Why startups are restructuring to secure Indian-controlled status
Swiggy's move to qualify as an Indian Owned and Controlled Company shows how new-age internet firms are revamping boards and ownership as quick commerce and ecommerce rules tighten under Fema rules
New Delhi, May 19, 2026
Food delivery and quick commerce platform Swiggy is restructuring its board nomination framework as part of a broader attempt to qualify as an Indian Owned and Controlled Company (IOCC) - a classification that determines how companies with foreign investors are regulated under India’s foreign investment rules.
In a stock exchange disclosure dated May 13, Swiggy proposed amendments to its Articles of Association (AoA) as part of a broader endeavour to eventually become an IOCC under Foreign Exchange Management Act (Fema) regulations. The company clarified that the proposed changes are aimed at rationalising legacy nomination rights and ensuring management continuity, while also creating a governance structure that supports domestic control over the board.
The development signals a trend among late-stage Indian startups and recently listed new-age internet companies with substantial foreign capital of restructuring shareholding patterns, board rights, and governance frameworks to comply with Fema rules, especially in sectors such as ecommerce and quick commerce, where foreign-controlled firms face tighter operational restrictions.
What is an IOCC?
Under Fema and the government’s foreign investment rules administered by the Department for Promotion of Industry and Internal Trade (DPIIT), IOCC is an entity where more than 50 per cent beneficial ownership is with resident Indian citizens or Indian-controlled entities, and where effective control over management and board decisions also lies with resident Indians.
The rules make a distinction between ownership and control. This means that a company cannot qualify as an IOCC merely because Indian shareholders hold a majority stake - the power to appoint directors and influence strategic decisions must also rest domestically.
According to DPIIT’s consolidated FDI policy and Fema rules, "control" includes the right to appoint a majority of directors or the ability to control management or policy decisions through shareholding, management rights, shareholder agreements, or voting agreements.
This is an important distinction because investments made by IOCCs are treated as domestic investments, while investments by Foreign Owned and Controlled Companies (FOCCs) are treated as indirect foreign investment and are subject to sector-specific restrictions.
The IOCC classification has become particularly relevant for ecommerce and quick commerce platforms because, under Press Note 2 of 2018 and subsequent FDI clarifications, foreign-funded online marketplaces cannot directly own inventory, cannot exercise control over sellers, and cannot influence pricing, and are expected to operate as neutral technology platforms connecting buyers and sellers. For quick commerce firms, these restrictions can materially affect operational models.
Why Swiggy is changing board rights
Swiggy’s filing to the stock exchanges clarifies that the company is first attempting to address the “control” aspect of the IOCC before "ownership". It said the company currently lacks an identifiable promoter group with substantial board representation that can independently act as a safeguard for domestic control.
Mumbai-based financial and regulatory expert and partner at Ajay Sekhri & Company, Isha Sekhri, said the move is more than a routine governance adjustment. In a LinkedIn post, Sekhri said Swiggy has effectively been a foreign-owned and controlled company since around 2015 because overseas investors held a dominant shareholding after successive venture capital funding rounds.
According to her, the company’s pre-IPO foreign ownership stood at nearly 87.6 per cent, with investors including Prosus, SoftBank, Tencent, Accel, and GIC holding substantial stakes. She noted that under Fema rules, satisfying the ownership threshold alone is insufficient if foreign investors continue to retain board nomination rights or governance control.
“The AoA amendment specifically removes nomination rights of Accel and SoftBank, and restructures founders' rights, fixing the 'control' test first, before the 'ownership' test is triggered,” Sekhri wrote in her post.
Sekhri also argued that quick commerce economics are central to the move.
“The higher-margin model, what its competitors do, is inventory-led. To make that shift, amongst others, Swiggy must become IOCC,” she said.
According to her, Swiggy’s domestic shareholding has risen after its IPO and subsequent qualified institutional placement, potentially bringing the company closer to the 50 per cent domestic ownership threshold required under Fema.
Last year, Eternal, the parent company of Zomato and Blinkit, approved a proposal to cap total foreign ownership at 49.5 per cent to preserve its IOCC status. It said the move would provide greater operational flexibility to Blinkit, including the possibility of moving towards inventory ownership models in the future. Another recent example is One 97 Communications Ltd, which operates the Paytm brand, that became a majority Indian-owned and controlled company after domestic investors increased their stake to 50.3 per cent as of March-end 2026.
Legal experts say these changes reflect a deeper shift in India’s startup ecosystem. During the venture capital boom years, many startups accepted governance structures that gave foreign investors extensive board and veto rights. As companies mature and enter regulated sectors, those structures are now being reassessed.
[The Business Standard]
