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Are India's tough rules on investments from neighbours discriminatory?

By amending the general financial rules to impose restrictions on public procurement, the Centre, through DPIIT is empowered to reject or cancel the registration of a bidding entity without according any reasons for the same

Dipti Lavya Swain | Shruti Sundararajan | October 7, 2020 | Updated 21:19 IST
Are India's tough rules on investments from neighbours discriminatory?
The Centre had in July this year said that bidders from bordering countries eyeing government contracts would need prior registration and security clearances (Photo: Reuters)

Pursuant to Press Note 3 and NDI Amendment Rules, India's FDI policy underwent an amendment in March and April 2020, requiring prior approval of the government, for investments from countries that share a land border with India (Neighboring Countries).

Largely, the above concerns incoming investments from China since the country has been one of the largest investors in India out of all the other neighboring nations.

Parallelly, in July 2020, the government also revisited its public procurement policy to notify amendments to the general financial rules, post which, entities from the neighboring countries, prior to participating in public procurement contracts and supplying goods and/or services to the government, need to procure a prior registration with the Department for Promotion of Industry and Internal Trade (DPIIT).

Also Read: New procurement policy to ensure timely payments by govt, push Make in India

Even entities that are privately held or beneficially held by individual(s) from the neighbouring countries are now required to mandatorily pre-register with the DPIIT as a pre-requisite for participating in bids for public procurement in India. However, tenders and contracts that have already been concluded or awarded will not be subject to these pre-registration requirements.

In order to facilitate a seamless process for registration, the DPIIT has introduced a separate application process for bidders from the neighboring countries to procure registration enabling them to bid in public procurement contracts in India.

This DPIIT registration will be valid for a period of one year from the date of its issue. A bidder can seek registrations for multiple items (goods/services/works) in one single application by providing requisite details for each such item. In addition to the said registration from DPIIT, prospective bidders from China will also have to procure security and political clearance from the Ministry of Home Affairs, similar to the security clearance under FDI.

A brief note on the nature of activities undertaken by the bidder, its beneficial owner(s) and details of the tender and goods/works/services proposed to be supplied along with reasons for seeking registration, is required to be furnished along with the security clearance application.

Broadly, the application for procuring DPIIT registration is divided into seven annexures requiring information and supporting documents in relation to beneficial ownership of the bidder, details of manufacturer/service provider/contractor (if any), description of items (goods/services/works) for which registration is sought, financial details and details of past performance of contracts by the bidder.

The following points are key in relation to the said application:

1. The application for registration must be submitted in physical form with the office of the DPIIT in New Delhi, India, in 7 hard copies with the signature of the authorised signatory on all pages of the application.  

2. Any change in beneficial ownership of the bidder/manufacturer/contractor/service provider shall render the registration annulled, warranting a fresh registration.

3. The application must include the name of the bidder, the type of business entity, address of the registered office of the bidder, details of the beneficial owner of the bidder, category of registration, description of goods/services/ works, financial details for the past 5 years, details of contracts received in the last 5 years from public procuring entities and from private sectors in India and details of outsourced components/ goods and subcontracted works and services proposed to be used in execution of the contract.

4. The application must be supported with certain documents including certificate of incorporation of the bidding entity, list of beneficial owners duly certified by a chartered accountant, financial details in INR/US Dollar for last 5 financial years duly certified by practicing chartered account in India, among others.  

5. DPIIT registration will be subject to the bidding entity obtaining a security and political clearance from the Ministry of Home Affairs.  

Prescribing a new format for DPIIT registration by neighboring countries will definitely ease the process of obtaining registration and will also act as a single-window clearance, given that the bidding entity will not be required to submit separate applications with the Ministry of Home Affairs for security and political clearance.

Further, obtaining registration from the DPIIT for participation in public procurement bids will be valid for all procurements, not only at the central government level but also at the state level.

Also Read: India restricts Chinese bidders from public procurement projects

However, by amending the general financial rules to impose restrictions on public procurement, the central government, through DPIIT is empowered to reject or cancel the registration of a bidding entity (even if genuine) without according any reasons for the same.

Such unilateral power at the hands of the competent authority, being DPIIT, should be reconsidered and the applicants should be given an opportunity of being heard and also a chance to submit any additional documents or information that will aid the DPIIT in granting the requisite registration, especially when applications are genuine and there are no eminent national security threats which may call for rejection.  

(Dipti Lavya Swain is cross border Corporate M&A specialist & Partner at HSA Advocates. He is also Head of China Desk at the Firm. Shruti Sundararajan is an associate at HSA Advocates)

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