Rule 2 - Definitions - Foreign Exchange Management (Non-debt Instruments) Rules, 2019

2. Definitions: - In these rules, unless the context otherwise requires:- (a) Act means the Foreign Exchange Management Act, 1999 (42 of 1999); (b) asset reconstruction company means a company registered with the Reserve Bank under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (c) authorised bank shall have the meaning assigned to it in the Foreign Exchange Management (Deposit) Regulations,2016; (d) authorised dealer includes a person authorised under sub-section (1) of section 10 of the Act; (e) convertible note means an instrument issued by a startup company acknowledging receipt of money initially as debt, repayable at the option of the holder, or which is convertible into such number of equity shares of that company, within a period not exceeding 3 [ ten years ] from the date of issue of the convertible note, upon occurrence of specified events as per other terms and conditions agreed and indicated in the instrument; (f) debt instruments means all instruments other than non-debt instruments defined in clause (ai) of this rule; (g) depository receipt means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of eligible securities issued or transferred to that foreign depository and deposited with a domestic custodian and includes global depository receipt as defined in the Companies Act, 2013 (18 of 2013); (h) domestic custodian means a custodian of securities registered with the Securities and Exchange Board of India in accordance with the SEBI (Custodian of Securities) Regulations, 1996; (i) domestic depository means a custodian of securities registered with the Securities and Exchange Board of India and authorised by the issuing entity to issue Indian depository receipts; (j) ESOP means Employees stock option as defined under the Companies Act, 2013 and issued under the regulations by the Securities and Exchange Board of India; (k) equity instruments means equity shares, convertible debentures, preference shares and share warrants issued by an Indian company; Explanation:- 4 [ (i) Equity shares issued by an Indian Company in accordance with the provisions of the Companies Act, 2013 or any other applicable law, shall include equity shares that have been partly paid. Convertible debentures means fully and mandatorily convertible debentures which are fully paid. Preference shares means fully and mandatorily convertible preference shares which are fully paid. Share Warrants are those issued by an Indian Company in accordance with the regulations made by the Securities and Exchange Board of India, the Companies Act, 2013 or any other applicable law. Equity instruments can contain an optionality clause subject to a minimum lock-in period of one year or as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured price. ] (ii) Partly paid shares that have been issued to a person resident outside India shall be fully called-up within twelve months of such issue or as may be specified by the Reserve Bank from time to time. Twenty- five per cent of the total consideration amount (including share premium, if any) shall be received upfront. (iii) In case of share warrants, at least twenty-five per cent of the consideration shall be received upfront and the balance amount within eighteen months of the issuance of share warrants. (l) escrow account means an escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016; (m) FDI linked performance conditions means the sector specific conditions specified in Schedule I of these rules for companies receiving foreign investment; (n) FVCI means a Foreign Venture Capital Investor incorporated and established outside India and registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000; (o) foreign central bank means an institution or organisation or body corporate established in a country outside India and entrusted with the responsibility of carrying out central bank functions under the law for the time being in force in that country; (p) FCNR (B) account means a Foreign Currency Non-Resident (Bank) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016; (q) FCCB or Foreign Currency Convertible Bond means a bond issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993; (r) FDI or Foreign Direct Investment means investment through equity instruments by a person resident outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company; Note:- In case an existing investment by a person resident outside India in equity instruments of a listed Indian company falls to a level below ten percent, of the post issue paid-up equity capital on a fully diluted basis, the investment shall continue to be treated as FDI; Explanation: - Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised; (s) foreign investment means any investment made by a person resident outside India on a repatriable basis in equity instruments of an Indian company or to the capital of a LLP; 5 [ Explanation : - If a declaration is made by a person as per the provisions of the Companies Act, 2013 or any other applicable law, as the case may be, about a beneficial interest being held by a person resident outside India, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment; ] Note:- A person resident outside India may hold foreign investment either as FDI or as FPI in any particular Indian company; (t) foreign portfolio investment means any investment made by a person resident outside India through equity instruments where such investment is less than ten percent of the post issue paid-up share capital on a fully diluted basis of a listed Indian company or less than ten percent of the paid- up value of each series of equity instrument of a listed Indian company; (u) FPI or Foreign Portfolio Investor means a person registered in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014; (v) government approval means the approval from the erstwhile Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India and/ or the erstwhile Foreign Investment Promotion Board (FIPB) and/ or any of the ministry/ department of the Government of India, as the case may be; (w) group company means two or more enterprises which, directly or indirectly, are in a position to (i) exercise twenty-six per cent, or more of voting rights in other enterprise; or (ii) appoint more than fifty per cent of members of Board of Directors in the other enterprise; (x) hybrid securities means hybrid instruments such as optionally or partially convertible preference shares or debentures and other such instruments as specified by the Central Government from time to time, which can be issued by an Indian company or trust to a person resident outside India; 6 [ (y) Indian company means a company as defined in the Companies Act, 2013 or a body corporate established or constituted by or under any Central or State Act, which is incorporated in India; Note: (i) It is clarified that reference to 'company' or 'investee company' or 'transferee company' or 'transferor company' in these rules also includes a reference to a body corporate established or constituted by or under any Central or State Act. (ii) It is further clarified that if the term 'Company ' or 'Indian company' or 'Investee company' or 'transferee company' or 'transferor company' is qualified by a reference to a company incorporated under the Companies Act, 2013 such term shall mean a company incorporated under the said Act but not a body corporate. (iii) It is also clarified that 'Indian company' does not include a society, trust or any entity, which is excluded as an eligible investee entity under the FDI Policy. ] (z) IDR or Indian Depository Receipts (IDRs) means any instrument in the form of a depository receipt created by a domestic depository in India and authorised by a company incorporated outside India making an issue of such depository receipts; (aa) Indian entity shall mean an Indian company or a LLP ; 9 [ (aaa) International Exchange shall mean permitted stock exchange in permissible jurisdictions which are listed at Schedule XI annexed to these rules; ] (ab) investing company means an Indian company holding only investments in other Indian company/ies directly or indirectly, other than for trading of such holdings or securities; (ac) investment means to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India; Explanation:- (i) Investment shall include to acquire, hold or transfer depository receipts issued outside India, the underlying of which is a security issued by a person resident in India; (ii) for the purpose of LLP, investment shall mean capital contribution or acquisition or transfer of profit shares; (ad) investment on repatriation basis means an investment, sale or maturity proceeds of which are net of taxes, eligible to be repatriated out of India, and the expression investment on non-repatriation basis , shall be construed accordingly; (ae) investment vehicle means an entity registered and regulated under the regulations framed by the Securities and Exchange Board of India or any other authority designated for that purpose and shall include, namely:- (i) Real Estate Investment Trusts (REITs) governed by the Securities and Exchange Board of India (REITs) Regulations, 2014;(ii) Infrastructure Investment Trusts (InvIts) governed by the Securities and Exchange Board of India (InvIts) Regulations, 2014 (iii) Alternative Investment Funds (AIFs) governed by the Securities and Exchange Board of India (AIFs) Regulations, 2012 ; 1 [ **** ] (af) LLP means a limited liability partnership formed and registered under the Limited Liability Partnership Act, 2008 (6 of 2009); 10 [ (ag) listed Indian company means an Indian company which has any of its equity instruments or debt instruments listed on a recognised stock exchange in India and on an International Exchange and the expression unlisted Indian company shall be construed accordingly; ] (ah) manufacture , with its grammatical variations, means a change in a non-living physical object or article or thing,:- (i) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (ii) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; (ai) non-debt instruments means the following instruments; namely :- (i) all investments in equity instruments in incorporated entities: public, private, listed and unlisted; (ii) capital participation in LLP; (iii) all instruments of investment recognised in the FDI policy notified from time to time; (iv) investment in units of Alternative Investment Funds (AIFs), Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvIts); (v) investment in units of mutual funds or Exchange-Traded Fund (ETFs) which invest more than fifty per cent in equity; (vi) junior-most layer (i.e. equity tranche) of securitisation structure; (vii) acquisition, sale or dealing directly in immovable property; (viii) contribution to trusts; and (ix) depository receipts issued against equity instruments; (aj) NRI or Non-Resident Indian means an individual resident outside India who is a citizen of India; (ak) OCI or Overseas Citizen of India means an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under section 7A of the Citizenship Act, 1955 ( 57 of 1955); 11 [ (aka) permissible jurisdiction means such jurisdiction as notified by the Central Government under sub-clause (f) of sub-rule (3) of rule 9 of Prevention of Money-laundering (Maintenance of Records) Rules, 2005; ] (al) resident Indian citizen means an individual who is a person resident in India and is a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 ; (am) sectoral cap means the maximum investment including both foreign investment on a repatriation basis by persons resident outside India in equity 2 [ **** ] instruments of a company or the capital of a LLP, as the case may be, and indirect foreign investment, unless provided otherwise. This shall be the composite limit for the Indian investee entity. Explanation: (i) FCCBs and DRs having underlying of instruments being in the nature of debt shall not be included in the sectoral cap; (ii) any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned under the sectoral cap; 7 [ (ama) Share Based Employee Benefits means issue of equity instruments to employees or directors or employees or directors of the holding company or joint venture or wholly owned overseas subsidiary or subsidiaries who are resident outside India, pursuant to Share Based Employee Benefits schemes formulated by an Indian Company ] (an) startup company means a private company incorporated under the Companies Act, 2013 and identified under G.S.R. 180(E), dated the 17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry; 8 [ (ana) subsidiary shall have the same meaning as is assigned to it in the Companies Act, 2013, as amended from time to time ] (ao) sweat equity shares means sweat equity shares defined under the Companies Act, 2013; (ap) transferable development rights (TDR) shall have the meaning assigned to it in the regulations made under subsection (2) of section 6 of the Act; (aq) unit means a beneficial interest of an investor in an investment vehicle; 12 [ Explanation .- For the purposes of this clause, unit shall include unit that has been partly paid up, which is permitted under the regulations framed by the Securities and Exchange Board of India, in consultation with Government of India; ] (ar) venture capital fund means a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. (2) The words and expressions used but not defined in these rules shall have the same meanings respectively assigned to them in the Act, rules and regulations. *********** NOTES:- 1. Omitted vide Notification No. S.O. 4355(E). dated 05-12-2019 w.e.f. 17-10-2019 before it was read as and (iv) mutual funds which invest more than fifty percent in equity governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996; 2. Omitted vide Notification No. S.O. 4355(E). dated 05-12-2019 w.e.f. 17-10-2019 before it was read as and debt 3. Substituted vide Notification No. S.O. 1802(E) dated 12-04-2022 before it was read as, five years 4. Substituted vide Notification No. S.O. 1802(E) dated 12-04-2022 before it was read as, (i) Equity shares issued in accordance with the provisions of the Companies Act, 2013 shall include equity shares that have been partly paid. Convertible debentures means fully, compulsorily and mandatorily convertible debentures. Preference shares means fully, compulsorily and mandatorily convertible preference shares. Share Warrants are those issued by an Indian company in accordance with the regulations by the Securities and Exchange Board of India. Equity instruments can contain an optionality clause subject to a minimum lock-in period of one year or as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured price. 5. Substituted vide Notification No. S.O. 1802(E) dated 12-04-2022 before it was read as, Explanation : - If a declaration is made by a person as per the provisions of the Companies Act, 2013 about a beneficial interest being held by a person resident outside India, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment; 6. Substituted vide Notification No. S.O. 1802(E) dated 12-04-2022 before it was read as, (y) Indian company means a company incorporated in India; 7. Inserted vide Notification No. S.O. 1802(E) dated 12-04-2022 8. Inserted vide Notification No. S.O. 1802(E) dated 12-04-2022 9. Inserted vide Notification No. S.O. 332(E) dated 24-01-2024 10. Substituted vide Notification No. S.O. 332(E) dated 24-01-2024 before it was read as, (ag) listed Indian company means an Indian company which has any of its equity instruments or debt instruments listed on a recognised stock exchange in India and the expression unlisted Indian company shall be construed accordingly; 11. Inserted vide Notification No. S.O. 332(E) dated 24-01-2024 12. Inserted vide Notification No. S.O. 1361(E) dated 14-03-2024