India – New Foreign Investment Rules And Regulations: The Bank Surrenders The Baton?

INTRODUCTION

 

On October 17, 2019, the Central Government issued the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the “Rules”), and the RBI notified the Foreign Exchange Management (Debt Instrument) Regulations, 2019 (the “Debt Regulations”), and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

 

The Rules and both the regulations supersede the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 (the “TISPRO”). The Rules also supersede the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.

 

KEY ASPECTS

 

The major changes brought in by the Rules and the Debt Regulations have been discussed below.

 

Dilution of Authority of the RBI

 

Earlier, the RBI was entrusted with powers to approve transactions which were not covered under general permission. The Rules have introduced additional language which mandates that the applications for the approval of the transactions which are not under the purview of general permission, will need to be decided after consultation with Central Government.

 

The RBI has been the final authority for approving such transactions in the past. The new provisions are a deviation which will result in a greater involvement of the Central Government into the non- general permission matters.

 

Central Government consultation has now also been prescribed for several other items including approving transfers not covered through general permission, divestment of investments by non- resident Indians (“NRIs”) or overseas citizens of Indians (“OCIs”) in case of a breach of the relevant limits or sectoral caps, and issuance of shares in case of swap of equity instruments.

 

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