Hitherto, a person resident in Pakistan or an entity incorporated in that country was not allowed to purchase shares or convertible debentures in an Indian company. This was by virtue of Regulation 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
By way of a circular dated August 22, 2012, the Reserve Bank fo India (RBI) has partially removed this prohibition. Now, a person who is a citizen of Pakistan or an entity incorporated there may invest in an Indian company under the approval route, i.e. with the prior approval of the Foreign Investment Promotion Board (FIPB). However, investment is not permitted in specific “sectors/activities pertaining to defence, space and atomic energy and second/activities prohibited for foreign investment”.The blanket ban has given way to a more restricted avenue for investments.