The government took this policy decision while disposing of the application of Morgan Stanley Investment Services which had sought permission to charge fee for providing services and support to downstream ventures.

The decision is significant as it would act as a benchmark for all other similar proposals, government sources said. The decision, however, will be applicable to all future proposals and not retrospectively.

The government is of the opinion that a holding company should strictly remain as such and not be allowed to enter into any other business activity.

Morgan Stanley had sought amendments to its foreign investment approval from the Foreign Investment Promotion Board (FIPB). Morgan Stanley wanted the government approval to provide stewardship, management support, financeassets, employees (including facilitating the provision of training, research, marketing, management services, technology and other related activities) either free or against a charge to Morgan Stanley entities or its joint ventures in the country.

The finance ministry, while clearing the proposal for providing certain services towards stewardship, management support and related services as a holding company, stipulated that these would have to be provided free of charge since any fee based service would tantamount to a business activity. Moreover, such management support services by Morgan Stanley Investment Services will have to be confined only to its downstream step down subsidiaries.

Morgan Stanley had also sought deletion of two clauses which were stipulated in the amendment letter issued to the company in October last year. These clauses were: (a) "sale of 10 per cent shares in Morgan Stanley Investment Pvt Ltd to Morgan Stanley Mauritius and/or affiliates of Morgan Stanley in India and to JM grouphas to be in accordance with pricing norms of SEBI/RBI and without prejudice to applicable tax provisions on Morgan Stanley Investment Services' sale of its merchant banking business." (b) "after the reorganisation, Morgan Stanley Investment would become a holding company and, therefore, would not engage in any business activity".

Morgan Stanley was granted permission by the government to set up two joint venture companies for merchant banking/investment banking and stock brokerage and related activities. Subsequently, it was allowed to restructure operations in the country.