With a view to curb security threats
caused by inflow of FDI in various sectors, the National Security
Council (NSC) has decided to promulgate an umbrella legislation
known as National Security Exception Act (NSEA) aimed at imposing
checks on the FDI flow into India.
The NSC has raised concerns that
foreign investment from various notified countries are likely to
pose security threats as there is a possibility of multinational
corporations in such countries being used for catalyzing
anti-national activities and breach of national security.
The NSEA would be based on the lines
of the Exon-Florio Act of USA, 1988 that empowers the Committee of
Foreign Investment in the US, to prohibit takeover of any American
company likely to cause a threat to the country's security.
Such legislations are very common to countries viz. England (Golden
Share), Mexico (Foreign Investment Law), Canada, Australia,
Thailand and China who have enacted similar laws to block
anti-national activities through FDI.
The proposed legislation is expected
to be implemented in a phased manner by NSC under the supervision
of the Prime Minister's Office (PMO). At the outset, security
guidelines would be formulated by virtue of which a security
screening of FDI on the basis of sensitive locations, sectors and
foreign firms known to have dealings with anti-national elements
etc. would be conducted.
The areas that would come within the
realm of FDI screening would include Jammu and Kashmir, the North
Eastern States and other sensitive locations in close proximity to
vital nuclear, space and defence installations and border areas.
Further, the sectors where security concerns are being expressed
include inter alia aviation, ports, shipping and telecom.
Subsequently, in all Government
contracts, tenders, agreements, the National Security Exception
Clause would initially be introduced and consequently NSEA would be
brought into force, empowering the Government to suspend or
prohibit any foreign acquisition, merger or takeover of an Indian
company prejudicial to national interest in the abovementioned
The implementation of NSEA is
expected to provide an effective scrutiny of MNCs proposing to
invest in the Indian market. Further, such legislation is expected
to bring about transparency and adoption of a non-discriminatory
mechanism in approving FDI proposals.
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The MDO Guidelines further state that the intent of the MCA was for the purpose of achieving a standard contractual arrangement that may be entered into across the country for procurement of such services.
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