to be done by Chinese company was falling under Automatic route guidelines of the FDI guidelines which required reporting to RBI through AD bank and no prior approval was required. Further it was advised that these two Indian companies owned by foreign parent companies shall form an AOP which will be association of two Indian private limited companies which would execute the contract with Indian company and AOP will comply with various regulations. This way Chinese company was able to execute the contract within the stipulated time frame.

The Chinese company highly appreciated team NBC for their suggestions on the issue.

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