RBI notifies Foreign Exchange Management ( Non-Debt Instruments ) Rules, 2019

RBI notifies Foreign Exchange Management ( Non-Debt Instruments ) Rules, 2019

November 5, 2019 Fiscal, Industries, states 0

Ministry of Finance has issued Notification No. FEMA. 395/2019-RB to notify the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 which supersedes Foreign Exchange Management (Transfer of Issue of Security by a person resident outside India) Regulations, 2017 and Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.

Key Points of the Rules are as follows:

  1. Person resident outside India shall make an Investment in India provided that the investments are in accordance with the Foreign Exchange Management Act, rules or regulations. It has been provided further that the Reserve Bank may, on an application made to it and for sufficient reasons, permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary.

  1. An Indian entity shall not receive any investment in India from a person resident outside India or record such investment in its books unless the investments are in accordance with the Foreign Exchange Management Act, rules or regulations. It has been provided further that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an Indian entity to receive any investment in India from a person resident outside India or to record such investment subject to such conditions as may be considered necessary.

  1. The investment made by a person resident outside India shall be subject to the entry routes, sectoral caps and  investment limits and the attendant conditionalities for such investment as laid down in these regulations unless otherwise specified in these regulations or the relevant Schedules.

In case of Investment by Persons resident outside India

  1. A person resident outside India may subscribe, purchase or sell equity instruments of an Indian company in the manner and subject to the terms and conditions specified in Schedule I.

  1. A person resident outside India other than a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan may invest either by way of capital contribution or by way of acquisition or transfer of profit shares of an LLP, in the manner and subject to the terms and conditions specified in Schedule VI.

  1. A person resident outside India other than a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan may invest in units of an investment vehicle, in the manner and subject to the terms and conditions specified in Schedule VIII.

  1. A person resident outside India may invest in the depository receipts (DRs) issued by foreign depositories against eligible securities in the manner and subject to the terms and conditions specified in Schedule IX.

  1. A person resident outside India and having investment in an Indian company may make investment in equity instruments (other than share warrants) issued by such company as a rights issue or a bonus issue, provided that –

  1. a)the offer made by the Indian company is in compliance with the provisions of the Companies Act, 2013;
  2. b)such issue shall not result in a breach of the sectoral cap applicable to the company;
  3. c)the share holding on the basis of which the rights issue or the bonus issue has been made must have been acquired and held as per the provisions of these rules
  4. d)in case of a listed Indian company, the rights issue to persons resident outside India shall be at a price determined by the company
  5. e)in case of an unlisted Indian company, the rights issue to persons resident outside India shall not be at a price less than the price offered to persons resident in India;
  6. f)such investment made through rights issue or bonus issue shall be subject to the conditions as are applicable at the time of such issue;
  7. g)the mode of payment and attendant conditions for such transactions shall be specified by the Reserve Bank.
  8. h)an individual who is a person resident outside India exercising a right which was issued when he or she was a person resident in India shall hold the equity instruments (other than share warrants) so acquired on exercising the option on a non-repatriation basis.

  1. An Indian company may issue “employees’ stock option” and/ or “sweat equity shares” to its employees or directors or employees or directors of its holding company or joint venture or wholly owned overseas subsidiary or subsidiaries who are resident outside India provided that :

  1. the scheme has been drawn either in terms of regulations issued under the Securities and Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014, as the case may be;
  2. the “employee’s stock option” or “sweat equity shares” so issued under the rules or regulations are in compliance with the sectoral cap applicable to the said company
  3. the issue of “employee’s stock option” or “sweat equity shares” in a company where investment by a person resident outside India is under the approval route shall require prior government approval and issue of “employee’s stock option” or “sweat equity shares” to a citizen of Bangladesh or Pakistan shall require prior government approval

  1. A person resident outside India holding equity instruments of an Indian company or units in accordance with these rules or a person resident in India, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, specified in the Schedules of these rules and subject to the terms and conditions as prescribed.

In case of Investment by Foreign Portfolio Investor (FPI)

  1. A FPI may make investments as under :

  1. a)A FPI may purchase or sell equity instruments of an Indian company which is listed or to be listed on a recognized stock exchange in India, and/or may purchase or sell securities other than equity instruments, in the manner and subject to the terms and conditions specified in Schedule II.
  2. b)A FPI may purchase, hold, or sell Indian Depository Receipts (IDRs) of companies resident outside India and issued in the Indian capital market, in the manner and subject to the terms and conditions as prescribed in Schedule X.

  1. A FPI holding equity instruments of an Indian company or units in accordance with these rules, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in the respective Schedules of these rules and subject to the terms and conditions prescribed hereunder and as specified by the Securities and Exchange Board of India.

  1. A FPI holding equity instruments of an Indian company or units in accordance with these rules, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in the respective Schedules of these rules and subject to the terms and conditions prescribed hereunder and as specified by the Securities and Exchange Board of India.

In case of Investment by Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI)

  1. A NRI or an OCI may make investments as under:

  1. a)A NRI or an OCI may, on repatriation basis, purchase or sell equity instruments of a listed Indian company and other securities in the manner and subject to the terms and conditions prescribed in Schedule III
  2. b)A NRI or an OCI may, on non-repatriation basis, purchase or sell equity instruments of an Indian company or other securities or contribute to the capital of a LLP or a firm or proprietary concern, in the manner and subject to the terms and conditions specified in Schedule IV
  3. c)A NRI or an OCI may purchase, hold, or sell Indian Depository Receipts (IDRs) of companies resident outside India and issued in the Indian capital market, in the manner and subject to the terms and conditions specified in Schedule X.

  1. A NRI or an OCI holding equity instruments of an Indian company or units in accordance with these rules may transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in the Schedules of these rules and subject to the terms and conditions as prescribed.

In case of Investment by other Non-Resident Investors

  1. The other non-resident investors may make investments in securities in the manner and subject to the terms and conditions specified in Schedule V.

  1. The other non-resident investors, holding securities in accordance with these rules, may transfer the securities subject to such terms and conditions prescribed in Schedule V and as specified by the Securities and Exchange Board of India and the Reserve Bank.

In case of Investment by Foreign Venture Capital Investor

 

  1. A Foreign Venture Capital Investor (FVCI) may make investments in the manner and subject to the terms and conditions specified in Schedule VII.

  1. A FVCI holding equity instruments of an Indian company or units in accordance with these rules or a person resident in India, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in Schedule VII of these rules and as specified by the Securities and Exchange Board of India and the Reserve Bank.

General Provisions

  1. The transferee company or the new company, as the case may be, may issue equity instruments to the existing holders of the transferor company resident outside India, subject to the prescribed conditions, where a scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of demerger or otherwise of an Indian company, has been approved by the National Company Law Tribunal (NCLT) or competent authority.

  1. All transaction under these rules shall be undertaken through banking channels in India and subject to the payment of applicable taxes and other duties or levies in India.

  1. Indian entity which has received indirect foreign investment shall comply with the entry route, sectoral caps, pricing guidelines and other attendant conditions as applicable for foreign investment.

Acquisition and transfer of Immovable property in India

 

  1. A NRI or an OCI may –

  1. acquire immovable property in India other than an agricultural land or farm house or plantation property provided that the consideration, if any, for transfer, shall be made out of the prescribed forms only.
  2. acquire any immovable property in India other than agricultural land or farm house or plantation property by way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as defined in clause (77) of section 2 of the Companies Act, 2013;
  3. acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property.
  4. transfer any immovable property in India to a person resident in India;
  5. transfer any immovable property other than agricultural land or farm house or plantation property to an NRI or an OCI.

 

  1. Any transaction involving acquisition or transfer of immovable property under these rules shall be undertaken:-
  1. through banking channels in India;
  2. subject to payment of applicable taxes and other duties or levies in India.

  1. Any existing holding of immovable property in India by a person resident outside India made in accordance with the policy in existence at the time of such acquisition would not require any modifications to conform to these rules.

For further details and respective Schedules, please refer the attached document

Source: E- Gazette

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