Jurisdiction - India
India – Foreign Exchange Updates.

17 July, 2014


  • The Department of Industrial Policy and Promotion (‘DIPP’) has released the Foreign Direct Investment Policy (‘FDI Policy’), effective from April 17, 2014, which replaces the earlier consolidated policy issued by DIPP on April 5, 2013. The FDI Policy consolidates the existing FDI scheme, taking into account the amendments and clarifications to the previous policy. Some of the notable highlights of the FDI Policy are as follows:


i. The FDI Policy retains references to the erstwhile 1956 Act, and does not make any reference to the 2013 Act.


ii. The FDI Policy does not bring into effect, the changes that were proposed by RBI to the pricing guidelines, in its first bi-monthly monetary policy statement for the present financial year.1

iii. In relation to wholesale trading between entities of the same group, a definition of group company has been introduced, i.e. two or more enterprises which, directly or indirectly, are in a position to:

    • exercise 26% or more of the voting rights in the other enterprise; or
    • appoint more than 50% of the directors on the board of the other enterprise.


iv. The FDI policy (as per the overall policy of GoI in this regard) attempts to harmonize & consolidate the old regime relating to foreign institutional investors (‘FIIs’), qualified foreign investors (‘QFIs’), etc., with the new framework for investments made by FPIs, registered under the SEBI (Foreign Portfolio Investors) Regulations, 2014.


v. With regard to acquisition of listed securities, non-residents, including non-resident Indians, can acquire further shares of Indian listed companies on Indian stock exchanges through registered brokers, so long as they have acquired and continue to hold “control” in such listed company.


vi. With regard to the defence sector, the FDI Policy clarifies that investments by FPIs / FIIs in defence companies (holding licences as of August 22, 2013) will remain capped at the existing investment limits as on the said date, and no further investment will be permitted, irrespective of a subsequent reduction in investment below the capped levels.


vii. In case of brownfield investments in the pharmaceutical sector, parties to a potential investment are required to furnish to the Foreign Investment Promotion Board (‘FIPB’):

    • details of the agreements entered into, along with an undertaking to submit future agreements relating to the proposed investment; and
    • a confirmation that there is no non-compete arrangement connected to the investment.


  • RBI, by way of its circular dated April 21, 2014, has clarified that with respect to the pharmaceutical sector, the extant FDI Policy, would continue with the condition that the “non-compete” clause would not be permitted except in special circumstances, with the approval of FIPB.


  • RBI has, by way of its circular dated May 19, 2014, notified a Limited Liability Partnership (‘LLP’), registered under the Limited Liability Partnership Act, 2008, (‘LLP Act 2008’) as an “Indian Party”.


Accordingly, an LLP may, henceforth, undertake financial commitments to / on behalf of a joint venture / wholly owned subsidiary situated abroad in terms of the extant Foreign Exchange Management Act, 1999 (‘FEMA’).


  • RBI has, by way of its circular dated April 16, 2014, revised the conditions in accordance with which LLPs registered under the LLP Act 2008 will be eligible to accept foreign direct investment (‘FDI’). Although these conditions apply retrospectively from May 20, 2011, the revised reporting requirements would only apply from the date of the circular (i.e. April 16, 2014). LLPs that have received foreign investment between May 20, 2011, and April 16, 2014, have been given a period of 30 or 60 days, as applicable, from April 16, 2014, to comply with the reporting requirements.


  • RBI has, by its circular dated June 6, 2014, decided to allow registered FIIs, QFIs deemed as registered FPIs, registered FPIs, long term investors registered with SEBI – Sovereign Wealth Funds, multilateral agencies, pension / insurance / endowment funds, foreign central banks to invest on repatriation basis, in non-convertible / redeemable preference shares or debentures issued by an Indian company to non-resident shareholders and listed on a recognised stock exchanges in India, within the overall limit of USD 51bn earmarked for corporate debt. Further,non-resident Indians may also invest both on repatriation and non-repatriation basis, in nonconvertible / redeemable preference shares or debentures as mentioned above.


  • RBI, by a circular dated May 2, 2014, has permitted AD Category-I Banks (‘AD Banks’) to approach the concerned regional office of RBI (instead of RBI’s central office) to regularise any delays in the filing of Form FC-TRS beyond the stipulated period of 60 days. In all other cases, Form FC-TRS will continue to be scrutinised at the AD Bank level as per the extant practice.


  • By way a circular dated April 22, 2014, RBI has advised: (a) banks (including overseas branches / subsidiaries of Indian banks) not to issue standby letters of credit / guarantees / letters of comfort, etc., on behalf of overseas joint ventures (‘JV(s)’), wholly owned subsidiaries (‘WOS(s)’) and wholly owned step-down subsidiaries (‘WoSDS(s)’) of Indian companies for any purposes, except in connection with the ordinary course of overseas business; (b) banks to monitor the end use of fund / non fund based credit facilities extended to any JV / WOS / WoSDS of Indian companies, and ensure that the use of the credit facilities is in conformity with the business needs of such entities; and (c) banks to desist in giving guarantees to exporter borrowers for repayment of loans availed from Indian banks. Further, RBI has prohibited repayment of Rupee loans availed from the domestic banking system through external commercial borrowings extended by overseas branches or subsidiaries of Indian banks.


  • RBI has, by way of a circular dated April 4, 2014, delegated the powers set out below to the regional offices of RBI, and expanded the list of contraventions that may now be compounded:


i. Delay in reporting inward remittance received for issue of shares.
ii. Delay in filing Form FC-GPR after issue of shares.
iii. Delay in issue of shares or refund of share application money beyond 180 days, mode of receipt of funds, etc.
iv. Violation of pricing guidelines for issue of shares.
v. Issue of ineligible instruments such as NCDs, partly paid shares and shares with an optionality clause.
vi. Issue of shares without approval, where required, of RBI or FIPB respectively.

The above contraventions can be compounded by all regional offices without any limit on the amount of contravention, except for those at Panaji and Kochi, which may only compound contraventions for an amount below Rupees one crore.


End Notes:


1 In case of FDI, it was proposed to withdraw all the existing pricing / valuation guidelines in case of any acquisition / sale of shares and accordingly, such transactions will henceforth be based on acceptable market practices.




For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]


Aditya Bhat, AZB & Partners 
[email protected]



Comments are closed.