MUMBAI: Swiggy’s move to tweak board nomination rights to qualify as an Indian Owned and Controlled Company (IOCC) reflects a broader shift among late-stage startups with large foreign investors. The classification matters because India’s foreign investment rules impose tighter restrictions on foreign-controlled companies in sectors such as e-commerce and quick commerce, particularly around inventory ownership and operational control.
Mint explains what an IOCC status means, why governance rights matter as much as shareholding, and why more startups are restructuring to meet Indian-control rules.
What is an Indian-owned and controlled company?
An IOCC is a company considered effectively controlled by Indian residents under the country's foreign investment rules. The classification is determined not just by shareholding, but also by who exercises control over key decisions. Powers such as appointing directors, veto rights and strategic decision-making must rest with Indian shareholders for a company to qualify as Indian-owned and controlled.
The distinction matters because foreign-controlled companies face tighter restrictions in sectors such as e-commerce, fintech, insurance, media, and defence, while IOCC status can provide greater operational flexibility and easier compliance.
What changes has Swiggy made?
Swiggy has proposed changes to its shareholder agreements and board nomination structure to strengthen its classification as an IOCC. The move centres on reducing or restructuring certain governance rights held by foreign investors, particularly around the ability to nominate directors to the board.
The changes are aimed at ensuring that effective control of the company rests with Indian shareholders and Indian-controlled entities, even though Swiggy continues to have significant foreign investment. Global investors Prosus and Softbank hold about 32% and 8% stakes in the company, respectively.
Why does it matter?
The push for IOCC status is closely tied to Swiggy’s quick commerce business and the way inventory is handled in e-commerce.
Under India’s foreign investment rules, foreign-controlled e-commerce companies are restricted from directly owning inventory or exercising excessive control over sellers and pricing. Since Swiggy has substantial foreign shareholding, the company needs to ensure it is legally seen as Indian-controlled to avoid regulatory concerns around how its quick commerce operations are structured.
The move also reflects a broader trend among late-stage Indian startups with large overseas investors to align governance structures with IOCC norms and avoid regulatory hurdles in sectors where foreign-controlled entities face tighter scrutiny.
What restrictions do foreign-controlled firms face?
Foreign-controlled companies in India operate under a tighter regulatory framework, particularly in sectors such as ecommerce, food delivery and quick commerce, where inventory ownership, seller relationships and data governance have become increasingly sensitive.
Under India’s foreign direct investment (FDI) rules, foreign-controlled online marketplaces cannot directly own inventory or influence pricing, and are required to function largely as neutral technology platforms connecting buyers and sellers.
These companies also face restrictions around preferential treatment for certain sellers, exclusive arrangements and deep discounting practices that could distort competition. In some sectors, being classified as foreign-controlled can also limit participation in government procurement opportunities or businesses linked to strategic and sensitive areas.
Are more startups taking the same route?
Several large Indian internet companies have either taken similar steps or moved in the same direction.
Last year, Eternal, the parent of Blinkit and Zomato, capped foreign shareholding at 49.5% as part of its move to qualify as an Indian-owned and controlled company, potentially giving it greater flexibility in quick commerce operations.
More broadly, several late-stage startups such as Razorpay, Pine Labs, Zepto and InMobi have moved or are moving domiciles back to India, particularly ahead of listing plans. But reverse-flipping alone does not guarantee Indian ownership or control; governance rights, board control and voting structures matter just as much as where a company is incorporated.