The Reserve Bank of India ("RBI") has issued an updated Master Direction on Foreign Investment in India1 ("Master Direction"), dated January 20, 2025, with respect to the guiding principles of downstream investment, arrangements permitted for direct investment under the Foreign Exchange Management (Non-Debt Instruments) Rules, 20192 ("NDI Rules") bringing significant changes to the regulatory framework for Foreign Owned or Controlled Companies ("FOCCs"). These amendments aim to clarify and streamline the regulations governing foreign investment, particularly concerning FOCCs' activities in India.
Deferred Payment for Share Transfers and Swap of Equity
The Master Direction has now specifically permitted FOCCs to undertake downstream investment by way of payment of consideration on a deferred payment basis or by way of swap of equity instruments. This provides greater flexibility for FOCCs in structuring their transactions, enabling them to manage cash flows more effectively. However, such deferred payments and swap of equity instruments must adhere to the conditions and timelines stipulated by the RBI.
Clarification on Control and Ownership
The amended Master Direction has now aligned the definition of the term 'control' with the definition set out under (Indian) Companies Act, 2013, ensuring greater transparency and consistency. The RBI has sought to reduce ambiguity in determining whether a company qualifies as an FOCC, thereby minimizing potential disputes.
Reporting Requirements
FOCCs are required to comply with revised reporting requirements, which include more detailed disclosures regarding their foreign investments and transactions. In the event, a company originally being 'owned' and 'controlled' by an Indian resident becomes a FOCC, such change has to be reported to the RBI in Form DI within 30(thirty) days of becoming a FOCC. These enhanced reporting obligations are intended to strengthen regulatory oversight and ensure compliance with foreign exchange regulations
Conclusion
The recent amendments to the RBI's Master Direction on foreign investment in India represent a significant step in bringing in uniformity and transparency in investments by FOCCs. By introducing greater flexibility and clarity, the RBI aims to facilitate foreign investment while maintaining regulatory oversight. FOCCs must remain vigilant in adapting to these changes and ensuring compliance to operate effectively in the Indian market.
Footnotes
1. https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200
Originally published 24.03.25
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