Consolidated FDI Policy Circular of 2020

Paragraph 3.4 Entry Routes for Investment

Chapter: 3 · General Conditions on FDI
Text as on: As issued 15 October 2020; Press Notes since are not applied

3.4 ENTRY ROUTES FOR INVESTMENT

3.4.1 Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route. Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government Route, are considered by respective Administrative Ministry/Department.

3.4.2 Foreign investment in sectors/activities under government approval route will be subject to government approval where:

(i) An Indian company is being established with foreign investment and is not owned by a resident entity or

(ii) An Indian company is being established with foreign investment and is not controlled by a resident entity or

(iii) The control of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc. or

(iv) The ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc.

(v) It is clarified that foreign investment shall include all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under Schedule I (FDI), II (FPI), III (NRI), VI (LLPs), VII (FVCI), VIII(Investment Vehicles) and IX (DRs) of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. FCCBs and DRs having underlying of instruments which can be issued under Schedule IX, being in the nature of debt, shall not be treated as foreign investment. However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned as foreign investment.

(vi) Investment by NRIs under Schedule IV of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will be deemed to be domestic investment at par with the investment made by residents.

(vii) A company, trust and partnership firm incorporated outside India and owned and controlled by non-resident Indians will be eligible for investments under Schedule IV of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and such investment will also be deemed domestic investment at par with the investment made by residents.

3.4 ENTRY ROUTES FOR INVESTMENT

3.4.1  Investments can be made by non-residents in the equity shares/fully, compulsorily
       and mandatorily convertible debentures/fully, compulsorily and mandatorily
       convertible preference shares of an Indian company, through the Automatic Route
       or the Government Route. Under the Automatic Route, the non-resident investor or
       the Indian company does not require any approval from Government of India for
       the investment. Under the Government Route, prior approval of the Government of
       India is required. Proposals for foreign investment under Government Route, are
       considered by respective Administrative Ministry/Department.

3.4.2 Foreign investment in sectors/activities under government approval route will be
         subject to government approval where:

(i) An Indian company is being established with foreign investment and is not
             owned by a resident entity or

(ii) An Indian company is being established with foreign investment and is not
      controlled by a resident entity or

(iii) The control of an existing Indian company, currently owned or controlled by
      resident Indian citizens and Indian companies, which are owned or controlled
      by resident Indian citizens, will be/is being transferred/passed on to a non-
      resident entity as a consequence of transfer of shares and/or fresh issue of
      shares to non-resident entities through amalgamation, merger/demerger,
      acquisition etc. or

(iv) The ownership of an existing Indian company, currently owned or controlled
      by resident Indian citizens and Indian companies, which are owned or
      controlled by resident Indian citizens, will be/is being transferred/passed on
      to a non-resident entity as a consequence of transfer of shares and/or fresh
      issue of shares to non-resident entities through amalgamation,
      merger/demerger, acquisition etc.

(v) It is clarified that foreign investment shall include all types of foreign
      investments, direct and indirect, regardless of whether the said investments
      have been made under Schedule I (FDI), II (FPI), III (NRI), VI (LLPs), VII
      (FVCI), VIII(Investment Vehicles) and IX (DRs) of Foreign Exchange
      Management (Non-Debt Instruments) Rules, 2019. FCCBs and DRs having
      underlying of instruments which can be issued under Schedule IX, being in the
      nature of debt, shall not be treated as foreign investment. However, any equity
      holding by a person resident outside India resulting from conversion of any
      debt instrument under any arrangement shall be reckoned as foreign
      investment.

(vi) Investment by NRIs under Schedule IV of Foreign Exchange Management
      (Non-Debt Instruments) Rules, 2019 will be deemed to be domestic investment
      at par with the investment made by residents.

(vii) A company, trust and partnership firm incorporated outside India and owned
      and controlled by non-resident Indians will be eligible for investments under
      Schedule IV of Foreign Exchange Management (Non-Debt Instruments) Rules,
      2019 and such investment will also be deemed domestic investment at par with
      the investment made by residents.