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Introduction: The Ministry of Finance, Department of Economic Affairs, has issued a significant notification dated 14th March 2024, amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. This amendment, S.O. 1361(E), brings about crucial changes in the regulatory framework governing non-debt instruments under the Foreign Exchange Management Act, 1999. Let’s delve into the detailed analysis of these amendments and their implications.

Detailed Analysis:

1. Amendment Overview: The amendment, titled Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024, empowers the Central Government to make necessary alterations to enhance the efficacy of the regulatory regime concerning non-debt instruments.

2. Inclusion of Explanation: Rule 2 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, undergoes modification with the insertion of an explanation in clause (aq). This explanation broadens the scope of ‘unit’ to include partially paid-up units, subject to regulations framed by the Securities and Exchange Board of India (SEBI) in consultation with the Government of India.

3. Significance: By incorporating this explanation, the regulatory framework adapts to the evolving dynamics of the financial markets. It accommodates scenarios where units are partly paid up, aligning with SEBI regulations while ensuring compliance with the Foreign Exchange Management Act, 1999.

4. Implications: This amendment fosters flexibility within the regulatory framework, facilitating smoother transactions and investments involving non-debt instruments. It offers clarity to market participants regarding the treatment of partly paid-up units, thereby enhancing transparency and investor confidence.

Conclusion: The Ministry of Finance’s notification regarding the amendment to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, reflects the government’s proactive approach in ensuring a robust regulatory environment conducive to economic growth and investor interests. The inclusion of an explanation regarding partly paid-up units signifies a step towards harmonizing regulations with market realities while maintaining regulatory integrity. Market participants and stakeholders are encouraged to acquaint themselves with the amended rules to navigate the financial landscape effectively.

***

MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 14th March, 2024

S.O. 1361(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 rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-

1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024.

(2) They 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, in rule 2, in clause (aq), the following Explanation shall be inserted, namely:-

“Explanation.- For the purposes of this clause, unit shall include unit that has been partly paid up, which is permitted under the regulations framed by the Securities and Exchange Board of India, in consultation with Government of India;”.

[F. No. 1/8/EM/2019]
SURBHI JAIN, 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 17th October, 2019 and subsequently amended vide notification numbers: –

(i) S.O. 4355 (E), dated the 5th December 2019;

(ii) S.O. 1278 (E), dated the 22nd April, 2020;

(iii) S.O. 1374 (E), dated the 27th April, 2020;

(iv) S.O. 2442 (E), dated the 27th July, 2020;

(v) S.O. 4441 (E), dated the 8th December, 2020;

(vi) S.O. 3206 (E), dated the 9th August, 2021;

(vii) S.O. 3411 (E), dated the 19th August, 2021;

(viii) S.O. 4091 (E), dated the 5th October 2021;

(ix) S.O. 4242 (E), dated the 12th October 2021;

(x) S.O. 1802 (E), dated 12th April 2022; and

(xi) S.O. 332(E), dated 24th January 2024.

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