Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019

MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 5th December, 2019

S.O. 4355(E).—In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following amendments in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-

1. Short title and commencement.—(1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019.

(2) These rules shall be deemed to have come into force on the 17^th October, 2019, except items (i), (ii), (iii), (iv), (v) and (vii) of rule 6 which shall come into force on the date of their publication in the Official Gazette.

2. In the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, (hereinafter referred to as the principal rules), in rule 2,-

(i) in clause (ae), the words, brackets and figures “and (iv) mutual funds which invest more than fifty percent in equity governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996;” shall be omitted;

(ii) in clause (am), the words “and debt” shall be omitted.

3. In the principal rules, in rule 9, in sub-rule (4), the words “on a non-repatriation basis” shall be omitted.

4. In the principal rules, for rule 11, the following rule shall be substituted, namely:-

“11. Transfer of equity instruments of an Indian company by FPI – A FPI holding equity instruments of an Indian company or units in accordance with these rules, may transfer such equity instruments or units held by him in compliance with the conditions, if any, specified in the Schedules annexed to these rules, subject to the terms and conditions specified therein and by the Securities and Exchange Board of India:

Provided that, –

(i) prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires the Government approval;

(ii) where the acquisition of equity instruments by FPI under Schedule II has resulted in a breach of the applicable aggregate FPI limits or sectoral limits the provisions of item (iii) of sub-paragraph (a) of paragraph (1) of Schedule II shall apply.”.

5. In the principal rules, in rule 21, in sub-rule (2), after clause (ii), the following explanation shall be inserted, namely:

“Explanation: In case of convertible equity instruments, the price or conversion formula of the instrument should be determined upfront at the time of issue of the instrument. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with these rules.”

6. In the principal rules, in Schedule 1, in the Table,-

(i) against Sl. No. 3.2, in column (2), under the heading Coal and Lignite,-

(a) for entry (a), the following entry shall be substituted, namely:

“(a) Coal and Lignite mining for captive consumption by power projects, iron and steel and cement units and other eligible activities permitted under and subject to the provisions of the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957) and the Coal Mines (Special Provisions) Act, 2015 (11 of 2015).”;

(b) after entry (b), the following entry shall be inserted, namely:-

“(c) For sale of coal, coal mining activities including associated processing infrastructure subject to the provisions of the Mines and Minerals (Development and Regulation) Act, 1957 and the Coal Mines (Special Provisions) Act, 2015 and as amended from time to time and other relevant Acts on the subject.”;

(ii) against Sl. No. 3.4, in column (2), under the heading Other Conditions, clauses (a) and (b) shall be re-lettered as clause (b) and (c) respectively and before clause (b) as so re-lettered, the following clause shall be inserted, namely:-

“(a) Associated Processing Infrastructure” as contained in 3.2 (c) includes coal washery, crushing, coal handling, and separation (magnetic and non-magnetic)”;

(iii) against Sl. No. 5.1, for “A manufacturer is permitted to sell its products manufactured in India through wholesale and/ or retail, including through e-commerce without Government approval.” the following shall be substituted, namely:

“Manufacturing activities may be either self manufacturing by the investee entity or contract manufacturing in India through a legally tenable contract, whether on Principal to Principal or Principal to Agent basis. Further, a manufacturer is permitted to sell his products manufactured in India through wholesale and/or retail, including through e-commerce, without Government approval.”;

(iv) against Sl. No. 7.2, Sl. No. 7.2.3, shall be renumbered as Sl. No. 7.2.4 and before Sl. No. 7.2.4 as so renumbered, the following Sl. No. shall be inserted, namely:-

(v) against Sl. No. 15.2.3, for entry (p), the following entry shall be substituted, namely;-

“(p) e-commerce marketplace entity with FDI shall have to obtain and maintain a report of statutory auditor by 30th of September every year for the preceding financial year confirming compliance of the e-commerce guidelines.”;

(vi) against Sl. No. 15.3, in column (4), under the heading Entry Route, for the entries, the following entry shall be substituted, namely:-

“Automatic.”;

(vii) against Sl. No. 15.3.1, for the entries (e), (f) and (g), the following entries shall be substituted, namely:

“(e) In respect of proposals involving foreign investment beyond 51 per cent, sourcing of 30 per cent. of the value of goods procured, shall be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing shall be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company shall be required to maintain. The procurement requirement is to be met in the first instance as an average of five years total value of goods procured beginning 1st April of the year of the commencement of SBRT business (i.e. opening of first store or start of online retail, whichever is earlier). Thereafter, SBRT entity shall be required to meet the 30 per cent local sourcing norms on an annual basis. For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company incorporated in India, which is the recipient of foreign investment for the purpose of carrying out single brand product retail trading.

(f) For the purpose of meeting local sourcing requirement laid down at entry (e), all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. SBRT entity is also permitted to set off sourcing of goods from India for global operations against the mandatory sourcing requirement of 30 per cent. For this, purpose, ‘sourcing of goods from India for global operations’ shall mean value of goods sourced from India for global operations for that single brand ( in INR terms) in a particular financial year directly by the entity undertaking SBRT or its group companies ( resident or non-resident), or indirectly by them through a third party under a legally tenable agreement.

(g) A SBRT entity operating through brick and mortar stores, can also undertake retail trading through e-commerce. However, retail trading through e-commerce can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within two years from date of start of online retail.”.

7. In the principal rules, in Schedule II, in paragraph (1), in sub-paragraph (a), in item (i), –

(i) after the words “Indian company”, the words “by FPIs” shall be inserted;

(ii) the following proviso shall be inserted at the end, namely:

“Provided the aggregate limit of 24 per cent may be increased by the Indian company concerned up to the sectoral cap/statutory ceiling, as applicable, with the approval of its Board of Directors and its General Body through a resolution and a special resolution, respectively.”.

[F. No. 01/05/EM/2019]
ANAND MOHAN BAJAJ, Jt. Secy.

Note : The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 3732 (E), dated the 17^th October, 2019.