lbc-prong-questions.md

LBC Assessment — Prong (ii) and Prong (iii) Question Blocks

Source: Press Note 2 of 2026 (DPIIT, 15 March 2026), superseding Press Note 3 of 2020; Rule 2(da), NDI Rules 2019; Section 2(27), Companies Act, 2013.

When to use this file

After completing the direct LBC check (Step 2.2.1) and Prong (i) ownership assessment, present the user with the complete Prong (ii) and Prong (iii) question blocks below — as a single structured message. Do not assess either prong until the user has responded.

How to present the questions to the user

Explain briefly before presenting:

"Even where no LBC person crosses the ownership threshold, Government approval is required if any LBC person effectively controls the investor entity or directs the investee company's operations — whether formally or informally. We need to ask you a few questions to complete this part of the assessment. Please answer each question with a 'yes', 'no', or 'not applicable'."

PRONG (ii) — CONTROL TEST

Purpose: Assess whether any person from a land border country controls the investor entity, even without owning a large stake. A 9.9% shareholder with board nomination rights and veto over key decisions can have "control" within the meaning of Rule 2(da), NDI Rules 2019 / Section 2(27), Companies Act, 2013.

Please answer the following questions about the investor entity:

(a) Does any person or entity from a land border country (China, Pakistan, Bangladesh, Nepal, Bhutan, or Myanmar) have the right to appoint the majority of the directors (or, for an LLP, the majority of the designated partners) of the investor entity — whether through its articles of association, a shareholders' agreement, or any other arrangement?

(b) Does any person or entity from a land border country have the right to appoint or remove the CEO, CFO, or any other key management person of the investor entity?

(c) Does any person or entity from a land border country have the right to veto or block key decisions of the investor entity — for example, decisions about major acquisitions, incurring large debts, changing the nature of the business, or approving the annual budget?

(d) Is there a Shareholders' Agreement or investment agreement relating to the investor entity? If yes, does any party from a land border country hold board nomination rights, reserved matters rights, or affirmative vote rights under it?

(e) Are there any voting trust arrangements, proxy agreements, or other voting arrangements in place under which any person from a land border country benefits from the votes of other shareholders or partners?

(f) Are any persons from a land border country acting together (in concert) with other shareholders of the investor entity in a way that would, in combination, give them control?

If any document relevant to the above (SHA, articles, board composition records, voting arrangements) is available, please share it for review.

PRONG (iii) — ULTIMATE EFFECTIVE CONTROL TEST

Purpose: Assess whether any LBC person has the practical ability to direct the affairs of the investee company itself — whether formally or informally. This is the widest test and goes beyond the structure of the investor entity.

Please answer the following questions — these relate to the investee company (i.e., the Indian company receiving the investment):

(a) Looking through all layers of ownership of the investor entity, who are the ultimate natural persons who would actually direct how the investment in the investee company is exercised? Are any of them from a land border country?

(b) Does any person from a land border country play any role — formal or informal — in directing the day-to-day operations, strategy, or key appointments of the investee company? This includes any management consultancy, technical advisory, secondment, or operational role.

(c) Are there any arrangements — formal or informal, written or unwritten — between any person from a land border country and the investor or the investee company, under which the LBC person can direct how the investee company is run?

(d) Are any directors, officers, or key employees of the investee company nominees of, or acting under instructions from, any person from a land border country?

(e) Does any person who is not a director of the investee company have signatory authority over, or access to, the investee company's bank accounts?

If any document relevant to the above (management agreements, advisory agreements, side letters, board resolutions) is available, please share it for review.

Assessing the answers

Prong (ii) is triggered if any of (a)–(f) is answered yes. Even partial board appointment rights or limited veto rights can constitute "control" under Rule 2(da), NDI Rules / Section 2(27), Companies Act 2013. The test is qualitative.

Prong (iii) is triggered if any of (a)–(e) is answered yes, or if the circumstances described reveal that any LBC person is in effect the directing mind behind the investee company's operations — whether or not formal legal rights are documented.

If either prong is triggered: Government of India approval is required. File on the Foreign Investment Facilitation Portal (fifp.gov.in). Required documents: Form FC, board resolution, full beneficial ownership chart, KYC documents for beneficial owners. Approx 8–12 weeks.

In the final advice note — when prongs are not yet answered

If Prong (ii) and/or Prong (iii) questions have not yet been answered, state in the advice note:

"Prong (ii) — Control: A preliminary view cannot be given without the following information: [list specific questions from Prong (ii) that remain unanswered]."

"Prong (iii) — Ultimate effective control: A preliminary view cannot be given without the following information: [list specific questions from Prong (iii) that remain unanswered]."

List these under Pending Confirmations.