Chinese nationals on Indian boards receive MCA notices

The government tightened investment and security norms for Chinese nationals and investors following the Galwan clash in 2020.

Several Chinese nationals on the boards of various Indian companies have received notices from the ministry of corporate affairs (MCA) for alleged violation of company rules, people with direct knowledge of the matter have told Moneycontrol.

The notices have been primarily sent by the Registrar of Companies(ROCs) of Delhi, Mumbai and Hyderabad, the sources said.

The notices have alleged that the Chinese nationals violated the MCA’s 2022 circular making it mandatory for Indian firms to obtain a security clearance from the Centre while appointing Chinese nationals to the board.

The development comes when the ministry is already probing several shell companies backed by Chinese investors who operated in the retail lending space without proper licences.

Some of the directors who received the notices were on the boards of such shell companies, people cited above said.

The ministry has already received inputs from other regulators on how some of these directors may be operating in India without a security clearance.

However, in most cases, the appointments were made before the 2022 amendment, the people cited above added.

An email sent to MCA remained unanswered.

“Most of these directors have not been active in any Indian company post tweak in the rules, and they were generally based out of offshore jurisdictions like Hong Kong or Singapore. Hence, it remains to be seen how the ministry takes these cases forward,” one of the persons cited above said. “Also, if the said appointment was made by the company prior to the issuance of the 2022 circular, it needs to be seen if the company and the director can still be penalised.”

Over the past year, the ministry has hardened its stand on company law violations. The ministry is deploying advanced data-processing tools to catch these violations, market participants say.

“Many foreign companies have already (got) notices regarding beneficial ownership filings. These advanced tools are also flagging other company violations, including instances of breach of private issuance norms, delayed filing of statutory forms,” another person cited above said.

After a deadly clash between Indian and Chinese soldiers in the Galwan Valley in June 2020, the government brought in various regulatory measures to check Chinese influence on Indian companies.

This also includes mandatory security clearance from the government for a China-based entity taking the FDI route in India. Chinese entities who want to participate in government-related bidding, too, need the clearance.