Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India come with circular for consolidated policy of FDI. This consolidated policy effective from 7th June, 2016.
Consolidated FDI Policy Circular is a policy framework on Foreign Direct Investment, which consolidates all Press Notes/Press Releases/Clarifications/ Circulars issued by DIPP, which are in force. The first Circular was issued in March, 2010, which has been updated periodically. The last such Circular was released on 07.06.2016. ‘Consolidated FDI Policy Circular of 2016’ is the ninth edition of the series.
FDI Policy Circular, 2016 has been made simpler and investor friendly; and will serve as a ready reference for foreign investors on various provisions of the FDI policy.
Meaning of FDI: FDI means investment by below mentioned the capital of an Indian Company:-
Economic Growth: It is the intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth.
It is also for “Make in India”
The clauses corresponding to the following Press Notes have been incorporated in the Consolidated FDI Policy Circular of 2016.
|S. No.||Press Note||Issue|
|i.||6 of 2015 Series||Investment Limit for Cases involving FIPB/CCEA approval|
|ii.||7 of 2015 Series||Investment by NRIs, PIOs and OCIs|
|iii.||8 of 2015 Series||Introduction of Composite Caps|
|iv.||9 of 2015 Series||Partly Paid Shares and Warrants|
|v.||11 of 2015 Series||FDI in White Label ATM Operations|
|vi.||12 of 2015 Series||Review of FDI Policy on Various Sectors|
|vii.||1 of 2016 Series||Review of FDI Policy on Insurance Sector|
|viii.||2 of 2016 Series||Review of FDI Policy on Pension Sector|
|ix.||3 of 2016 Series||Guidelines for Foreign Direct Investment (FDI) on E-commerce|
|x.||4 of 2016 Series||Review of FDI Policy on Asset Reconstruction Companies|
Type of Securities Issued under FDI Policy:
Debentures shall be required to be fully paid, and should be mandatorily and fully convertible.
Further, ‘warrant’ includes Share Warrant issued by an Indian Company in accordance to provisions of the Companies Act, as applicable
I. Whether Company can issue Non-Convertible Preference Share or debenture to Foreign National.
No as per FDI Policy, Company can issue only Fully, compulsorily & mandatorily convertible Preference Share or Debenture. I Company issue non-convertible preference shares then it will be consider as Debt.
I. A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.
II. A Non Resident Indian (NRI):
III. A Overseas Corporate Body (OCBs): OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities.
VI. Company/ Trust/ Partnership:
A Company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.
V. Only registered FIIs/FPIs and NRIs:
Only registered FIIs/FPIs and NRIs as per Schedules 2,2A and 3 respectively of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, can invest/trade through a registered broker in the capital of Indian Companies on recognized Indian Stock Exchanges.
VI. National Pension Fund System:
A Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA),
VII. SEBI registered Foreign Venture Capital Investor (FVCI):
Automatic Route: A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute
**SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA regulations
Investment in domestic venture capital fund: A SEBI registered FVCI can invest in a domestic venture capital fund registered under the SEBI (Venture Capital Fund) Regulations, 1996 or a Category- I Alternative Investment Fund registered under the SEBI (Alternative Investment Fund) Regulations, 2012.
Domestic Asset Management Company: It may also set up a domestic asset management company to manage its investments.
VIII. Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI):
Portfolio Investment Scheme
Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) may in terms of Schedule 2 and 2A of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, as the case may be, respectively Invest in the capital of an Indian company under the Portfolio Investment Scheme.
Reporting requirement of Company:
An Indian company which has issued shares to FIIs/FPIs under the FDI Policy for which the payment has been received directly into company’s account should report these figures separately under item no. 5 of Form FC-GPR.
Reporting Custodian Bank:
A daily statement in respect of all transactions (except derivative trade) has to be submitted by the custodian bank in soft copy in the prescribed format directly to RBI and also uploaded directly on the OFRS web site. (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp).
Eligible investee entities:
I. FDI in an Indian Company:
Indian companies can issue capital against FDI
II. FDI in Partnership Firm/Proprietary Concern:
A. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the CAPITAL of a firm or a proprietary concern in India on non-repatriation basis :
B. Investments with repatriation option:
C. Investment by non-residents other than NRIs/PIO:
Restricted Activities for Investment by NRI or PIO:
In the Firm or Proprietorship engaged in:
III. FDI in Trust:
FDI is not permitted in Trusts
Except: ‘VCF’ registered and regulated by SEBI and ‘Investment vehicle’ can invest in the Trust.
IV. FDI in Limited Liability Partnerships (LLPs):
FDI in LLPs is permitted
Downstream investment only in LLP or Company which are working in the section in which are 100% FDI allowed.
V. FDI in other Entities:
FDI in resident entities other than those mentioned above is not permitted.
VI. Investment Vehicle:
An entity being ‘investment vehicle’ registered and regulated under relevant regulations framed by SEBI or any other authority designated:-
For the purpose including: Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014, Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012 and notified under Schedule 11 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000
Is permitted to receive foreign investment from a person resident outside India (other than an individual who is citizen of or any other entity which is registered / incorporated in Pakistan or Bangladesh), including an Registered Foreign Portfolio Investor (RFPI) or a non-resident Indian (NRI).
Instruments of investments, issue/transfer of shares etc.
Brief of Annexure 2:
i. Type of issue of security as given at page No. 1
ii. Optionality clauses are allowed in equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares under FDI scheme, subject to the following conditions
iii. Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are considered as debt.
iv. Acquisition of Warrants and Partly Paid Shares
Entry Routes for Investment:
Automatic Route: Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment.
Government Approval Route: Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route, are considered by FIPB
Caps on Investments
Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy (will discuss in separate article).
Condition for Entity:
Investments by non-residents can be permitted in the capital of a resident entity in certain sectors/activity with entry conditions. Such conditions may include norms for minimum capitalization, lock-in period, etc. The entry conditions in various sectors/activities are detailed in Chapter 5 of the Circular (will discussed separately).
The investment/investors are required to comply with all relevant
Remittance, Reporting and Violation
The Government has provided elaborated scheme for remittance, reporting and violation of FDI policy. These are available at Annexure-6.
 ‘Non-resident entity’ means a ‘person resident outside India’ as defined under as defined at Section 2(w) of FEMA, 1999.
 OCBs have been derecognized as a class of investors in India with effect from September 16, 2003.
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at email@example.com)