From Ambiguity to Certainty-Issue and reporting of partly paid units by Investment vehicles
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) were introduced to govern the inflow of equity and other non-debt capital instruments. However, these rules originally lacked clarity regarding the issuance of partly paid units to foreign investors by investment vehicles such as Alternative Investment Funds (AIFs).
Before March 14, 2024, there was no express provision under the NDI Rules allowing the issuance of partly paid units to non-residents. As a result, fund managers and legal practitioners operated within an area of regulatory uncertainity. Many investment vehicles cautiously avoided such issuances, while others proceeded based on legal interpretations, exposing themselves to the risk of non-compliance under FEMA. Moreover, the absence of a dedicated reporting mechanism within the RBI’s FIRMS portal added another layer of uncertainty.
- March 2024 Amendment:
Recognizing the pressing need for clarity, the Foreign Exchange Management (Non-Debt Instruments) (Second Amendment) Rules, 2024, were notified via notification S.O. 1361(E) on March 14, 2024. This amendment explicitly permitted investment vehicles to issue partly paid units to persons resident outside India, thus bringing long-awaited certainty to the sector. The change aligned India’s capital markets more closely with global norms, especially in how staged investments can be structured over time.
- Treatment of Prior Issuances: Compounding as a Remedy
To address the issuances made prior to March 14, 2024, the RBI issued A.P. (DIR Series) Circular No. 7, dated May 21, 2024 directing such transactions to be regularized through compounding under FEMA.
This required investment vehicles to first report the details of the partly paid units on the FIRMS portal, followed by submitting an application for compounding. Additionally, Authorized Dealer (AD) Banks were instructed to support this process by providing conditional acknowledgments and ensuring proper documentation.
The reporting and timelines for reporting partly paid unts in Form InVi still remained a question.
- Reporting Obligations:
The RBI vide A.P. (DIR Series) Circular No. 06 dated May 23, 2025 provided for reporting of Partly paid Units in Form InVi within 30 days of the issuance date in terms of Regulation 4(10) of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019
- One-Time Window for Delayed Reporting
180-Day Window for Regularizing Delayed Reporting for Issuance Prior to Notification
Understanding that many investment vehicles could not report earlier due to lack of clarity to both to the applicants and Authorised Dealer banks, the RBI’s May 2025 circular provided a one-time 180-day window (180 days shall be counted from the date of circular) for delayed filings without any late submission fees.
However, for issuances on or after the date of the circular, the standard 30-day reporting deadline continues to apply, and delays will attract penalties as per FEMA regulations.
Compounding for any other contraventions
It is important to note that this amnesty window is limited to delays in filing Form InVI and does not cover other forms of non-compliance or contraventions under FEMA (including issue of partly paid units prior to March 14, 2024). Entities must ensure that all other regulatory obligations are met independently and, where necessary, addressed through appropriate compounding or late filing fees.
- Timely Compliance and Institutional Best Practices
With the updated regulatory and technical framework in place, timely reporting has become non-negotiable. Investment vehicles must implement internal compliance mechanisms to track and report issuances promptly. AD Banks now play a more active role in oversight, ensuring that submissions are in line with regulatory expectations.
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Author: Ridhi Gada, Manager
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