TMI BlogForeign Exchange Management (Overseas Investment) Rules, 2022X X X X Extracts X X X X X X X X Extracts X X X X ..... ess the context otherwise requires, (a) Act means the Foreign Exchange Management Act, 1999 (42 of 1999); (b) Authorised Dealer Category-I bank or AD bank means a person authorised as such under sub-section (1) of section 10 of the Act and for the purposes of these rules, shall mean only the domestic branches of such AD bank; (c) control means the right to appoint majority of the directors or to control management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements that entitle them to ten per cent. or more of voting rights or in any other manner in the entity; (d) disinvestment means partial or full extinguishment of right, title or possession of equity capital acquired under these rules; (e) equity capital means equity shares or perpetual capital or instruments that are irredeemable or contribution to non-debt capital of a foreign entity in the nature of fully and compulsorily convertible instruments; (f) financial commitment means the aggregate amount of investment made by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch with the Securities and Exchange Board of India; (p) net worth shall have the same meaning as assigned to it in clause (57) of section 2 of the Companies Act, 2013 (18 of 2013). Explanation . For the purposes of this clause, net worth of registered partnership firm or Limited Liability Partnership shall be the sum of the capital contribution of partners and undistributed profits of the partners after deducting therefrom the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the last audited balance sheet; (q) Overseas Direct Investment or ODI means investment by way of acquisition of unlisted equity capital of a foreign entity, or subscription as a part of the memorandum of association of a foreign entity, or investment in ten per cent, or more of the paid-up equity capital of a listed foreign entity or investment with control where investment is less than ten per cent. of the paid-up equity capital of a listed foreign entity; Explanation . For the purposes of this clause, where an investment by a person resident in India in the equity capital of a foreign entity is classified as ODI, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered as such with the SEBI. (2) The words and expressions used but not defined in these rules shall have the meanings respectively assigned to them in the Act or the rules or regulations made thereunder. 3. Administration of these rules. (1) These rules shall be administered by the Reserve Bank. (2) The Reserve Bank may issue such directions, circulars, instructions and clarifications as it may deem necessary for the effective implementation of the provisions of these rules. 4. Non-applicability of rules and regulations relating thereto in certain cases. Nothing in these rules or the Foreign Exchange Management (Overseas Investment) Regulations, 2022 shall apply to (a) any investment made outside India by a financial institution in an IFSC; (b) acquisition or transfer of any investment outside India made, (i) out of Resident Foreign Currency Account; or (ii) out of foreign currency resources held outside India by a person who is employed in India for a specific duration irrespective of length thereof or for a specific job or assignment, duration of which does not exceed three years; or (iii) in accordance with sub-section (4) of section 6 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h rights in favour of a person resident in India or a person resident outside India. 8. Prohibition on investment outside India. Save as otherwise provided in the Act or these rules or the regulations made or directions issued under the Act, no person resident in India shall make or transfer any investment or financial commitment outside India. 9. Overseas Investment. (1) Save as otherwise provided in these rules or the Foreign Exchange Management (Overseas Investment) Regulations, 2022, any investment made outside India by a person resident in India shall be made in a foreign entity engaged in a bona fide business activity, directly or through step down subsidiary or the special-purpose vehicle, subject to the limits and the conditions laid down in these rules and the said regulations: Provided that the structure of such subsidiary or step down subsidiary of the foreign entity shall comply with the structural requirements of a foreign entity: Provided further that Overseas Investment or transfer of such investment including swap of securities in a foreign entity formed, registered or incorporated in Pakistan or in any other jurisdiction as may be advised by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided that where the lender bank or regulatory body or investigative agency concerned fails to furnish the certificate within sixty days from the date of receipt of such application, it may be presumed that there was no objection to the proposed transaction. (2) The No Objection Certificate issued under sub-rule (1) shall be addressed by the lender bank or regulatory body or investigative agency concerned to the designated AD bank with an endorsement to the applicant. 11. Manner of making Overseas Direct Investment by Indian entity . An Indian entity may make Overseas Direct Investment in the manner and subject to the terms and conditions prescribed in Schedule I. 12. Manner of making Overseas Portfolio Investment by an Indian entity. An Indian entity may make Overseas Portfolio Investment in the manner and subject to the terms and conditions prescribed in Schedule II. 13. Manner of making Overseas Investment by resident individual . A resident individual may make Overseas Investment in the manner and subject to the terms and conditions prescribed in Schedule III. 14. Overseas Investment by person resident in India other than Indian entity and resident Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in equity capital and debt; (ii) the transferor, in case of any disinvestment must have stayed invested for at least one year from the date of making ODI: Provided that the above conditions shall not be applicable in case of a merger, demerger or amalgamation between two or more foreign entities that are wholly-owned, directly or indirectly, by the Indian entity or where there is no change or dilution in aggregate equity holding of the Indian entity in the merged or demerged or amalgamated entity. (5) The holding of any investment or transfer thereof in any manner shall not be permitted if the initial investment was not permitted under the Act. 18. Restructuring . A person resident in India who has made ODI in a foreign entity may permit restructuring of the balance sheet by such foreign entity, which has been incurring losses for the previous two years as evidenced by its last audited balance sheets, subject to ensuring compliance with reporting, documentation requirements and subject to the diminution in the total value of the outstanding dues towards such person resident in India on account of investment in equity and debt, after such restructuring not exceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 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 (4 of 1938) and the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999); and (d) a Government company referred to in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013). 20. Requirements to be specified by Reserve Bank. The mode of payment, deferred payment of consideration, reporting, realisation, and other requirements for any investment outside India by a person resident in India shall be as per the regulations made in this behalf by the Reserve Bank under the Act. 21. Restriction on acquisition or transfer of immovable property outside India. (1) Save as otherwise provided in the Act or this rule, no person resident in India shall acquire or transfer any immovable property situated outside India without general or special permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vable property was not permitted under the Act. Schedule I [See rule 11] Manner of making Overseas Direct Investment by Indian entity 1. Manner of making ODI .- (1) An Indian entity may make ODI by way of investment in equity capital for the purpose of undertaking bonafide business activity in the manner and subject to the limits and conditions provided in this Schedule. (2) The ODI may be made or held by way of, (i) subscription as part of memorandum of association or purchase of equity capital, listed or unlisted; (ii) acquisition through bidding or tender procedure; (iii) acquisition of equity capital by way of rights issue or allotment of bonus shares; (iv) capitalisation, within the time period, if any, specified for realisation under the Act, of any amount due towards the Indian entity from the foreign entity, the remittance of which is permitted under the Act or does not require prior permission of the Central Government or the Reserve Bank under the Act or any rules or regulations made or directions issued thereunder; (v) the swap of securities; (vi) merger, demerger, amalgamation or any scheme of arrangement as per the applicable laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time. (2) The total financial commitment referred to in sub-paragraph (1) shall not include capitalisation of retained earnings for reckoning such limit but shall include (i) utilisation of the amount raised by the issue of American Depository Receipts or Global Depositary Receipts and stock-swap of such receipts; and (ii) utilisation of the proceeds from External Commercial Borrowings to the extent the corresponding pledge or creation of charge on assets to raise such borrowings has not already been reckoned towards the above limit: Provided that the financial commitment made by Maharatna or Navratna or Miniratna or subsidiaries of such public sector undertakings in foreign entities outside India engaged in strategic sectors shall not be subject to the limits laid down under this paragraph. Explanation . For the purposes of this Schedule, a foreign entity shall be considered to be engaged in the business of financial services activity if it undertakes an activity, which if carried out by an entity in India, requires registration with or is regulated by a financial sector regulator in India. Schedule II [See rule 12] Manner of making Overs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s than ten per cent. of the equity capital, whether listed or unlisted, of a foreign entity without control under clauses (f), (g) and (h), shall be treated as OPI. Explanation. For the purposes of this Schedule, a foreign entity will be considered to be engaged in the business of financial services activity if it undertakes an activity, which if carried out by an entity in India, requires registration with or is regulated by a financial sector regulator in India. 2. Acquisition by way of gift or inheritance. (1) A resident individual may, without any limit, acquire foreign securities by way of inheritance from a person resident in India who is holding such securities in accordance with the provisions of the Act or from a person resident outside India. (2) A resident individual, without any limit, may acquire foreign securities by way of gift from a person resident in India who is a relative and holding such securities in accordance with the provisions of the Act. (3) A resident individual may acquire foreign securities by way of gift from a person resident outside India in accordance with the provisions of the Foreign Contribution (Regulation) Act, 2010 ( 42 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (v) in case the Trust or the Society require special licence or permission either from the Ministry of Home Affairs, Central Government or from the relevant local authority, as the case may be, the special licence or permission has been obtained and submitted to the designated AD bank. 2. OI by Mutual Funds or Venture Capital Funds or Alternative Investment Funds . (1) A mutual fund or Venture Capital Fund or Alternative Investment Fund may acquire or transfer foreign securities as stipulated by SEBI from time to time in accordance with the provisions of these rules and subject to such other terms and conditions as may be laid down by the Reserve Bank and the SEBI under applicable laws from time to time: Provided that the aggregate limit for such investment shall be decided by the Reserve Bank in consultation with the Central Government: Provided further that the individual limits for such investments shall be as per the instructions issued by the SEBI from time to time. (2) Every transaction relating to the purchase and sale of foreign security by the funds referred to in subparagraph (1) shall be routed through the designated AD bank in India: (3) Notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an ODI made in an IFSC, the approval by the financial services regulator concerned, wherever applicable, shall be decided within forty-five days from the date of application complete in all respects failing which it shall be deemed to be approved; (ii) an Indian entity not engaged in financial services activity in India, making ODI in a foreign entity, which is directly or indirectly engaged in financial services activity, except banking or insurance, who does not meet the net profit condition as required under these rules, may make ODI in an IFSC. (iii) a person resident in India may make contribution to an investment fund or vehicle set up in an IFSC as OPI; (iv) a resident individual may make ODI in a foreign entity, including an entity engaged in financial services activity, (except in banking and insurance), in IFSC if such entity does not have subsidiary or step down subsidiary outside IFSC where the resident individual has control in the foreign entity. (3) A recognised stock exchange in the IFSC shall be treated as a recognised stock exchange outside India for the purpose of these rules. [F.No.27/4/2018 (E)-FT] RAJEEV SAKSENA, Jt. Secy. - Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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