The Central Government announced key amendments to Foreign Exchange Management (Non-debt Instruments) Rules, 2019, which will come into effect from 16 August 2024 . The principal objective of the Amendment Rules is to simplify cross-border equity share swaps and provide for the issue/transfer of equity instruments of Indian companies in exchange for the equity instruments of foreign companies. Other changes under the purview of the Amendment Rules include amending the definitions of 'start-ups' and 'control' to align them with the definitions under other laws and permitting 100% FDI through the automatic route in White Label ATM operations.
| Highlights of the notification |
The key aspects of this amendment to Foreign Exchange Management (Non-debt Instruments) Rules, 2019 are mentioned below:
Harmonization of definitions
The definition of 'control' has been standardized to align it with the definition under the Companies Act, 2013, and the definition of 'start-up company' has been harmonized with the Government of India's notification G.S.R. 127 (E), which was issued by the Department for Promotion of Industry and Internal Trade.
Government approval for equity transfers
Previously, government approval was required for prescribed sectoral caps. It is now mandatory that all transfers of equity instruments involving non-residents, whether buying, selling, or swapping equity, must follow the prescribed approval procedures whenever government approval is applicable.
Swap of equity instruments and equity capital
The introduction of Rule 9A enables the transfer of equity instruments of an Indian company between a person resident in India and a person resident outside India through swap arrangements. This provision allows for the exchange of equity instruments between an Indian company and a foreign entity in compliance with the rules prescribed by the Central Government and the Reserve Bank of India (RBI).
The new Rule 9A also provides for the transfer of equity instruments by way of a swap of equity capital of a foreign company in compliance with the Foreign Exchange Management (Overseas Investment) Rules, 2022. Similar amendments have been made to Schedule 1 of the NDI Rules to allow for the facilitation of the swap of equity instruments and equity capital against the issue of securities by an Indian company to a person resident outside India.
Clarifying downstream investments by OCI-owned entities
The Amendment Rules address a long-standing ambiguity in the regulatory framework concerning investments made by Overseas Citizen of India (OCI) entities; it clarifies that investments made by OCI-owned entities on a non-repatriation basis will not be considered for determining the total amount of indirect foreign investment. It ensures that OCI-owned entities are treated at par with NRI-owned entities.
Facilitation of FDI in White Label ATMs
White Label ATMs sector allowed with 100% FDI under Automatic Route to boost financial inclusion nationwide subject to compliance with specified conditions, minimum capitalization norms and specific criteria and guidelines issued by the Reserve Bank of India under the Payment and Settlement System Act, 2007.
