INDIA: Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2017

Monday November 20 2017

The Reserve Bank of India (RBI) has published the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2017. The Regulations supersedes Notification No. FEMA 20/2000-RB and Notification No. FEMA 24/2000-RB both dated 3^rd May 2000.

The Regulation requires that an Indian entity or an investment vehicle, or a venture capital fund or a Firm or an Association of Persons or a proprietary concern shall not receive any investment in India from a person resident outside India or record such investment in its books without prior permission from the RBI.

The Regulation further provides that, any investment made by a person resident outside India shall be subject to the entry routes, sectoral caps or the investment limits.

The entry routes foreign investments include the following:

Automatic Route which means the entry route through which investment by a person resident outside India does not require the prior Reserve Bank approval or Government approval.

Government Route which means the entry route through which investment by a person resident outside India requires prior Government approval. Foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.

Aggregate Foreign Portfolio Investment up to 49 percent of the paid-up 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 or control to persons resident outside India. Other investments by a person resident outside India will be subject to conditions of Government approval and compliance of sectoral conditions as laid down in these regulations.

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