Foreign Exchange Management Debt Instruments Regulations 2019

RESERVE BANK OF INDIA (FINANCIAL MARKETS REGULATION DEPARTMENT) (CENTRAL OFFICE) NOTIFICATION Mumbai, the 17th October, 2019 No. FEMA 396/2019-RB

Foreign Exchange Management (Debt Instruments) Regulations, 2019 G.S.R. 796(E). - In exercise of the powers conferred by clause (a) of sub-section (2) of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017, the Reserve Bank makes the following regulations to regulate investment in India by a Person Resident Outside India, namely:-

CHAPTER I PRELIMINARY

1. Short title and commencement :- (1) These Regulations may be called the Foreign Exchange Management (Debt Instruments) Regulations, 2019. (2) They shall come into force from the date of their publication in the Official Gazette.
2. Definitions: - In these Regulations, unless the context otherwise requires,:-

• a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);
• b) “asset reconstruction company” means a company registered with the Reserve Bank under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
• c) “authorised dealer” includes a person authorised under sub-section (1) of section 10 of the Act;
• d) “debt instruments” means the instruments listed under Schedule 1 of the regulations;
• e) “foreign central bank” means an institution or organisation or body corporate established in a country outside India and entrusted with the responsibility of carrying out central bank functions under the law for the time being in force in that country;
• f) “FCNR (B) account” means a Foreign Currency Non-Resident (Bank) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016;
• g) “FPI” or “Foreign Portfolio Investor” means a person registered in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014;
• h) “Indian company” means a company incorporated in India;
• i) “Indian entity” shall mean an Indian company or a LLP ;
• j) “investment” means to subscribe, acquire, hold or transfer any debt instrument or unit issued by a person resident in India;
• k) “investment on repatriation basis” means an investment, sale or maturity proceeds of which are net of taxes, eligible to be repatriated out of India, and the expression “investment on non-repatriation basis”, shall be construed accordingly;
• l) “mutual fund” means an entity governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996;
• m) “LLP” means a limited liability partnership formed and registered under the Limited Liability Partnership Act, 2008 (6 of 2009);
• n) “listed Indian company” means an Indian company which has any of its equity instruments or debt instruments listed on a recognised stock exchange in India and the expression “unlisted Indian company” shall be construed accordingly;
• o) “municipal bonds” mean debt instruments issued by municipalities constituted under Article 243Q of the Constitution of India;
• p) “NRI” or “Non-Resident Indian” means an individual resident outside India who is a citizen of India;
• q) “OCI” or “Overseas Citizen of India” means an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under section 7(A) of the Citizenship Act, 1955 ( 57 of 1955);
• r) “unit” means a beneficial interest of an investor in a mutual fund;
• s) “venture capital fund” means a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. (2) The words and expressions used but not defined in these regulations shall have the same meanings respectively assigned to them in the Act, rules and regulations.

CHAPTER II GENERAL CONDITIONS APPLICABLE TO ALL INVESTORS 3. Restriction on investment by a person resident outside India. - Save as otherwise provided in the Act, or rules or regulations made thereunder, no person resident outside India shall make any investment in India. Provided that an investment made in accordance with the Act or the rules or the regulations framed thereunder and held on the date of commencement of these Regulations, shall be deemed to have been made under these Regulations and shall accordingly be governed by these Regulations. Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons, permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary. 4. Restriction on receiving investment.- Save as otherwise provided in the Act or rules or regulations made thereunder, an Indian entity or a mutual fund, or a venture capital fund or a firm or an association of persons or a proprietary concern shall not receive any investment in India from a person resident outside India or record such investment in its books : Provided that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an Indian entity or a mutual fund, or a venture capital fund or a Firm or an Association of Persons or a proprietary concern to receive any investment in India from a person resident outside India or to record such investment subject to such conditions as may be considered necessary. 5. Permission for making investment by a person resident outside India.- Unless otherwise specified in these regulations or the relevant Schedules, any investment made by a person resident outside India shall be subject to the entry routes, the investment limits and the attendant conditionalities for such investment as laid down in these regulations.

(1) A person resident outside India, permitted for the purpose by the Reserve Bank in consultation with Central Government, may purchase or sell debt instruments in the manner and subject to the terms and conditions specified in Schedule 1. (2) A person resident outside India may trade in all exchange traded derivative contracts approved by Securities and Exchange Board of India from time to time subject to the limits prescribed by Securities and Exchange Board of India and conditions specified in Schedule 1. (3) A person resident outside India may enter into contract in any derivative transaction subject to conditions laid down by the Reserve Bank from time to time. 6. Merger or demerger or amalgamation of Indian companies Where a Scheme of Arrangement for an Indian company has been approved by National Company Law Tribunal (NCLT)/ Competent Authority, the Indian company may issue non-convertible redeemable preference shares or non-convertible redeemable debentures out of its general reserves by way of distribution as bonus to the shareholders resident outside India, subject to the following conditions, namely:

• a. the original investment made in the Indian company by a person resident outside India is in accordance with these Regulations and the conditions specified in the relevant Schedule;
• b. the said issue is in accordance with the provisions of the Companies Act, 2013 and the terms and conditions, if any, stipulated in the scheme approved by National Company Law Tribunal (NCLT)/ Competent Authority have been complied with;
• c. the Indian company shall not engage in any activity/ sector in which investment by a person resident outside India is prohibited.

7. Taxes and Remittance of sale proceeds. 7.1. Taxes All transaction under these regulations shall be undertaken through banking channels in India and subject to payment of applicable taxes and other duties/ levies in India.

7.2. Remittance of sale proceeds (1) No remittance of sale proceeds of a debt instrument held by a person resident outside India shall be made otherwise than in accordance with these Regulations and the conditions specified in the relevant Schedule. (2) An authorised dealer may allow the remittance of sale proceeds of a debt instrument (net of applicable taxes) to the seller of such instrument resident outside India - Provided -

• (i) the instrument was held by the seller on repatriation basis; and
• (ii) Reserve Bank's approval has been obtained in other cases for sale of the instrument and remittance of the sale proceeds thereof; (3) An authorised dealer may allow remittances – both inward and outward – related for permitted derivatives transactions.