[The following guest post is contributed by Dipanjali Nagpal of Vinod Kothari & Co. The author may be contacted at email@example.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/FCNR/NRO/NRSR/NRNR 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