The government is understood to have rejected J P Morgan Securities India's plea to waive the condition of mandatory divestment of 25 per cent equity through a public offering within three years.
Confirming the rejection, sources said the Department of Economic Affairs is believed to have raised objections to J P Morgan Employee Trust buying out 95.5 per cent of Vaisakh Fintrade, which earlier held the 25 per cent equity in J P Morgan's Indian operations, without the prior permission of the Foreign Investment Promotion Board.
The majority 75 per cent equity in J P Morgan Securities India is held by the Morgan Guaranty International Finance Corporation, as per the proposal submitted by J P Morgan India to the government.
In its application, J P Morgan is believed to have said "the condition on JPMSI to disinvest 25 per cent of its equity through a public offering within a period of three years is no longer relevant".
It said the divestment condition was not an entry level one for foreign investment from J P Morgan International Finance in the Indian entity but was imposed as a condition when the shares of Indian shareholders B Khaitan and Deepak Khaitan were purchased by the J P Morgan Trustee Company, which was an Indian company.
While pleading for waiver of the divestment condition, J P Morgan Securities India also said that as per extant policy, foreign investors who proposed to engage in the primary dealership business in India can own 100 per cent of the shareholding of such Indian companies, subject to satisfying certain conditions.
"JPMIPL can undertake the primary dealership business being currently undertaken by JPMSI through a new wholly-owned subsidiary in India. However, the shifting of the current primary dealership business from JPMSI to any such new company would cause avoidable procedural and administrative difficulties."
The company also stated that J P Morgan Group has brought into India in excess of $50 million as share capital in JPMIPL and JPMSI collectively.
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