The Finance Ministry had in the first week of December given its nod to the proposal of the Department of Industrial Policy and Promotion (DIPP) for allowing 26 per cent foreign direct investment (FDI) by foreign airlines in domestic carriers.

However, the Finance Ministry's consent came with the rider that such investments should not violate Sebi's takeover code, under which an open offer is triggered once an investor acquires a 26 per cent stake in a listed company.

However, such a situation would lead to a Catch-22 situation, as the open offer trigger would take the FDI in the domestic carrier to 51 per cent, breaching the proposed cap of 26 per cent.

In a letter to the Department of Economic Affairs (DEA), the DIPP has requested "a general exemption from Sebi regulations so that the same are not in conflict with the FDI policy".

The sources said the DEA would seek an expert opinion on the issue from its capital markets division.

Most of the domestic airlines, including Kingfisher, Spice and Jet Airways, are listed companies and are in dire straits with respect to the state of their finances.

As per the present policy, up to 49 per cent FDI is allowed in domestic carriers, but foreign airlines have been kept out of the option.