9911796707
TMI BlogMaster Direction – Foreign Investment in India (Updated up to August 08, 2024)X X X X Extracts X X X X X X X X Extracts X X X X ..... ay deem necessary, for effective implementation of the provisions of these rules. 3. RBI, therefore, issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. This Master Direction lays down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/ constituents with a view to implementing the rules framed. 4. Instructions issued on Foreign Investment in India and its related aspects under the FEMA have been compiled in this Master Direction. The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in Annex 11. 5. The instructions relating to mode of payment and reporting requirements for investment in India by a person resident outside India are contained in Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (FEMA 395). The person/ entity responsible for filing such reports shall be liable for payment of late submission fee for any delays in reporting. 6. It may be noted that, whenever necessary, RBI shall issue directions to Authorised Persons through A.P. (DIR Serie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erited from a person who was resident in India. Such investment will be held by such person on a non-repatriable basis. 2. Key terms Some key terms used in this Master Direction are given below: 2.1 Act is the Foreign Exchange Management Act, 1999 (42 of 1999). 2.2 Equity Instruments are equity shares, convertible debentures, preference shares and share warrants issued by an Indian company. The details of what shall construe equity instruments are at para 4 of this Master Direction. 2.3 Convertible Note is an instrument issued by a start-up company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such start-up company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument. 2.4 E-commerce is buying and selling of goods and services including digital products over digital electronic network. 2.4.1 E-commerce entity are the following entities conducting the e-commerce business a company incorporated under the Companies Act, 1956 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctment of the SEBI (Foreign Portfolio Investors) Regulations, 2014. 2.9 Foreign Investment is 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 an LLP. 2.9.1 Issue/ transfer of participating interest/ right in oil fields by Indian companies to a person resident outside India would be treated as foreign investment. 2.9.2 If a declaration is made by persons 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. 2.9.3 A person resident outside India may hold foreign investment either as Foreign Direct Investment or as Foreign Portfolio Investment in any particular Indian company. 2.10 Group company is two or more enterprises which, directly or indirectly, are in a position to (a) exercise 26 percent, or more of voting rights in other enterprise; or (b) appoint more than 50 percent of members of board of directors in the other enterprise. 2.11 Indian entity is an Indian company or an LLP. 2.12 Investment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isation structure; acquisition, sale or dealing directly in immovable property; contribution to trusts; and depository receipts issued against equity instruments. 2.18 Non-Resident Indian (NRI) is an individual resident outside India who is citizen of India. 2.19 Overseas Citizen of India (OCI) is an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955. 2.20 Resident Indian citizen is an individual who is a person resident in India and is citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955). 2.21 Real estate business is dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. Explanation: i) Investment in units of Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) regulations 2014 shall also be excluded from the definition of real estate business . ii) Earning of rent income on le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary administrative action, including the reporting of such issuances by Alternative Investment Funds to the Reserve Bank, through Foreign Investment Reporting and Management System (FIRMS) Portal and issuing of conditional acknowledgements for such reporting, is completed. The words and expressions used but not defined in this Master Direction shall have the same meanings respectively as assigned to them in the Act, Rules and Regulations made thereunder. 3. Prohibited sectors/ persons 3.1 Investment by a person resident outside India is prohibited in the following sectors: Lottery Business including Government/ private lottery, online lotteries. Gambling and betting including casinos. Chit funds Nidhi company Trading in Transferable Development Rights (TDRs). Real Estate Business or Construction of farm houses. Explanation: For the purpose of this rule, 'real estate business shall not include development of townships, construction of residential or commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014. Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended from time to time. 4.3.4 In case of an unlisted Indian company too, the balance consideration amount can be received after 12 months, however, the investee company should appoint a monitoring agency on the same lines as required in case of a listed Indian company under the SEBI (ICDR) Regulations. Such monitoring agency (AD Category -1 bank) should report to the investee company as prescribed by the SEBI regulations, ibid, for the listed companies. 4.3.5 In case of non-payment of call money, the forfeiture of the amount paid upfront will be in accordance with the provisions of the Companies Act, 2013 and the Income Tax provisions, as applicable. 4.3.6. These conditions shall also be applicable where the person resident outside India acquires partly paid-up shares via transfer. 4.4 Share warrants: Share warrants issued on or after July 8, 2014 will be considered as equity instruments. 4.4.1 Share Warrants are those issued by an Indian Company in accordance with the Regulations issued by the SEBI in this regard. 4.4.2 Pricing or the conversion formula shall be determined upfront. At least twenty five perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le preference shares. 4.7.1 Amendment of the tenor of fully, compulsorily and mandatorily convertible preference shares shall be in compliance with the Companies Act, 2013. 4.7.2 Preference Shares which are not fully, compulsorily and mandatorily convertible preference shares are debt instruments in terms of the notification no. S.O.3722(E) dated October 16, 2019, issued under sub-section (7) of Section 6 of FEMA. Therefore, issuance of the same are not governed under the NDI Rules. 4.7.3 Non-convertible/ optionally convertible/ partially convertible preference shares issued up to April 30, 2007 are deemed to have been issued in accordance with NDI Rules till their original maturity. They, however, will continue to be outside the sectoral caps till their original maturity. Any extension of maturity prior to April 30, 2007 will be considered as original maturity. 4.7.4 Non-convertible/ optionally convertible/ partially convertible preference shares funds for which have been received after April 30, 2007 shall be treated as debt and shall conform to guidelines framed under Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2018, as amended from time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity instruments of a company or the capital of a LLP, as the case may be, and indirect foreign investment, unless provided otherwise 5.2.1 Foreign investment in the sectors/ activities given in Schedule I of the NDI Rules is permitted up to the limit indicated against each sector/ activity, subject to applicable laws/ rules/ regulations, security and other conditionalities. 5.2.2 Sectoral cap for the sectors/ activities is the limit indicated against each sector. The total foreign investment shall not exceed the sectoral/ statutory cap 5.2.3 Foreign investment is permitted up to 100% on the automatic route, subject to applicable laws/rules/regulations, security and other conditionalities, in sectors/ activities not listed in Schedule I of the NDI Rules and not prohibited under Para (2) of Schedule I of the NDI Rules. This condition is not applicable for activities in financial services. 5.2.4 Foreign investment in financial services other than those indicated under serial number F of table under Para (3)(b) of Schedule I of the NDI Rules would require prior Government approval. 5.2.5 Wherever there is a requirement of minimum capitalization, it will include premium received alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits, as the case may be, and the attendant conditionalities for making such investment. A person resident outside India may make investment as stated hereinafter. 6.1 Subscribe/ purchase/ sale of equity instruments of an Indian company is permitted as per the directions laid down in Annex 1. 6.2 Purchase/ sale of equity instruments of a listed Indian company on a recognised stock exchange in India by Foreign Portfolio Investors is permitted as per the directions laid down in Annex 2. 6.3 Purchase/ sale of equity instruments of a listed Indian company on a recognised stock exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis is permitted as per the directions laid down in Annex 3. 6.4 Purchase/ sale of equity instruments of an Indian company or Units or contribution to capital of a LLP or a firm or a proprietary concern by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on a Non-Repatriation basis is permitted as per the directions laid down in Annex 4. 6.5 Investment in a Limited Liability Partnership (LLP) is permitted as per the directions laid down in Annex 5. 6.6 Investment by a Foreign Venture Capital Investor (F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a non-repatriation basis, the amount of consideration may also be paid by debit to the NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. Indian company may issue equity instruments under Section 62(1) (a) (iii) of Companies Act, to a person resident outside India (other than an OCB). Such issue shall be subject to the pricing guidelines prescribed under Rule 21 of NDI Rules. 6.11.2 An individual who is a person resident outside India exercising a right which was issued when he/ she was a person resident in India can hold the equity instruments so acquired on exercising the right on a non-repatriation basis. 6.11.3 With effect from November 12, 2002, the Indian investee company could, on an application made to it, allot to existing shareholders who are persons resident outside India additional equity instruments (other than share warrants) as a rights issue over and above their rights entitlement subject to individual or sectoral caps, as the case may be. 6.11.4 Renunciation of rights A person resident in India and a person resident outside India may subscribe to additional shares over and above the shares offered on rights basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.12.2 An individual who is a person resident outside India exercising an option which was issued when he/ she was a person resident in India shall hold the equity instruments so acquired on exercising the option on a non-repatriation basis. 6.13 Issue of Convertible Notes by an Indian startup company 6.13.1 A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), is permitted to invest in convertible notes issued by an Indian startup company for an amount of twenty five lakh rupees or more in a single tranche. 6.13.2 A startup company, engaged in a sector where investment by a person resident outside India requires Government approval, can issue convertible notes to a person resident outside India only with such approval. 6.13.3 Issue of equity shares against such convertible notes should be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment. 6.13.4 The payment consideration can be received by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or a reconstruction by way of demerger or otherwise of an Indian company, where any of the companies involved is listed on a recognised stock exchange in India, the scheme of arrangement shall be in compliance with the SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015, as amended from time to time. 7. Transfer of equity instruments of an Indian company by or to a person resident outside India A person resident outside India who has invested in equity instruments of an Indian company or units in accordance with NDI Rules can transfer the equity instruments or units so held subject to the terms and conditions specified in this para. 7.1 Transfer from a person resident outside India by way of sale or gift to any person resident outside India 7.1.1 A person resident outside India, not being a non-resident Indian or an overseas citizen of India or an overseas corporate body, may transfer by way of sale or gift the equity instruments of an Indian company or units held by him to any person resident outside India. 7.1.2 It shall also include transfer of equity instruments of an Indian company pursuant to merger, de-merger and amalgamation of entities/ companies inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia 7.4.1 A person resident in India holding equity instruments of an Indian company or units, or an NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs holding equity instruments of an Indian company or units on a non-repatriation basis, may transfer the same to a person resident outside India by way of sale, subject to the adherence to entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions as applicable for foreign investment and documentation and reporting requirements for such transfers. 7.4.2 The entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions, however, will not apply in case the transferee is an NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs acquiring such investment on a non-repatriation basis. 7.5 Transfer by an NRI/ OCI holding equity instruments on a non-repatriable basis by way of gift to another NRI/ OCI who will hold such equity instruments on a non-repatriable basis 7.5.1 An NRI or an OCI or a company/ trust/ partnership firm incorporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perates. 7.8 Transfer by a person resident outside India of equity instruments containing an optionality clause 7.8.1 A person resident outside India holding equity instruments of an Indian company containing an optionality clause in accordance with NDI Rules and exercising the option/ right, can exit without any assured return, subject to the pricing guidelines prescribed under NDI Rules and a minimum lock-in period of one year or minimum lock-in period under NDI Rules, whichever is higher. 7.9 Deferred payment consideration 7.9.1 In case of transfer of equity instruments between a person resident in India and a person resident outside India, an amount not exceeding twenty five per cent of the total consideration, can be paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of the transfer agreement; or can be settled through an escrow arrangement between the buyer and the seller for a period not exceeding eighteen months from the date of the transfer agreement; or can be indemnified by the seller for a period not exceeding eighteen months from the date of the payment of the full consideration, if the total consideration has been paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate from the statutory auditor of the investee company that the loan proceeds will be/ have been utilized for the declared purpose; the Indian company has to follow the relevant SEBI disclosure norms, if any; and pledge in favour of the lender (bank) would be subject to compliance with the Section 19 of the Banking Regulation Act, 1949. the conditions at (i) to (iv) above will apply suitably for units. (b) In favour of an overseas bank to secure the credit facilities being extended to such person or a person resident outside India who is the promoter of such Indian company or the overseas group company of such Indian company, subject to the following conditions: loan is availed only from an overseas bank; loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly in India; overseas investment should not result in any capital inflow into India; in case of invocation of pledge, transfer should be in accordance with the policy in vogue at the time of creation of pledge; and submission of a declaration/ annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the pledge of security acquired in terms of NDI Rules (number/ percentage of securities to be pledged) of Investee Company held by them for securing the loan facility in favour of the lender/s. A copy of the Board Resolution passed by the investee company approving pledge of securities acquired in terms of NDI Rules in favour of the lender for the loan facility availed by the investee company. A copy of the loan agreement/ pledge agreement containing security clause duly certified by the company secretary, requiring the pledge of shares of Investee Company. The details of the facility availed/ proposed to be availed. The details of reporting of the acquisition of the security as prescribed in terms of NDI Rules, if any. 7.12. Transfer from a resident to a person resident outside India where the investee company is in the financial sector In case of transfer of equity instruments of a company in the financial sector from a resident to a person resident outside India, 'fit and proper/ due diligence' requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shall have to be complied with by the AD bank. 7.13 Mode of payment 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SEBI (Delisting of Equity Shares) Regulations, 2009. The price should be determined for such duration as specified in the SEBI Guidelines, preceding the relevant date, which shall be the date of purchase or sale of shares. In case of a company which has completed a delisting process, the price as determined for such duration as specified in the SEBI Guidelines will apply for those shares which have not been tendered to the company during the delisting process; or the valuation of equity instruments done as per any internationally accepted pricing methodology for valuation on an arm s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company. 8.3 Equity instruments transferred by a person resident outside India to a person resident in India 8.3.1 The price of equity instruments of an Indian company transferred by a person resident outside India to a person resident in India should not exceed: the price worked out in accordance with the relevant SEBI guidelines in case of a listed Indian company; the price at which a preferential allotment of shares can be made under the SEBI Gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment. 8.9 Transfer of capital contribution/ profit share of an LLP 8.9.1 In case of transfer of capital contribution/ profit share of an LLP from a person resident in India to a person resident outside India, the transfer should be for a consideration not less than the fair price of capital contribution/ profit share of an LLP. 8.9.2 In case of transfer of capital contribution/ profit share of an LLP from a person resident outside India to a person resident in India, the transfer should be for a consideration which is not more than the fair price of the capital contribution/ profit share of an LLP. 8.10 Non-applicability of pricing guidelines 8.10.1 The pricing guidelines will not apply for investment in equity instruments by a person resident outside India on non-repatriation basis. 8.10.2 The pricing guidelines will not be applicable for any transfer by way of sale done in accordance with SEBI regulations where the pricing is prescribed by SEBI. A Chartered Accountant s Certificate to the effect that relevant SEBI regulations/ guidelines have been complied with has to be attached to the form FC-TRS filed with the AD bank. 8.11 Validity of valuation certificate The valuation cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zens. 9.1.10 An LLP controlled by resident Indian citizens is an LLP, the control of which is vested in resident Indian citizens and/ or Indian entities, which are ultimately owned and controlled by resident Indian citizens. 9.1.11 Company controlled by persons resident outside India is an Indian company the control of which is vested with persons resident outside India. 9.1.12 An LLP controlled by persons resident outside India is an LLP the control of which is vested with persons resident outside India. 9.1.13 Downstream Investment is investment made by an Indian entity which has received foreign investment or an Investment Vehicle in the equity instruments or the capital, as the case may be, of another Indian entity. 9.1.14 Holding Company will have the same meaning as defined in Companies Act, 2013. 9.1.15 Indirect Foreign Investment is downstream investment received by an Indian entity from: another Indian entity (IE) which has received foreign investment and which is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India; or an investment vehicle whose sponsor or manager or investment manager is not owned and not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the sponsors/ managers/ investment managers of an investment vehicle are individuals, for the downstream investment made by such investment vehicle not to be considered as Indirect Foreign Investment for the investee, the sponsors/ managers/ investment managers of the investment vehicle should be resident Indian citizens. In case the sponsor/ manager/ investment manager is organised in any other form, SEBI will determine whether it is foreign owned and/ or controlled or not. 9.3.5 The downstream investment that is treated as Indirect Foreign Investment for the investee Indian entity should have the approval of the Board of Directors as also a Shareholders' Agreement, if any, of the investing Indian entity. 9.3.6 The Indian entity making the downstream investment that is treated as Indirect Foreign Investment for the investee Indian entity is required to bring in the requisite funds from abroad and not use funds borrowed in the domestic markets. Subscription by persons resident outside India to non-convertible debentures issued by an Indian company will not be construed as funds borrowed/ leveraged in the domestic market. However, raising of debt and its utilisation will hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m investment 9.6 Conditions for exit 9.6.1 Equity instrument of an Indian company held by another Indian company which has received foreign investment and is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India may be transferred to: a person resident outside India, subject to reporting requirements in Form FCTRS. However, pricing guidelines will not apply for such a transfer. a person resident in India subject to adherence to pricing guidelines. an Indian company with foreign investment and not owned and not controlled by resident Indian citizens or owned or controlled by persons resident outside India. Pricing and reporting guidelines will not apply. 9.6.2 The instructions at 9.6.1 above will be construed accordingly for an LLP. 9.7 Responsibility for compliance 9.7.1 The first level Indian company making downstream investment will be responsible for ensuring compliance with the provisions of these rules for the downstream investment made by it at second level and so on and so forth. Such first level company shall obtain a certificate to this effect from its statutory auditor on an annual basis. Such compliance of FE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for foreign investment; 1.2 Purchase on a stock exchange in India A person resident outside India may purchase equity instruments of a listed Indian company on a stock exchange in India provided: The person resident outside India making the investment has already acquired control of such company in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 and continues to hold such control; The amount of consideration is paid as per the mode of payment prescribed in this annex or out of the dividend payable by the Indian investee company in which the person resident outside India has acquired and continues to hold control in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, provided the right to receive dividend is established and the dividend amount has been credited to an SNRR account opened in terms of Foreign Exchange Management (Deposit) Regulations, 2016 for acquisition of shares on the recognised stock exchange. 1.3 Issue by a wholly owned subsidiary 1.3.1 A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where 100 percent foreign investment is allowed under the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections issued thereunder. 1.4.3 In case where permission has been granted by the RBI for making remittance as stated at 1.4.2 above, the Indian company may issue equity shares (other than partly paid shares) against such remittance provided all regulatory actions with respect to the delay or contravention under the Act or the rules or the regulations framed thereunder have been completed. 1.4.4 An Indian company may issue equity instruments to a person resident outside India under automatic route if the Indian investee company is engaged in a sector under automatic route or with prior Government approval if the Indian investee company is engaged in a sector under Government route against: (a) Swap of equity instruments; (b) Import of capital goods/ machinery/ equipment (excluding second-hand machinery) subject to the following conditions: (i) The import of capital goods, machineries, etc., made by a person resident in India, is in accordance with the Foreign Trade Policy notified by the Directorate General of Foreign Trade (DGFT) and the regulations on imports issued under the Act; (ii) There is an independent valuation of the capital goods/ machineries/ equipment by a third part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FCNR(B) accounts, as the case may be, within fifteen days from the date of completion of sixty days. 2.4 In case of partly paid equity shares, the period of 60 days will be reckoned from the date of receipt of each call payment. The forfeiture of the amount paid upfront on non-payment of call money shall be in accordance with the provisions of the Companies Act, 2013 and Income Tax Act, 1961 as applicable 2.5 Refund may be permitted by an authorised dealer provided it is satisfied: with the bonafides of the applicant; that the funds were received as per the mode of payment prescribed in para 2.1 above; interest, if any, is payable as per the provisions of the Companies Act, 2013. 2.6 Non-compliance of instructions at 2.3 above shall be a contravention of NDI Rules notwithstanding the fact that interest for delayed refund has been paid as per Companies Act, 2013. 2.7 The Indian company issuing equity instruments stated in this annex is permitted to open a foreign currency account with an Authorised Dealer in India in accordance with Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015. 3. Remittance of sale proceeds 3.1 The sale pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residents, and in case of issue by private placement, the price is not less than the price arrived in terms of SEBI guidelines or not less than the fair price worked out as per any internationally accepted pricing methodology for valuation of shares on arm s length basis, duly certified by a SEBI registered Merchant Banker or Chartered Accountant, as applicable 1.7 An FPI may undertake short selling as well as lending and borrowing of securities as permitted by the RBI and SEBI subject to the following conditions: The short selling of equity shares by FPIs is permitted for equity shares of those companies where there is at least 2% headroom available for total foreign investment and/or aggregate FPI limit or is not in the caution list or ban list published by the RBI or any restrictive list published by any authority designated to do so by the RBI or SEBI. Borrowing of equity shares by FPIs will only be for the purpose of delivery into short sale. The margin/ collateral will be maintained by FPIs as applicable in the cash and F O segment of equity market. No interest shall be paid to the FPI on such margin/ collateral. The designated custodian banks shall separately report all tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment 2.1 The amount of consideration for purchase of equity instruments should be received as an inward remittance from abroad through banking channels or out of funds held in a Non-Resident External (NRE) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 2.2 The NRE account will be designated as an NRE (PIS) Account and the designated account should be used exclusively for putting through transactions permitted under this annex. 2.2.1 The specific credits permitted for the NRE (PIS) account are as follows: Inward remittances from abroad in foreign exchange through banking channels; Transfer from the NRI s/ OCI s other NRE accounts or FCNR (B) accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016; Sale proceeds (net of taxes) of equity instruments acquired on repatriation basis in accordance with instructions contained in this annex and sold on stock exchange; and Dividend or income earned on investment made on repatriation basis in accordance with instructions contained in this annex. 2.2.2 The specific debits permitted for the NRE (PIS) account are as follows: Outward remittances of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 3. Sale/ maturity proceeds 3.1 The sale/ maturity proceeds (net of applicable taxes) of equity instruments purchased or disinvestment proceeds of an LLP should be credited only to the NRO account of the investor, irrespective of the type of account from which the consideration was paid. 3.2 The amount invested in equity instruments of an Indian company or the consideration for contribution to the capital of an LLP and the capital appreciation thereon cannot be repatriated abroad. B. Investment in a firm or a proprietary concern 1. Contribution to capital of a firm or a proprietary concern 1.1 An NRI or an OCI is permitted to invest, on a non-repatriation basis, by way of contribution to the capital of a firm or a proprietary concern in India. 1.2 The investee firm or proprietary concern should not be engaged in any agricultural/ plantation activity or print media or real estate business i.e., dealing in land and immovable property with a view to earning profit or earning income therefrom. 2. Mode of payment 2.1 The amount of consideration should be received from abroad through banking channels or paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment by Foreign Venture Capital Investor (FVCI) 1.1 Investment by an FVCI was permitted with effect from December 26, 2000 1.2 An FVCI is permitted to invest in securities (not listed on a recognised stock exchange at the time of issue), of an Indian company engaged in the following sectors: Biotechnology IT related to hardware and software development Nanotechnology Seed research and development Research and development of new chemical entities in pharmaceutical sector Dairy industry Poultry industry Production of bio-fuels Hotel-cum-convention centres with seating capacity of more than three thousand. Infrastructure sector. The term Infrastructure Sector has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended/ updated. 1.3 An FVCI can invest in securities issued by a startup, irrespective of the sector in which the startup is engaged. 1.4 An FVCI can acquire units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund (Cat-I AIF) or units of a scheme or of a fund set up by a VCF or by a Cat-I AIF. 1.5 Investment by an F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under NDI Rules. 2. Mode of payment 2.1 The amount of consideration should be paid as inward remittance from abroad through banking channels or by way of swap of shares of a Special Purpose Vehicle or out of funds held in NRE or FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 3. Remittance of sale/ maturity proceeds The sale/ maturity proceeds (net of taxes) of the units may be remitted outside India or credited to the NRE or FCNR(B) account of the person concerned. Annex 8 Investment in Depository receipts by a person resident outside India 1. Issue/ transfer of eligible instruments to a foreign depository for the purpose of issuance of depository receipts by eligible person(s) 1.1 In terms of Depository Receipts Scheme, 2014 (DR Scheme, 2014), Depository Receipts can be issued against any security or unit in which a person resident outside India is allowed to invest under NDI Rules. These will be referred to as eligible instruments for the purpose of this annex. 1.2 A person is permitted to issue or transfer eligible instruments to a foreign depository for the purpose of issuance of depository receipts in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be monitored by SEBI 3. Transfer, redemption and two way fungibility of IDRs 3.1 Redemption/ conversion of IDRs into underlying equity shares of the issuing company shall comply with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. 3.2 IDRs shall not be redeemable into underlying equity shares before the expiry of one year from the date of issue. 3.3 Limited two way fungibility of IDRs is permissible. 3.4 The guidelines to be followed for 3.1, 3.2 and 3.3 above are as follows: Listed Indian companies may either sell or continue to hold the underlying shares subject to compliance with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to compliance with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares. 3.5 The FEMA pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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