MIB revises Uplinking guidelines

On March 26, 2003, the Government of India, in its Guidelines for Uplinking of News and Current Affairs TV Channels from India ("Guidelines"), imposed a 26 % cap on the foreign direct investment ("FDI") in television news companies desirous of uplinking from India. This was at par with the FDI cap prevalent in the print medium relating to newspapers and periodicals dealing in news and current affairs.

The Government of India has now revised the Guidelines issued on March 26,2003 by amending the eligibility criteria for uplinking. As per the revised Guidelines the applicant company desirous of uplinking news and current affairs channel(s) from India is considered eligible, if it fulfils the following criteria:-

Ownership

• Foreign Direct Investment ("FDI") should not exceed 26% of the Paid-up Equity of the applicant company. While calculating the 26% FDI, the foreign holding component, if any, in the equity of the Indian shareholder companies of the applicant company will be duly reckoned on pro rata basis so as to arrive at the total foreign holding in the applicant company.
• Equity held by the largest Indian shareholder should be at least 51% of the total equity (excluding the equity held by Public Sector Banks and Public Financial Institutions) in the New Entity.

The term largest Indian shareholder includes any or a combination of the following:

• In the case of an individual shareholder : (i) The individual shareholder; (ii) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956; (iii) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest.
• In the case of an Indian company: (i) The Indian company (i.e. a company having a resident Indian or a relative / HUF, either singly or in combination holding at least 51% of the shares); (ii) A group of Indian companies under the same management and ownership control. Provided that in case of a combination of all or any of the entities mentioned above, each of the parties should have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company.

To prevent control by foreign companies and to ensure that the spirit of the uplinking norms is maintained the following requirements have also been brought in:

Disclosures:

• At the time of filing of application, the applicant is required to make full disclosure of Shareholders Agreements, Loan Agreements and such other Agreements that are finalized or are proposed to be entered into. Any subsequent changes having bearing on these agreements have to be disclosed to the Ministry of Information and Broadcasting ("I & B"), within 15 days.
• The applicant is required to intimate the names and details of (i) proposed directors who are not resident Indians, (ii) any foreigners/ NRIs to be employed/ engaged in the company either as Consultants (or in any other capacity) for more than 60 days in a year, or, as regular employees.

Prior permission for alteration of shareholding pattern and agreements:

• Company will have to obtain prior permission from I & B before effecting any alteration in the foreign shareholding patterns and the shareholding of the largest Indian shareholders, or any alteration in any other Agreements.

Those in control should be Resident Indians:

• At least 3/4th of the Directors of the company and all key Executives and Editorial staff, CEO of the applicant-company, and/ or head of the channel are required to be resident Indians.

Representation on Board:

• The representation on the Board of Directors of the company should as far as possible be proportionate to the shareholding.

Applicant company to be in control:

• All appointments of key personnel (executive and editorial) are to be made by the applicant company without any reference from any other company, Indian or foreign.
• The applicant company should have complete management control, operational independence and control over its resources and assets and must have adequate financial strength for running a news and current affairs TV channel.

Conclusion
These safeguards appear to have been considered, in the wake of a controversial uplinking application by STAR News. STAR News and its group companies are facing allegations that a foreign company is using "shell companies" and "dummy investors" to exercise proxy editorial and financial control. STAR News, whose application is pending approval, has been given time until September 28, 2003 to comply with the new Guidelines. Currently, Star is negotiating with prospective local partners to finalize the dominant Indian partner as required by the new Guidelines and have sought an extension of the compliance deadline.

The Government has also decided in principle to rework the print medium FDI norms, so as to bring them at par with the electronic medium, wherever necessary.

Source: Guidelines for Uplinking of News and Current Affairs TV Channels from India, Ministry of Information and Broadcasting and the Business Standard, September 11, 2003, pg. 3.