The Indian government has recently relaxed investment guidelines for investors from land‑border‑sharing countries ("LBC"). Under India's foreign direct investment ("FDI") policy and the foreign exchange rules("NDI Rules"), every equity investment by LBC investors requires prior government approval. During the financial year 2025‑26, the Indian government approved only 1 (one) proposal involving FDI from China, while 13 (thirteen) proposals involving FDI from Hong Kong were approved.

In May 2026, the Indian government issued a revised standard operating procedure dated 4 May 2026 for processing FDI proposals ("FDI SOP") and rolled out the fast‑track approval route for joint venture (JV) proposals involving investment from LBC investors. Under the FDI SOP, the Indian government has listed certain sectors and activities where the proposals involving FDI from LBC investors will be expedited within 60 (sixty) days.

Set out below are some key aspects from the Indian legal and regulatory perspective that LBC investors must take into account when entering into a JV with Indian parties under the fast‑track route.

(a) Shareholding Structure of Indian JV -One of the conditions for the fast‑track approval route is that the LBC investors must not hold more than 49%(forty‑nine percent ) of the share capital or voting rights of the Indian JV company, and majority shareholding of the Indian JV must at all times be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s).

(b) Control of the Indian JV -The other condition that has been specified by the Indian government is that the control of the Indian JV company must always be with the resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s). While the 51:49 JV shareholding may be structured in various ways, the tricky part is determining the shareholders'rights in the JV company. The LBC investors must consider the definition of 'control' to understand their rights in the JV.

Under the FDI policy and the NDI Rules, the term 'control' will include the right (i) to appoint majority of the directors, or (ii) to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

There are various rulings by courts and authorities on the definition of control. Therefore, the board composition and other rights of the LBC investors in the Indian JV must not amount to any control in the hands of the LBC investors.

(c) Government Approval -The JV proposal will require prior government approval under the FDI policy and NDI rules. The application will be filed electronically through the Foreign Investment Facilitation ("FIF")/National Single Window System ("NSWS") portal. Such an application will be reviewed by various ministries and departments, including the Department for Promotion of Industry and Internal Trade ("DPIIT"), the concerned Administrative Ministry/Department("Competent Authority"), the Reserve Bank of India("RBI"), the Ministry of Home Affairs("MHA"), and the Ministry of External Affairs("MEA").

While considering the application, the Indian government will take into account various factors, including the export of goods, if any, into India by the LBC investors/their group entities, and the benefits in terms of technology transfer, employment generation, and enhancement of the domestic manufacturing capacity, that will flow from such FDI proposal.

Along with the application, various information and documents have to be submitted. Some of the key information and documents include details of beneficial ownership (as per the Prevention of Money Laundering Rules), details of all upstream shareholders, group/organisational structure chart showing inter‑se shareholding percentages, and the place of incorporation/registration/citizenship/residency of every entity/individual in the chain.

(d) Security clearance of the LBC investors -The FDI proposals involving investment from LBC investors will require security clearance from the MHA. For security clearance, along with other documents and information, the investors have to file a self‑declaration regarding any criminal proceedings, investigations, preventive detention proceedings, or chargesheets against the investors or their directors, whether in India or any other country.

If any such proceedings exist, the investors would need to provide complete details thereof, including the case/FIR number, detention/warrant number(if any), police station/district/investigating agency, relevant statutory provisions, and the name and location of the court.

(e) Nominee directors of LBC investors -While nominating the directors on the board of the Indian JV company, the LBC investors must ensure that (i) their nominee directors do not constitute the majority strength of the board of the Indian JV, (ii) the majority directors of the Indian JV are nominated by the Indian resident shareholders, and (iii) if any of their nominee directors is a national of LBC, then such individual will have to obtain security clearance from the MHA before he can be appointed as a director on the board of the Indian JV company.

(f) Future Funding -One of the key provisions of the JV agreement is the future funding obligations of the JV parties. Where the LBC investors propose to provide future funding in the form of equity investment, such additional funding must not result in their equity holdings or voting rights exceeding the percentage approved by the Indian government.

As per the format of the approval letter appended to the FDI SOP, prior approval will not be required for additional funding by the LBC investors, provided that the LBC investors'equity shareholding percentage does not change from the percentage already approved and the total foreign equity remains up to USD 525 million (approx.). The Indian JV company will, however, be required to notify the Competent Authority within 30 (thirty) days of receiving such additional funding and of the allotment of shares to the LBC investors.

Thus, any additional funding from LBC investors in the form of equity investment will essentially be governed by the terms of the Indian government's approval letter.

(g) Establishment of the Indian JV Company -In case the Indian JV company has not been incorporated, the parties must ensure that within 60(sixty) days of the date of the FDI approval letter, the Indian JV company is in place and its certificate of incorporation, along with the charter documents, must be submitted to the Competent Authority.

(h) Valuation Norms -Valuation norms under the FDI policy and the NDI Rules require any foreign investment to comply with the pricing guidelines. The issue price of the equity instruments to be issued to the LBC investors must not be less than the fair market value of such equity instruments, as determined by an independent valuer using an internationally accepted methodology. However, where the LBC investors invest in the JV company at the time of its incorporation (i.e. by subscribing to the memorandum and articles of association("AoA")), the issue price of the equity shares will be their face value.

(i) Completion Actions -In case of issuance and allotment of shares to the foreign investors(including LBC investors), the Indian JV company will be required to file necessary intimations with the Indian regulators(including the RBI and the Registrar of Companies("RoC")). Further, the AoA of the Indian JV company must reflect the provisions of the JV agreement between the JV partners, and the restated AoA must be filed with the RoC by the Indian JV company. Additionally, the Indian JV company must ensure timely compliance with all other provisions, including issuance of duly signed and stamped share certificates, filing of intimations with the RoC regarding appointment of nominee directors, and dematerialisation of shares within the timelines stipulated under the [Indian]Companies Act, 2013.