Brief Overview:
1) Swaps of equity instruments of Indian company and equity capital of foreign company;
2) Constraining the scope of downstream investment;
3) Aligning the definition of ‘control’ with that of the Companies Act, 2013; and
4) Harmonizing the definition of ‘startup company’.
Technical Details:
1) The enabling provision has been introduced in the NDI Rules to permit to undertake the cross border swap of equity instruments of the Indian company with that of equity instrument / equity capital of a foreign company by way of issue or transfer. A prior approval from the Government, if required and compliance with Overseas Investment Rules, as relevant, shall be applicable.
2) In addition to the erstwhile provisions that excluded only investments held by NRI / OCI on non-repatriation basis from the scope of downstream investments, any investments made by an Indian company owned or controlled by NRIs / OCIs / foreign companies / trust / firm will also not be considered as a downstream investment.
3) The definition of ‘control’ is aligned with the provisions of the Companies Act, 2013 and ‘control’ in the context of an LLP shall mean the right to appoint majority designated partners where designated partners have control over LLPs policies.
4) Harmonizing definition of ‘Startup Company’ with the notification issued by Department of Industry and Internal Trade in 2019 which states that an entity will be considered as a Start-Up up to a period of 10 years from the date of incorporation/ registration and turnover of the entity for any of the financial years since incorporation/ registration has not exceeded ₹ 100 crore.
The above changes have been introduced by Ministry of Finance by way of an amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, with effect from 16th August 2019.
JC takeaway:
These amendments supports the Government’s commitment for creating a foreign-investor-friendly climate, with constant measures to streamline rules and promote Ease of Doing Business, in line with the Union Budget Announcement.
For further details, please see:
FEM (Non-Debt Instruments) Rules, 2019 | Amendment
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