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Master Direction Foreign Investment in India (Updated as on April 06, 2018)

FEMA - 11/2017-18 - Dated:- 4-1-2018 - RBI/FED/2017-18/60 FED Master Direction No. 11/2017-18 January 4, 2018 (Updated as on April 06, 2018) (Updated as on January 12, 2018) To, All Authorised Dealer Category - I banks and Authorised banks Madam / Sir, Master Direction - Foreign Investment in India Foreign Investment in India is regulated in terms of clause (b) sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Tra .....

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ection 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 regulations framed. 3. 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 the Appendix. 4. Reporting instructions can be .....

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their customers/ constituents and/ or amend the Master Direction issued herewith. This Master Direction has been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law Yours faithfully (Shekhar Bhatnagar) Chief General Manager in charge Master Direction - Foreign Investment in India 1. Introduction 1.1 The Foreign Exchange Management Act, 1999 (FEMA) empowers the Re .....

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on the date of commencement of FEMA 20(R), shall be deemed to have been made in accordance with FEMA 20(R) and shall accordingly be governed by FEMA 20(R). 1.3 A person resident outside India may hold, own, transfer or invest in a security in India if such security was acquired, held or owned by such person when he was resident in India or inherited 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 i .....

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vertible into such number of equity shares of such startup 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 incor .....

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e entity on a digital & electronic network to act as a facilitator between buyer and seller. 2.4.4 Foreign investment is not permitted in Inventory based model of e-commerce. 2.5 FDI linked performance conditions is the sector specific conditions stipulated in regulation 16 of FEMA 20(R) for companies receiving foreign investment. 2.6 Foreign Direct Investment (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company; or (b) in 1 .....

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ion are exercised. 2.7 Foreign Portfolio Investment is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company. 2.8 Foreign Portfolio Investor (FPI) is a person registered in accordance with the provisions of Securities E .....

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reign Investment is any investment made by a person resident outside India on a repatriable basis in capital 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, .....

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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 to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India. 2.12.1 Investment will include acquisition, holding or transfer of depository receipts issued outside India, the underlying of which is a security issued by a person resident in India. 2.12.2 For the purpose of an LLP, investment shall mean capital contribution or acquisit .....

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he SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014 and Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012. 2.14.1 A Venture Capital Fund (VCF) established in the form of a trust or a company or a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 will not be considered as an Investment Vehicle for the purpose of FEMA 20 (R) .....

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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. 2.19 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. 2.20 Real estate business is dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, constructi .....

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including both foreign investment on a repatriation basis by persons resident outside India in capital instruments of a company or the capital of an LLP, as the case may be, and indirect foreign investment, unless provided otherwise. This shall be the composite limit for the investee Indian entity. 2.21.1 FCCBs and DRs having underlying of instruments being in the nature of debt shall not be included in the sectoral cap. 2.21.2 Any equity held by a person resident outside India resulting from c .....

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i company. Trading in Transferable Development Rights (TDRs). Real Estate Business or Construction of Farm Houses. Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. The prohibition is on manufacturing of the products mentioned and foreign investment in other activities relating to these products including wholesale cash and carry, retail trading etc. will be governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R). Activitie .....

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kistan or an entity incorporated in Pakistan can, only with the prior Government approval, invest in sectors/ activities other than defence, space, atomic energy and sectors/ activities prohibited for foreign investment. 4. Capital Instruments 4.1 An Indian company is permitted to receive foreign investment by issuing capital instruments to the investor. The capital instruments are equity shares, debentures, preference shares and share warrants issued by the Indian company. 4.2 Equity shares: Eq .....

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any), has to be received upfront and the balance consideration towards fully-paid equity shares should be received within a period of twelve months from the date of issue of partly-paid shares. 4.3.3 The time period of 12 months for receipt of the balance consideration need not be insisted upon where the issue size exceeds rupees five hundred crore and the issuer complies with Regulation 17 of the SEBI (Issue of Capital and Disclosure Requirements(ICDR)) Regulations, 2009 regarding monitoring ag .....

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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. 4.4 Share warrants: Share warrants issued on or after July 8, 2014 will be considered as capital instruments. 4.4.1 Share Warrants are those issued by an Indian Company in accordance with the Regulations issued by the Securities and Exchange Board of India in this regard. 4.4.2 At least twenty five percent .....

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ill not be treated as subscription to partly paid shares and warrants. 4.6 Debentures: Debentures are fully, compulsorily and mandatorily convertible debentures. 4.6.1 Amendment of the tenure of compulsorily and mandatorily convertible debentures shall be in compliance with the Companies Act, 2013. 4.6.2 Optionally convertible/ partially convertible debentures issued up to June 7, 2007 or for which funds were received for such issue prior to June 7, 2007 are deemed to have been issued in accorda .....

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o April 30, 2007 are deemed to have been issued in accordance with FEMA 20(R) 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. 4.7.3 Non-convertible/ optionally convertible/ partially convertible preference shares funds for which have been received on or after May 1, 2007 shall be treated as debt and shall conform to External Commercia .....

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nts issued on or after December 30, 2013 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. Entry routes and Permitted sectors 5.1 Entry Routes 5.1.1 Automatic Route is the entry route through which investment by a person resident outside India does not require the prior Reserve Bank approval or Government approval. 5.1.2 Government Route i .....

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ny of the ministry/ department of the Government of India, as the case may be. 5.1.4 Aggregate Foreign Portfolio Investment up to 49 percent of the paid-up equity capital on a fully diluted basis or the sectoral/ statutory cap, whichever is lower, will not require Government approval or compliance of sectoral conditions as the case may be, if such investment does not result in transfer of ownership and control of the resident Indian company from resident Indian citizens or transfer of ownership .....

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oral 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/ regulations, security and other conditionalities, in sectors/ activities not listed in Regulation 16 of FEMA 20(R) and not prohibited under Regulation 15 of FEMA 20(R). This condition is not applicable for activities in financial services. 5.2. .....

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e of the capital instrument, cannot be taken into account while calculating minimum capitalization requirement. 5.2.6 2Foreign investment in investing companies: 5.2.6.1 Foreign Investment in investing companies not registered as Non-Banking Financial Companies with the Reserve Bank and in core investment companies (CICs), both engaged in the activity of investing in the capital of other Indian entities, will require prior Government approval. 5.2.6.2 The core investment companies should additio .....

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ot made any downstream investment, may receive investment in its capital instruments from persons resident outside India under automatic route. However, Government approval will be required for such companies for undertaking activities which are under Government route. As and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps. 5.2.8 The onus of compliance with the sectora .....

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dent outside India Unless otherwise specifically stated, any investment made by a person resident outside India shall be subject to the entry routes, sectoral caps or the investment limits, 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 capital instruments of an Indian company is permitted as per the directions laid down in Annex 1. 6.2 Purchase/ sale of .....

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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 Purchase/ sale of securities other than capital instruments by a person resident outside India is permitted as per the directions laid down in Annex 5. 6.6 Investment in a Limited Liability Partnership (LLP) is permitted as per the directions laid down in Annex 6. 6.7 Investm .....

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is permitted as per directions laid down in Annex 10. 6.11 Acquisition through rights issue or bonus issue 6.11.1 A person resident outside India having investment in an Indian company is permitted to invest in the capital instruments (other than share warrants) issued by such company as a rights issue or a bonus issue subject to the following conditions: The offer made by the Indian company is in compliance with the provisions of the Companies Act, 2013; The issue does not result in a breach o .....

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made; In case of a listed Indian company, the rights issued to persons resident outside India shall be at a price determined by the company; In case of an unlisted Indian company, the rights issued to persons resident outside India should not be at a price less than the price offered to persons resident in India; Such investment made through rights issue or bonus issue is subject to the conditions as are applicable at the time of such issue; The amount of consideration may be paid as inward rem .....

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was issued when he/ she was a person resident in India can hold the capital 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 capital instruments (other than share warrants) as a rights issue over and above their rights entitlement subject to individual or sectoral caps, as the case .....

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s acquired a right from a person who has renounced it may acquire capital instruments (other than share warrants) against the said rights at the price laid down in para 6.11.1(5) and 6.11.1(6), as applicable. The capital instruments to be acquired on renunciation of rights shall be subject to the same conditions including restrictions in regard to repatriability as applicable to the original holding against which rights issue has been made. 6.12 Issue of Employees Stock Options Scheme (ESOP) and .....

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2014 notified by the Central Government under the Companies Act 2013; The employee s stock option / sweat equity shares are in compliance with the sectoral cap applicable to the said company; Issue of employee s stock option / sweat equity shares in a company where investment by a person resident outside India is under the approval route requires prior Government approval; Issue of employee s stock option / sweat equity shares to a citizen of Bangladesh/ Pakistan requires prior Government approv .....

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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 up to 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 con .....

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within a period of six months, whichever is earlier. Such an escrow account shall not be permitted to continue beyond a period of six months. 6.13.5 An NRI or an OCI may acquire convertible notes on a non-repatriation basis in accordance with the instructions at para 6.4 of the Master Direction. 6.13.6 A person resident outside India can acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with .....

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ransferee company or the new company, as the case may be, can issue capital instruments to the existing holders of the transferor company who are resident outside India, subject to the following conditions: The transfer or issue should comply with entry routes, sectoral caps or investment limits, as the case may be, and the attendant conditionalities of foreign investment. In case the foreign investment is likely to breach the Sectoral caps or the attendant conditionalities, the transferor compa .....

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ntures to shareholders who are resident outside India, including depositories that act as trustees for the ADR/ GDR holders, out of its general reserves by way of distribution as bonus, subject to the following conditions: The original investment made in the Indian company by a person resident outside India is in accordance with FEMA 20(R) and the conditions specified therein; The said issue is in accordance with the provisions of the Companies Act, 2013 and the terms and conditions, if any, sti .....

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d 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 capital 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 capital instruments of an Indian compan .....

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FPI is required to sell such capital instruments within five trading days after settlement to a person resident in India eligible to hold such instruments. The breach of the said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale, provided the sale is within the prescribed five trading days after settlement, will not be reckoned as a contravention under FEMA 20(R). The guidelines issued by SEBI in this regard shall be applicable. 7.1.5 Ind .....

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as corporate body (OCB) 7.2.1 An OCB may transfer capital instruments in accordance with the instructions given in the FAQs on de-recognition of OCBs issued vide AP (DIR Series) Circular No.14 dated September 16, 2003. 7.3 Transfer by an NRI/ OCI by way of gift or sale to any person resident outside India 7.3.1 An NRI or an OCI holding capital instruments of an Indian company or units on repatriation basis can transfer the same by way of sale or gift to any person resident outside India. 7.3.2 P .....

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to hold such instruments. The breach of the said aggregate or sectoral limit, as the case may be, on account of such acquisition for the period between the acquisition and sale, provided the sale is within the prescribed five trading days after settlement, shall not be reckoned as a contravention under FEMA 20(R). 7.3.4 Directions at 7.3.3 above will be effective from the date the second proviso to sub-regulation 2 of regulation 10 of FEMA 20(R) is notified in the gazette of India. 7.4 Transfer .....

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utside 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 an .....

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mitted to transfer the same by way of gift to an NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs and the the transferee shall hold them on a non-repatriable basis. 7.6 Sale by a person resident outside India on a recognised stock exchange in India 7.6.1 A person resident outside India, holding capital instruments of an Indian company or units in accordance with FEMA 20(R) is permitted to transfer the same to a person residen .....

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gift by an NRI/ OCI holding securities on a non-repatriable basis or a resident to a person resident outside India 7.7.1 An NRI or an OCI holding securities of an Indian company on a non-repatriation basis or a person resident in India may transfer the securities so held by them to a person resident outside India by way of gift with the prior approval of the Reserve Bank and subject to the following conditions: a. The donee is eligible to hold the securities under FEMA 20(R); b. The gift does no .....

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the financial year does not exceed the rupee equivalent of USD 50,000; f. The application to the Reserve Bank shall be made through the Authorised Dealer Bank. 7.8 Transfer by a person resident outside India of capital instruments containing an optionality clause 7.8.1 A person resident outside India holding capital instruments of an Indian company containing an optionality clause in accordance with FEMA 20(R) and exercising the option/ right, can exit without any assured return, subject to the .....

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ansfer agreement; or b. 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 c. 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 the buyer to the seller. 7.9.2 The total consideration finally paid for the shares must be compliant with the applicable pricing gui .....

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tions as specified in the Foreign Exchange Management (Guarantees) Regulations, 2000. 7.10.3 Where the transaction is governed by SEBI guidelines/ regulations, operation of the Escrow accounts for securities shall be in accordance with the relevant SEBI regulations, if any. 7.11 Transfer by way of pledge 7.11.1 Any person being a promoter of a company registered in India (borrowing company), which has raised external commercial borrowing (ECB) in compliance with the Foreign Exchange Management ( .....

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certified that the borrowing company will utilise/ has utilised the proceeds of the ECB for the permitted end¬use/s only; d. no person shall pledge any such capital instruments unless a no-objection has been obtained from an Authorised Dealer bank that the above conditions have been complied with. 7.11.2 Any person resident outside India holding capital instruments in an Indian company or units may pledge the capital instruments or units, as the case may be: (a) In favour of a bank in India .....

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s, 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 a .....

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will be/ have been utilized for the declared purpose; the conditions at (i) to (v) above will apply suitably for units. (c) In favour of a Non-Banking Financial Company registered with the Reserve Bank to secure the credit facilities being extended to such Indian company for bona fide purposes, subject to the following conditions: in case of invocation of pledge, transfer of capital instruments should be in accordance with the credit concentration norm as stated in the Master Direction - Non-Ban .....

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investee company for the declared purpose; the AD may also obtain a certificate ex post , from the statutory auditor of investee company, that the loan proceeds received consequent to pledge of shares, have been utilised by the investee company for the declared purpose; the Indian company has to follow the relevant SEBI disclosure norms, as applicable; under no circumstances, the credit concentration norms should be breached by the NBFC. If there is a breach on invocation of pledge, the capital .....

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uments of an Indian company or units pledged shall be in accordance with entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions at the time of creation of pledge. 7.11.6 Any other transfer by way of pledge would require the prior approval of the Reserve Bank. Cases may be forwarded to the Reserve Bank with the following documents: a. A copy of the Board Resolution passed by the non-resident company/ies approving the pledge of security acquired in terms .....

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e of shares of Investee Company. d. The details of the facility availed/ proposed to be availed. e. The details of reporting of the acquisition of the security as prescribed in terms of FEMA 20 (R), if any.7.12. Transfer from a resident to a person resident outside India where the investee company is in the financial sector 7.12.1 In case of transfer of capital instruments of a company in the financial sector from a resident to a person resident outside India, 'fit and proper/ due diligence& .....

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scrow accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 7.13.2 In case an investment is held on a non-repatriation basis, in addition to 7.13.1 above, the amount of consideration for transfer may be paid out from or received in, as the case may be, NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 8. Pricing guidelines 8.1 Capital instruments issued by a company to a person resident outside Ind .....

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s duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company. 8.1.2 In case of convertible capital instruments, the price/ conversion formula of the instrument is required to be determined upfront at the time of issue of the instrument. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extan .....

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n case of a listed Indian company or in case of a company going through a delisting process as per the 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 .....

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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 Guidelines, as applicable, in case of a listed Indian company or in case of a company going through a delisting process as per the SEBI (Delisting of Equity Shares) Regulations, 2009. The price is de .....

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side India is not guaranteed any assured exit price at the time of making such investment/ agreement and shall exit at the price prevailing at the time of exit. 8.4 Swap of capital instruments 8.4.1 In case of swap of capital instruments, irrespective of the amount, valuation will have to be made by a Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. 8.5 Subscription to Memorandum of Association 8. .....

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termined upfront. 8.7.2 The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants. 8.8 Investment in an LLP 8.8.1 Investment in an LLP either by way of capital contribution or by way of acquisition/ transfer of profit shares, should not be less than the fair price worked out as per any valuation norm which is internationally accepted/ adopted as per market practice (hereinafter referred to as "fair price of c .....

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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 capital instruments by a person resident o .....

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an 50 percent of the capital instruments of such company. 9.1.2 Ownership of an LLP is the contribution of more than 50 percent in its capital and having majority profit share. 9.1.3 Company owned by resident Indian citizens is an Indian company where ownership is vested in resident Indian citizens and/ or Indian companies, which are ultimately owned and controlled by resident Indian citizens. 9.1.4 An LLP owned by resident Indian citizens is an LLP where ownership is vested in resident Indian c .....

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g by virtue of their shareholding or management rights or shareholders agreement or voting agreement. 9.1.8 For the purpose of LLP, Control is the right to appoint majority of the designated partners, where such designated partners, with specific exclusion to others, have control over all the policies of an LLP. 9.1.9 Company controlled by resident Indian citizens is an Indian company, the control of which is vested in resident Indian citizens and/ or Indian companies which are ultimately owned .....

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h 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 capital 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 forei .....

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downstream investment means downstream investment by banking companies incorporated in India in their subsidiaries, joint ventures and associates. 9.2 Prohibition 9.2.1 No person resident in India other than an Indian entity can receive Indirect Foreign Investment. 9.3 Conditions for downstream investment that is treated as Indirect Foreign Investment for the investee Indian Entity 9.3.1 An Indian entity which has received indirect foreign investment is required to comply with the entry route, .....

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3 Indirect foreign Investment is permitted in an LLP in sectors where foreign investment is allowed 100% under automatic route and there are no FDI linked performance conditions. 9.3.4 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 India .....

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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 have to comply with the Act and the rules or regulations made thereunder. 9.3.7 Downstream investments which is treated .....

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ps. 9.4 Downstream investment/s under Corporate Debt Restructuring (CDR), mechanism 9.4.1 With effect from July 31, 2012, downstream investment/s made by a banking company (as defined in clause (c) of section 5 of the Banking Regulation Act, 1949, incorporated in India) which is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading book, o .....

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for total foreign investment. 9.5.2 FCCBs and DRs having underlying of instruments in the nature of debt will not be reckoned for total foreign investment. 9.5.3 The methodology for calculating total foreign investment would apply at every stage of investment in Indian companies and thus in each and every Indian company. 9.5.4 For the purpose of downstream investment, the portfolio investment held as on March 31 of the previous financial year in the Indian company making the downstream investmen .....

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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 n .....

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ions shall be mentioned in the Director's report in the Annual Report of the Indian company. 9.7.2 In case the statutory auditor has given a qualified report, the same should be immediately brought to the notice of the Regional Office of the Reserve Bank in whose jurisdiction the Registered Office of the company is located and shall also obtain acknowledgement from the RO. 9.7.3 The instructions at 9.7.1 above will be construed accordingly for an LLP 9.8 Applicability of downstream investmen .....

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guidelines should have been intimated to the Reserve Bank by October 3, 2013 for treating such cases as compliant with FEMA 20(R). 10. Taxes and remittance of sale proceeds 10.1 Taxes 10.1.1 All transaction relating to foreign investment in India are required to be undertaken through banking channels in India and are subject to payment of applicable taxes and other duties/ levies in India. 10.2 Remittance of sale proceeds 10.2.1 Remittance of sale proceeds of an Indian security held by a person .....

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le proceeds thereof. Annex 1 Purchase/ Sale of capital instruments of an Indian company 1. Purchase/ sale of capital instruments of an Indian company by a person resident outside India 1.1 Issue by an Indian company 1.1.1 An Indian company is permitted to issue capital instruments to a person resident outside India subject to entry routes, sectoral caps and attendant conditionalities specified for foreign investment; 1.2 Purchase on a stock exchange in India 1.2.1 A person resident outside India .....

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sident 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 no .....

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as prescribed in the Master Direction on Reporting as amended from time to time, is filed by the Indian company within thirty days from the date of issue of capital instruments but not later than one year from the date of incorporation. A certificate issued by the statutory auditor of the Indian company that the amount of pre-incorporation/ pre-operative expenses against which capital instruments have been issued has been utilized for the purpose for which it was received should be submitted wit .....

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gainst any funds payable by it to such person, the remittance of which is permitted under the Act or the rules or the regulations framed or directions issued thereunder or does not require prior permission of the Central Government or the Reserve Bank under the Act or the rules or the regulations framed or directions issued thereunder subject to the following conditions: Issue of such shares that require Government approval or import dues deemed as ECB or trade credit or payables against import .....

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rules or the regulations framed or directions issued thereunder. 1.4.4 In case where permission has been granted by the Reserve Bank for making remittance as stated at 1.4.3 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. 1.4.5 5An Indian company may issue capital instruments to a .....

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ordance 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 party entity, preferably an independent valuer from the country of import along with production of copies of documents/ certificates issued by the customs authorities towards assessment of the fair-value of such imports; (iii) In case of applications sub .....

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c.), subject to the following conditions: (i) Verification and certification of the pre-incorporation/ pre-operative expenses by the statutory auditor; (ii) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred; (iii) Payments should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under the Act or the rules or the regulations framed thereunder; and (iv) In case of applicatio .....

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ds held in NRE/ FCNR(B)/ Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 2.2 The amount of consideration will include issue of equity shares by an Indian company against any funds payable by it to the investor and also swap of capital instruments where the Indian investee company is engaged in an automatic route sector. 2.3 If the capital instruments are not issued by the Indian company within sixty days from the date of receipt of the co .....

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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; that no part of remittance represents interest on the funds received. 2.6 Prior approval of the Reserve Bank will be required for payment of interest, if any, as laid down in the Companies Act, 2013, for delay in refund of the amount so re .....

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3.1 The sale proceeds (net of taxes) of the capital instruments can be remitted outside India or credited to the NRE/ FCNR(B) account of the person concerned. Annex 2 Purchase/ Sale of capital instruments of a listed Indian company on a recognised stock exchange in India by Foreign Portfolio Investors 1. Purchase/ sale of capital instruments 1.1 A Foreign Portfolio Investor (FPI) may purchase or sell capital instruments of an Indian company on a recognised stock exchange in India. 1.2 The total .....

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ence shares or warrants. The limit of 10 percent and 24 percent will be called individual and aggregate limit, respectively. 1.3 The aggregate limit of 24 percent may be increased by the Indian company concerned up to the sectoral cap/ statutory ceiling, as applicable, with the approval of its Board of Directors and its General Body through a resolution and a special resolution, respectively. 1.4 In case the total holding of an FPI increases to 10 percent or more of the total paid-up equity capi .....

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ed both through primary as well as secondary market will be included. However, the ceiling will not include investment made by the FPI through off-shore Funds, Global Depository Receipts and Euro-Convertible Bonds. 1.6 An FPI is permitted to purchase capital instruments of an Indian company through public offer/ private placement, subject to the individual and aggregate limits and the conditions specified below: in case of Public Offer, the price of the shares to be issued is not less than the p .....

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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 Reserve Bank or any restrictive list published by any authority designated to do so by the Reserve Bank or SEBI. Borrowing of equity shares by FPIs will only be for the purpose of delivery in .....

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the limits and margin requirements prescribed by the Reserve Bank/ SEBI. 2. Mode of payment 2.1 The amount of consideration for purchase of capital instruments should be received from abroad through banking channels through inward remittance or out of funds held in a foreign currency account and/ or a Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 2.2 The foreign currency account and SNRR account can be used o .....

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sted Indian company on a recognised stock exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis 1. Purchase/ sale of capital instruments 1.1 A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) is allowed to purchase or sell capital instruments of a listed Indian company on repatriation basis, on a recognised stock exchange in India, subject to the following conditions: The purchase and sale is done through a designated authorised de .....

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f each series of debentures or preference shares or warrants; the aggregate ceiling of ten per cent can be raised to twenty-four per cent if a special resolution to that effect is passed by the General Body of the Indian company; 2. Mode of payment 2.1 The amount of consideration for purchase of capital 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 .....

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hange Management (Deposit) Regulations, 2016; Sale proceeds (net of taxes) of capital 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 dividend or income earned on investment made on repatriati .....

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h the Foreign Exchange Management (Deposit) Regulations, 2016. 3. Remittance of sale proceeds The sale proceeds (net of taxes) of the capital instruments can be remitted outside India or may be credited to NRE (PIS) Account of the person concerned. 4. Saving Any account designated as NRO (PIS) shall be re-designated as NRO account. Annex 4 Investment on non-repatriation basis A. Purchase or Sale of Capital Instruments or convertible notes of an Indian company or Units or contribution to the capi .....

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al instrument issued by a company without any limit either on the stock exchange or outside it. Units issued by an investment vehicle without any limit, either on the stock exchange or outside it. The capital of a Limited Liability Partnership without any limit. Convertible notes issued by a startup company in accordance with FEMA 20(R). 1.2 The investment detailed at 1.1 above will be deemed to be domestic investment at par with the investment made by residents. 1.3 An NRI or an OCI including a .....

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aintained 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 capital 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 capital instruments of an Indian company or the consideration for contribution to the capital .....

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aling 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 out of funds held in NRE/ FCNR(B)/ NRO accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 3. Sale/ maturity proceeds 3.1 The disinvestment proceeds should be credited only to the NRO account of the person concerned, irrespective of the type .....

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subject to the terms and conditions specified by the Securities and Exchange Board of India and the Reserve Bank: (a) Dated Government securities/ treasury bills. With effect from July 23, 2014, FPIs are not allowed to invest in treasury bills. FPIs are required to invest in Government securities with a minimum residual maturity of three years. There is, however, no lock-in period and FPIs are free to sell the securities to the domestic investors. FPIs can invest in government securities, the c .....

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er I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital (Tier I capital and Tier II capital as defined by Reserve Bank) provided that the investment by all eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 percent of each issue and investment by a single FPI shall not exceed the limit of 10 percent of each issue. (e) Non-convertible debentures/ bonds issued by an Indian company. All i .....

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es (including those that are presently held with less than three years residual maturity) to domestic investors. FPIs can invest in primary issues of Non-Convertible Debentures (NCDs)/ bonds only if listing of such bonds/ NCDs is committed to be done within 15 days of such investment. In case the NCDs/ bonds issued to the FPIs are not listed within 15 days of issuance to the FPIs, for any reason, then the FPIs shall immediately dispose of these bonds/ NCDs either by way of sale to a third party .....

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(f) Non-convertible debentures/ bonds issued by Non-Banking Financial Companies categorized as Infrastructure Finance Companies (IFCs) by the Reserve Bank. This will include such instruments issued on or after November 3, 2011 and held by deemed FPIs. (g) Rupee denominated bonds/ units issued by Infrastructure Debt Funds. This will include such instruments issued on or after November 22, 2011 and held by deemed FPIs. (h) Credit enhanced bonds. (i) Listed non-convertible/ redeemable preference s .....

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The restriction on investments with less than three years residual maturity is not applicable to investment by FPIs in SRs issued by ARCs. Such investment should be within the FPI limits on corporate bonds prescribed by the Reserve Bank. Investment by FPIs in the unlisted corporate debt securities and securitised debt instruments shall not exceed investment limits prescribed for corporate bonds from time to time. (k) Securitised debt instruments, including (i) any certificate or instrument issu .....

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ising bond. The revised maturity period of such NCDs/ bonds, restructured based on negotiations with the issuing Indian company, should be three years or more. The FPI should disclose to the Debenture Trustees the terms of the offer made to the existing debenture holders/ beneficial owners from whom the bonds are being acquired. Such investment should be within the overall limit prescribed for corporate debt from time to time. 1.1.2 FPIs can offer the following instruments as collateral to the r .....

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or their transactions in the cash segment of the market) is not allowed between the cash and the derivative segments of the market. 1.2 Permission to Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) - Repatriation basis 1.2.1 A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) can, without limit, purchase the following instruments on repatriation basis: Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds; Bo .....

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ts eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital, as stipulated by Reserve Bank. 1.2.3 The investments by all NRIs or OCIs in Perpetual Debt Instruments (Tier I) should not exceed an aggregate ceiling of 24 percent of each issue and investments by a single NRI or OCI should not exceed 5 percent of each issue. Investment by NRIs or OCIs in Debt Capital Instruments (Tier II) shall be accordance with .....

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ia for their transactions in exchange traded derivative contracts, 1.3 Permission to Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) - Non-Repatriation basis 1.3.1 A NRI or an OCI can, without limit, purchase on non-repatriation basis, dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds, or National Plan/ Savings Certificates. 1.3.2 A NRI or an OCI can, without limit, purchase on non-repat .....

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ernment securities/ treasury bills in the secondary market subject to conditions as may be prescribed by the Reserve Bank. 1.4.2 A Foreign Central Bank, may purchase and sell dated Government securities/ treasury bills subject to conditions as may be prescribed by the Reserve Bank. 1.4.3 A Multilateral Development Bank which is specifically permitted by Government of India to float rupee bonds in India can purchase Government dated securities subject to conditions as may be prescribed by the Res .....

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ultilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks registered with Securities and Exchange Board of India can purchase, on repatriation basis the following instruments and subject to limits prescribed by the Reserve Bank and terms and conditions specified by SEBI and the Reserve Bank: Dated Government securities/ treasury bills. With effect from July 23, 2014, long term investors are not allowed to invest in treasury bills. Commercial papers issued by .....

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ovided that the investment by all eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 percent of each issue, and investment by a single long term investor shall not exceed the limit of 10 percent of each issue. Listed non-convertible debentures/ bonds issued by an Indian company. Listed and unlisted non-convertible debentures/ bonds issued by an Indian company in the infrastructure sector. The term Infrastructure Sector has the same meaning as gi .....

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ent of the instruments not being listed within 15 days of issuance then the long term investor shall immediately dispose such instruments by way of sale to a third party or to the issuer. The terms of offer to the long term investors should contain a clause that the issuer of such instruments shall immediately redeem/ buyback those securities from the long term investors in such an eventuality; credit enhanced bonds; listed non-convertible/ redeemable preference shares or debentures issued in te .....

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1 The amount of consideration for purchase of instruments by FPIs should be received from abroad through banking channels or paid out of funds held in a foreign currency account and/ or Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. The foreign currency account and SNRR account shall be used only and exclusively for transactions under this Annex. 2.2 The amount of consideration for purchase of instruments by NR .....

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account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. 2.4 The amount of consideration for purchase of Government dated securities by a Foreign Central Bank or a Multilateral Development Bank should be received from abroad through banking channels or paid out of funds held in an account opened with the specific approval of the Reserve Bank. 2.5 The amount of consideration for purchase of instruments by other non-resident investors should be received fr .....

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taxes) of instruments held by NRIs or OCIs, can be: Credited to the NRO account of the person concerned where the instruments were held on non-repatriation basis, or Credited to the NRO account of the person concerned where the payment for the purchase of the instruments sold was made out of funds held in NRO account, or Remitted abroad or at the NRI/ OCI investor's option, credited to his NRE/ FCNR(B)/ NRO account, where the instruments were purchased on repatriation basis. 4.3 In all other .....

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Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh), not being a Foreign Portfolio Investor (FPI) or a Foreign Venture Capital Investor (FVCI), is permitted to contribute to the capital of an LLP operating in sectors/ activities where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions. 1.3 Investment by way of profit share will fall under the category of reinvestm .....

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the automatic route and there are no FDI linked performance conditions, can be converted into a company under the automatic route. 2. Mode of payment 2.1 Payment by an investor towards capital contribution of an LLP should be made by way of an inward remittance through banking channels 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 disinvestment proceeds 3.1 The disinvestment proceeds can .....

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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 dat .....

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ons. 1.6 An FVCI may purchase the securities/ instruments permitted for it either from the issuer of these securities/ instruments or from any person holding these securities/ instruments. 1.7 An FVCI may invest in securities on a recognized stock exchange subject to the provisions of the Securities and Exchange Board of India (FVCI) Regulations, 2000. 1.8 An FVCI may acquire/ transfer securities/ instruments permitted for it at a price that is mutually acceptable to the buyer and the seller/ is .....

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Foreign Exchange Management (Deposit) Regulations, 2016. 2.2 The foreign currency account and SNRR account shall be used only and exclusively for transactions under this annex. 3. Remittance of sale/ maturity proceeds 3.1 The sale/ maturity proceeds (net of taxes) may be remitted outside India or may be credited to the foreign currency account or SNRR account of the FVCI. Annex 8 Investment by a person resident outside India in an Investment Vehicle 1. Investment in units of an Investment Vehic .....

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k. 1.3 An Investment vehicle can issue its units to a person resident outside India against swap of capital instruments of a Special Purpose Vehicle (SPV) proposed to be acquired by such Investment Vehicle. 1.4 The portfolio investment by an AIF (Cat III) which has foreign investment is restricted to the securities/ instruments permitted for FPIs under FEMA 20(R). 2. Mode of payment 2.1 The amount of consideration should be paid as inward remittance from abroad through banking channels or by way .....

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nts 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 FEMA 20(R). 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 .....

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y persons resident outside India, shall not exceed the limit on foreign holding of such eligible instruments under the Act, rules or regulations framed thereunder. 1.5 The eligible instruments shall not be issued or transferred to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue or transfer of such instruments to domestic investors under the applicable laws. 2. Saving 2.1 Depository Receipts issued unde .....

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The issue of IDRs should comply with the Companies (Registration of Foreign Companies) Rules, 2014 and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; 1.3 Any issue of IDRs by financial/ banking companies having presence in India, either through a branch or subsidiary, shall require prior approval of the sectoral regulator(s); 1.4 IDRs shall be denominated in Indian Rupees only; 1.5 The proceeds of the issue of IDRs shall be immediate .....

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nitored 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 .....

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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 provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FPIs. APPENDIX List of notifications/ circulars which have been consolidated in this Master Direction Sl No Notification/ AP (DIR Series) Circular Date 1 Notification No. FEMA 20 (R)/2017-RB November 7, 2017 2 AP (DI .....

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