DIPP Clarification on NRI Investments

[The following
guest post is contributed by Dipanjali
Nagpal
of Vinod Kothari & Co. The author may be contacted at corplaw@vinodkothari.com.
This post follows
upon an earlier more brief post
on the topic.]
The Department of Industrial Policy and Promotion (DIPP),
Ministry of Commerce and Industry, Government of India reviewed the Consolidated
Foreign Direct Investment (FDI) Policy Circular of 2015 effective from May 12,
2015 with respect to investments by Non Resident Indians (NRIs), Persons of
Indian Origin (PIOs) and Overseas Citizens of India (OCIs) through its Press
Note 7 (2015 series)
and accordingly amended Para 2.1.27 and inserted Para
3.6.2 (vii). The press note shall take effect from June 18, 2015.

Investment under
Schedule 4 by NRIs
 

Investment by NRIs under Schedule 4 of FEMA
(Transfer or Issue of Security by Persons Resident Outside India) Regulations 2000
(FEMA Regulations) will deemed to be domestic investment at par with
investments made by residents, and as such the FDI Policy has been revised with
an amendment to the definition of an NRI as contained in the policy.
Purchase and sale of shares and debentures by
NRIs on non repatriation basis is subject to the following terms and conditions
as provided in Schedule 4 of FEMA (Transfer or Issue of Security by Persons
Resident Outside India) Regulations 2000:
1. Prohibition on purchase of shares/convertible debentures
of companies engaged in the business of Chit Fund, Nidhi Company or company engaged in agricultural/plantation
activities or real estate business or construction of farm houses or dealing in
Transfer of Development Rights.
2. No limitation for purchase of shares/convertible
debentures of Indian companies whether by public issue or private placement, on
non-repatriation basis.
3. Consideration for purchase of shares/convertible
debentures shall be paid by way of inward remittance through normal banking
channels from abroad or out of funds held in NRE[1]/FCNR[2]/NRO[3]/NRSR[4]/NRNR[5]
account maintained with an Authorized Dealer or with an authorized bank of
India, as the case may be.
4. Sale /maturity of proceeds of shares/convertible
debentures under this scheme shall be credited only to NRSR account where the
purchase consideration was paid out of funds held in NRSR account and to NRO or
NRSR account at the option of the seller where the purchase consideration was
paid out of inward remittance or funds held in NRE/FCNR/NRO/NRNR account.
Therefore investment made by NRIs that are
compliant with the aforesaid conditions of Schedule 4 shall not be considered
when calculating FDI in Indian companies. Sectoral caps and other restrictions
shall not apply to such investments. Procedurally, there was no requirement of
filing FC-GPR for investments received by NRIs by Indian companies prior to the
Press Note. Hence, the note has only clarified the same.
Amendment
in definition of NRIs, PIOs
Amended definition of NRI under FDI Policy is
as under:
‘Non Resident Indian’ (NRI) means an individual resident
outside India who is a citizen of India or is an ‘ Overseas Citizen of India’
cardholder within the meaning of Section 7 (a) of the Citizenship Act, 1955.
‘Persons of Indian Origin’ cardholders registered as such under Notification
No. 26011/4/98 F.I, dated 19.8.2002, issued by the Central Government are
deemed to be ‘Overseas Citizen of India’ cardholders.
Definition of NRI under Regulation 2 (vii)
FEMA Regulations:
“NRI shall have the
same meaning assigned to him under the Foreign Exchange Management (Deposit)
Regulations, 2000”
NRI, PIOs are defined under FEMA (Deposit)
Regulations, 2000 as under:
‘Non-Resident Indian (NRI)’ means a person resident outside India who is
a citizen of India or is a person of Indian origin.
Person of Indian Origin’ means a citizen of
any country other than Bangladesh or Pakistan, if
a) he at any time held Indian
passport; Or
b) he or either of his parents or any of his
grand- parents was a citizen of India by virtue of the Constitution of India or
the Citizenship Act, 1955 (57 of 1955);Or
c) the person is a spouse of an
Indian citizen or a person referred to in sub-clause ( a ) or (b);
DIPP has amended the definition to
make it more specific. We can expect an amendment in FEMA regulations too in
the light of the aforesaid amendment.
– Dipanjali Nagpal



[1] Non Resident External account
[2] Foreign Currency Non Resident Account
[3] Non Resident Ordinary account
[4] Non-Resident (Special) Rupee account
[5] Non-Resident Non-Repatriable account

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

2 comments

  • Procedurally, there was no requirement of filing FC-GPR for investments received by NRIs by Indian companies prior to the Press Note. Hence, the note has only clarified the same.

    Any clause where this no reporting requirement is mentioned on the rbi notifications

  • That mean, w.e.f. June 18, 2015 i.e. after issue of press note, investment in prohibited sectors (e.g. real estate etc) can be made by NRI/ OCI/ PIO.

    Further, is there no requirement to file any form like FC-TRS or FC-GPR to RBI… ???

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