Summary: The issuance of shares by Indian companies to foreign nationals is governed by the Foreign Exchange Management Act, 1999 (FEMA), along with the FEMA (Non-Debt Instruments) Rules, 2019. Shares can be allotted through rights issue or private placement, but such transactions must comply with sectoral caps, pricing, and procedural regulations. While the Companies Act, 2013 governs corporate procedures (covered separately), this summary focuses on FEMA compliance. Foreign investment is allowed under the automatic route in permitted sectors, while investments in restricted sectors or from specific countries may require prior government approval via the Foreign Investment Facilitation Portal (FIFP). Certain sectors like gambling, real estate business, chit funds, and tobacco product manufacturing are entirely prohibited for foreign investment.
Key steps under FEMA include: inward foreign remittance through approved banking channels, obtaining FIRC and KYC, share allotment within 60 days, and mandatory filing of Form FC-GPR within 30 days of allotment on the RBI FIRMS portal. Non-compliance with these timelines can lead to contraventions requiring compounding with the RBI. Valuation must follow internationally accepted methodologies certified by a SEBI-registered Merchant Banker or Chartered Accountant. Rights issues to existing shareholders (resident and non-resident) are exempt from pricing restrictions, provided uniform pricing is maintained.
The process involves registration on the FIRMS portal, updating the Entity Master, filling Form FC-GPR, uploading mandatory documents (FIRC, KYC, valuation certificate, board resolution), and submission via the Authorised Dealer Bank for RBI review. Timely and accurate compliance with FEMA provisions ensures lawful foreign shareholding and avoids penalties. This guidance strictly pertains to FEMA and not to the Companies Act aspects.
I. Modes of Allotment:
1. Right issue of Shares
2. Private Placement of Shares
II. Corresponding Provisions of Law:
Issue of Equity Instruments by Indian Companies to Foreign Nationals
(Rights Issue under Rule 7 & Private Placement / Preferential Allotment under Rule 6 of the FEMA (NDI) Rules, 2019 – position as on 20 May 2025)
i. FEMA, 1999
ii. Foreign Exchange Management (Non-debt Instruments) Rules, 2019
iii. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019
iv. Master Direction – Foreign Investment in India (updated by RBI from time to time)
v. Relevant RBI Circulars and Notifications
Statutory matrix
| Layer | Instrument | What it covers | Key date |
| Parent Act | Foreign Exchange Management Act, 1999 – 6 (3)(b), 47 | Power to regulate and make rules governing issue/transfer of securities to non-residents | 1 June 2000 |
| Principal Rules | FEMA (Non-Debt Instruments) Rules, 2019 (“NDI Rules”) | Substantive conditions — entry routes, sectoral caps, pricing, schedules | 17 Oct 2019 (ongoing amendments) |
| Operating Regulations | FEMA 395/2019-RB – Mode of Payment & Reporting Regulations | 60-day issue / 30-day FC-GPR cycle, refund within 15 days | 17 Oct 2019 |
| Master Direction | RBI Master Direction – Foreign Investment in India (updated 20 Jan 2025) | Consolidated procedural handbook, Forms & AD-bank interface | 20 Jan 2025 update |
| Recent policy alert | Proposed “FOCE” category to plug indirect-ownership loopholes | Draft measures reported 19 May 2025 |
Professional note: Under 5.2.8 of the Master Direction the onus of complying with sectoral caps and attendant conditions squarely rests on the Indian investee company — remind boards that FEMA non-compliance is strict-liability.
III. Eligibility of Investor
A foreign national (individual resident outside India) is allowed to invest in equity shares of an Indian company under the automatic route, provided:
- The sector is under the automatic route, and
- The company is not engaged in prohibited sectors (e.g., real estate business, lottery, etc.).
[1]Note: check Consolidated FDI Policy sectoral caps. If any single condition in Schedule I of NDI Rules (sectoral cap, performance-linked conditions, security screening, or Press Note 3 triggers) is not met, prior Government approval via the Foreign Investment Facilitation Portal (FIFP) is mandatory Prohibited sectors for foreign direct investment (FDI) in India — position as on 20 May 2025
The activities below are completely closed to persons resident outside India under paragraph 5.1 of the Consolidated FDI Policy (15 October 2020) and Rule 6 of the FEMA (Non-Debt Instruments) Rules, 2019. No amount of equity (including by way of rights issue, private placement or downstream investment) is permitted, whether through the automatic or Government route.
| Sector / activity | Key point to note | |
| a) | Lottery business – government or private lotteries, online or physical | All forms of lottery promotions, ticketing, prize distribution etc. |
| b) | Gambling & betting – including casinos, online gaming for stakes | Covers games of chance and mixed-skill games offered for money or prize; also bars technology/franchise agreements in this space. |
| c) | Chit funds | Collection and disbursement schemes governed by the Chit Funds Act, 1982. |
| d) | Nidhi companies | Mutual-benefit companies that borrow from and lend to members only. |
| e) | Trading in Transferable Development Rights (TDRs) | Includes acquisition, sale or transfer of TDR certificates. |
| f) | Real-estate business or construction of farm-houses | Real-estate business excludes townships, residential/commercial development, roads, bridges and SEBI-registered REITs. |
| g) | Manufacture of cigars, cheroots, cigarillos & cigarettes of tobacco or tobacco substitutes | Prohibition extends to any form of nicotine/ tobacco stick manufacturing. |
| h) | Activities/sectors not open to the private sector (i) Atomic energy (ii) Railway operations (train services and related transport functions; railway-infrastructure subsectors notified in the policy remain eligible for up to 100 % FDI). | (Setindiabiz) |
Additional absolute bars embedded elsewhere in the Policy
| Area | Specific prohibition | Source |
| E-commerce | FDI is not permitted in the inventory-based model of e-commerce (where the platform owns the goods it sells). Only the marketplace model is eligible (100 % automatic). | ITIF |
| Foreign technology collaborations | Any licensing/franchise/management contract connected with lottery or gambling & betting activities is prohibited even when no equity is involved. | Setindiabiz |
Note: In all other sectors, FDI may still be subject to sectoral caps, performance-linked conditions, Press Note 3 (2020) restraints on investors from land-border countries, or the forthcoming “FOCE” rules expected later in 2025. Always run an entry-route + sector-cap diagnostic before accepting subscriptions from a non-resident.
Iv. Entry Route Compliance
Foreign nationals can invest under the automatic route only in sectors where 100% FDI is permitted without government approval.
If the investment falls under the approval route, prior Government approval (via DPIIT + relevant Ministry) is mandatory.
V. Sectoral Caps and Conditions
Investment must comply with sectoral caps and conditionalities (e.g., minimum capitalization norms, lock-in, etc.)
VI. Pricing Guidelines
As per Para 2 of Schedule 1 of NDI Rules:
Unlisted Company: The price of shares (in case of unlisted company) must be:
Not less than the price worked out as per any internationally accepted pricing methodology on an arm’s length basis, duly certified by a SEBI registered Merchant Banker or a Chartered Accountant.
Listed Company: In case of listed companies, pricing should comply with SEBI ICDR Regulations.
For Rights Issue: There is no pricing restriction under FEMA for rights issue to existing shareholders (including non-residents), provided such offer is made at the same price as offered to residents.
VII. Mode of Payment
As per Regulation 4 of FEMA (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019:
The consideration shall be paid through:
- Inward remittance through normal banking channels; or
- NRE / FCNR(B) / Escrow account maintained as per RBI guidelines.
Note: Payment by debit to NRO account is not permitted for fresh investment.
VIII. Reporting Requirements
a) Obtaining FIRC: Obtain FIRC & KYC from remitting bank.b. Allotment Reporting (Reg. 4, MPR 2019)
b) Form FC-GPR: To be filed within 30 days from the date of allotment of shares.
Attachments include:
- FIRC and KYC from AD Bank,
- Valuation certificate from Chartered Accountant / Merchant Banker,
- Board resolution,
- Declaration by the company.
- Certificate by Company Secretary
FEMA Compliance Timeline – FIRC, FC-GPR, and Compounding
| Stage | Activity | Timeline | Responsibility | Remarks |
| a) | Receipt of Foreign Remittance | — | Foreign Investor / Indian Company | Inward foreign exchange remittance through normal banking channels. |
| b) | Issuance of FIRC by AD Bank | Typically within 7–10 days of receipt of funds | Authorized Dealer (AD) Bank | FIRC is a confirmation of foreign funds received in India. Request KYC along with it. |
| c) | KYC Report from AD Bank | Alongside or soon after FIRC | AD Bank | Mandatory for filing FC-GPR. Usually issued with FIRC. |
| d) | Allotment of Shares | Within 60 days from the date of receipt of consideration | Indian Company | Delay beyond 60 days may require refund or will be treated as a contravention. |
| e) | Filing of Form FC-GPR on FIRMS Portal | Within 30 days from the date of allotment | Indian Company | Attach FIRC, KYC, Valuation Certificate, CA Certificate, Board Resolution, etc. |
| f) | Approval / Acknowledgement from RBI (via AD Bank) | Generally within 2–3 weeks of submission | AD Bank / RBI | Subject to completeness of documentation and correctness. |
If Timelines are Not Adhered to:
| Non-Compliance | Implication | Remedial Action |
| Delay in allotment (beyond 60 days of receipt) | Violation of FEMA NDI Rules | Refund funds or go for Compounding |
| Delay in FC-GPR filing (beyond 30 days from allotment) | FEMA contravention | File delayed FC-GPR and apply for Compounding with RBI |
Summary Timeline (Visual)
Day 0 → Funds Received
Day 7–10 → FIRC + KYC from AD Bank
Day 0–60 → Shares must be allotted
Day 0–90 → FC-GPR to be filed (within 30 days of allotment)
>90 Days → Apply for compounding, if delayed
3–6 Months → RBI issues compounding order
Step-by-Step Process for Filing FC-GPR on FIRMS Portal
Pre-requisites Before Filing
i. Business User Registration on [2]FIRMS portal (one-time).
ii. Entity Master must be updated.
STEP 1: Login to FIRMS Portal
- Go to: https://firms.rbi.org.in
- Click on SMF (Single Master Form) Module
- Login using Business User ID & Password
- (If not registered, first complete “Business User Registration”)
STEP 2: Go to “Return Type” → Select FC-GPR
- Navigate to “Return Type” on the dashboard.
- Choose Form FC-GPR from the dropdown.
- Click on Add new Return.
STEP 3: Fill FC-GPR Part A
Key Details to be filled:
| Field | Description |
| Entity Details | Auto-populated from Entity Master |
| Issue Type | Choose: Right Issue / Private Placement |
| Date of Issue | Date of share allotment |
| Nature of Issue | Equity / Compulsorily Convertible Preference Shares, etc. |
| Face Value / Premium | Face value, issue price, premium, etc. |
| Amount | Total amount of FDI received for this allotment |
| Valuation Certificate | Enter CA/MB details and method used |
Click “Save and Proceed”.
STEP 4: Fill Part B – Investor Details
- Click “Add Investor Details”
- Fill in:
- Investor Name
- Country of Residence
- Nature (Individual, Company, etc.)
- Amount Remitted
- Date of Remittance
- Type of Instrument (e.g., equity shares)
- No. of shares allotted
- Name of AD Bank
Click “Save”
STEP 5: Attach Mandatory Documents (PDF format only)
| Document | Mandatory? |
| FIRC (from AD Bank) | √ |
| KYC Report | √ |
| Valuation Certificate | √ |
| Board Resolution | √ |
| Declaration by Authorised Signatory | √ |
| Relevant approvals (if under approval route) | Conditional |
STEP 6: Final Declaration and Submit to AD Bank
- Tick the final Declaration checkbox
- Click “Submit to Bank”
- You will get an Acknowledgement Number
STEP 7: AD Bank Review and Submission to RBI
- The Authorised Dealer (AD) Bank reviews your submission.
- If documents are in order, AD Bank approves and forwards to RBI.
- RBI gives final acknowledgment or seeks clarification if needed.
Conclusion:
Allotment of shares to a foreign national through rights issue or private placement is permitted under FEMA, provided the transaction adheres to pricing, sectoral, and reporting requirements. Companies and professionals must ensure strict adherence to timelines, valuation norms, and FIRMS portal compliance to avoid penalties.
While the Companies Act governs procedural aspects of allotment, FEMA focuses on ensuring that foreign exchange regulations and national interests are preserved. Hence, both frameworks must be viewed in conjunction, though this note is restricted to FEMA aspects alone.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
[1] https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1808806&utm_source=chatgpt.com
[2] FIRMS Portal URL: RBI FIRMS Portal – https://firms.rbi.org.in/firms/faces/pages/login.xhtml
Also Read:
Provisions Relating to Transfer of Shares to Non- Resident
Share Allotment to Foreigners under FEMA/ Companies Act
Regulatory framework of Issue of Shares & Securities to Foreigners
Compliance Requirements for Transfer of Shares from Non-Resident Person to Non-Resident Person
Procedure of Issuance of CCPS To A Person Resident Outside India
FEMA Guidelines for Indian Startups: FDI, ECB, Remittances & Compliance
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