5 October 2021
The Reserve Bank of India through notification dated 9 August 2021 has issued the Overseas Investment Regulations with the aim to promote ease of doing business. Overseas investments are presently covered under the ODI Regulations. The Overseas Investment Regulations deals with overseas financial commitments by modes other than equity capital and introduces the concept of deferred payment. The Overseas Investment Regulations were open for public comments till 23 August 2021 and are proposed to be finalised after public consultation.
As per the ODI Regulations, overseas financial commitments, other than by means of equity capital, can be made by creation of charge, by way of pledge, on the shares of the joint venture or step-down subsidiary outside India. In addition to the existing modes, the Overseas Investment Regulations prescribes that financial commitments, which are not made by means of equity capital, can be made by way of (a) loan which is backed by a loan agreement; (b) issuing guarantee to or on behalf of the foreign entity or its step-down subsidiary in which the Indian entity has acquired control; and (c) pledge in favour of an AD Bank or a public financial institution in India or an overseas lender or by creating charge by way of mortgage or hypothecation of assets in or outside India.
The Overseas Investment Regulations also prescribes that for ODI through investment in equity capital in the foreign entity and control over such entity are pre-requisites for making any financial commitment by modes other than equity capital in such foreign entity.
The Overseas Investment Regulations introduces the concept of deferred payment, according to which, foreign securities equivalent to the amount of total consideration shall be transferred or issued, as the case may be, upfront by the seller tothe buyer, subject to pricing guidelines and indemnification outlined in Foreign Exchange Management (Guarantee) Regulations, 2000.
The Overseas Investment Regulations also prescribes reporting requirements for overseas investments which includes reporting by (a) person resident in India for any financial commitments or disinvestments; (b) person resident in India for making any overseas portfolio investment or transferring such investment by way of sale; (c) submitting annual performance report; and (d) submitting annual return on foreign liabilities and assets. Overseas Investment Regulations prescribes restriction on further financial commitments, directly or indirectly, towards the concerned foreign entity or transfer of such investment until delay in reporting, if any, is regularised.
Please click here to read the Overseas Investment Regulations.
