Amendments to Mode of Payment and Reporting of Non-Debt Instruments Regulations

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Jul 23, 2024

Amendments to Mode of Payment and Reporting of Non-Debt Instruments Regulations

The Reserve Bank of India (‘RBI’) has, by way of a Notification dated April 23, 2024, amended the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (‘Principal Regulations’). The amendments provide for the following:

i. In Regulation 3.1 of the Principal Regulations (Mode of payment and remittance of sale proceeds), Schedule XI has been inserted which deals with purchase or subscription of equity shares of companies incorporated in India on international exchanges scheme by permissible holder. The mode of payment and the remittance of sale proceeds in such a case will be as follows:

a. Mode of Payment: The consideration amount to be paid for purchase of equity shares of an Indian company listed on an international exchange will be either through:

Banking channels to a foreign currency account of the Indian company. As a pre-requisite, such an account should be held in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015 (as amended and summarised below); or
Inward remittance to a bank account in India from abroad through banking channels.

b. Remittance of Sale Proceeds: The proceeds from sale (net of taxes) of the equity shares may be remitted outside India or may be credited to the bank account of the permissible holder maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

ii. Regulation 4(8) of the Principal Regulations, prior to the amendment required only Authorised Dealer Category I Banks (‘Category I Banks’) to report to RBI the purchase/transfer of equity instruments by foreign portfolio investors (‘FPIs’) on the stock exchanges in India through Form LEC (FII). Post the amendment, this requirement has been extended to the investee company as well, which will also, via a Category I Bank, report to RBI in Form LEC (FII), the purchase/subscription of equity shares (where such purchase/subscription has been classified as foreign portfolio investment by permissible holder), apart from transfers between permissible holders, on an international exchange.

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