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Central Government liberalises overseas investments

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In order to liberalize outbound investments from India, the Ministry of Finance has notified FEMA (Overseas Investment) Rules 2022.

Overseas investment from India was governed by FEMA (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015. However, Reserve Bank of India (RBI) had issued draft regulations last year seeking public comments with the objective to further liberalize regulatory framework and also to promote ease of doing business.

Consequently, the Central Government has now issued the Overseas Investment Rules to replace the two Regulations.

The rules provide conditions which has to complied by resident Indians while making Overseas investments. It provides that no resident Indian shall make any Overseas investment or financial commitment in derogation of FEMA, these rules and regulations, directions or circulars issues thereunder.

The rules now permit resident Indians to not only make Overseas investment in a seamless manner, as provided in its Schedules, but allows them to participate in corporate actions like rights issue and bonus issue. The rules also eases the process of restructuring of balance sheet, transfer or liquidation of a foreign entity in which investment has been made by a resident Indian.

Reserve Bank of India (RBI) has also been specified as administering authority and has been empowered to determine various conditions for such investments such as mode of payment, reporting, realization, etc. along with power to approve various forms of investments. Further, in certain investors have to obtain NOC from banks or regulatory bodies like Reserve Bank of India (RBI), SEBI, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority (PFRDA) or investigating bodies like Central Bureau Of Investigation., Serious Fraud Investigation Office (SFIO) or ENFORCEMENT DIRECTORATE. However, these rules shall not be applicable on investment made by financial institutions in an IFSC such as GIFT City regulated by International Financial Services Centres Authority.

Lastly, rules also prohibit or restrict investment in certain entities and instruments such as entities engaged in real estate activity, gambling, etc.

We would encourage our readers to share their views with Regstreet Law Advisors on info@regstreetlaw.com.

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