Restriction and Prohibitions on Person Resident in India for making Overseas Direct Investment in Foreign Entity - FEMA Ready Reckoner - FEMA

Restriction and Prohibitions on Person Resident in India for making Overseas Direct Investment (ODI) in Foreign Entity Such Restriction and Prohibitions on Person Resident in India for making Overseas Direct Investment (ODI) in Foreign Entity may imposed by Rule 19 of Foreign Exchange Management (Overseas Investment) Rules, 2022. (1) Unless otherwise provided in the Act or these rules, No person resident in India shall make ODI in a foreign entity engaged in (a) real estate activity; real estate activity means buying and selling of real estate or trading in Transferable Development Rights but does not include the development of townships, construction of residential or commercial premises, roads or bridges for selling or leasing. (b) gambling in any form; and (c) dealing with financial products linked to the Indian rupee without specific approval of the Reserve Bank. (2) Any ODI in start-ups recognised under the laws of the host country or host jurisdiction as the case may be, shall be made by an Indian entity only from the internal accruals whether from the Indian entity or group or associate companies in India and in case of resident individuals, from own funds of such an individual. (3) No person resident in India shall make financial commitment in a foreign entity that has invested or invests into India, at the time of making such financial commitment or at any time thereafter, either directly or indirectly, resulting in a structure with more than two layers of subsidiaries: Exception of such restriction and Prohibition mention under rule 19(1), (2) (3) of shall not apply to the following classes of companies mentioned in rule 2(2) of the Companies (Restriction on Number of Layers) Rules, 2017 as may be amended from time to time, namely:- (a) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949; (b) a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 which is registered with the Reserve Bank and considered as systematically important non-banking financial company by the Reserve Bank; (c) an insurance company being a company which carries on the business of insurance in accordance with provisions of the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999 and (d) a Government company referred to in section 2(45) of the Companies Act, 2013 . Restrictions and prohibitions [ As per Para 20 of FED Master Direction No. 15/2024-25 dated 24.07.2024 ] (1) AD bank shall not facilitate any transaction in respect of any foreign entity engaged in an activity mentioned in rule 19(1) of OI Rules or located in countries/ jurisdictions as advised by the Central Government under rule 9(2) of OI Rules. It is clarified that financial products linked to Indian Rupee shall include non-deliverable trades involving foreign currency-INR exchange rates, stock indices linked to Indian market, etc. (2) The financial commitment by a person resident in India in a foreign entity that has invested or invests into India at the time of making such financial commitment or at any time thereafter, either directly or indirectly, resulting in a structure with more than two layers of subsidiaries is not permitted in accordance with rule 19(3) of the OI Rules. It is provided that no further layer of subsidiary or subsidiaries shall be added to any structure existing with two or more layers of subsidiaries post notification of the OI Rules/Regulations. Note: It may be noted that subsidiary shall have the meaning as provided in the OI Rules i.e. an entity in which the foreign entity has control (which includes a stake of 10% or more in an entity as per the OI Rules).