(Updated in 2025) As Amended by S.O. 2549(E)., dt. 11/06/2025 - Amendments in Rule 7(1), Rule 7(2) S.O. 3492(E)., dt. 16/08/2024 - Amendments in Rule 2(da), 2(an), Rule 9(1)(i), Rule 9A, Rule 23(7)(d), 23(i), Schedule I(1)(d), Paragraph (3)(a)(iii), Sl.No. F10, Schedule II(1)(a)(ii) and Schedule VII(1)(iii) S.O. 1722(E)., dt. 16/04/2024 - Amendment in Schedule I S.O. 1361(E)., dt. 14/03/2024 - Amendment in Rule 2 (aq) S.O. 332(E)., dt. 24/01/2024 - Amendments in Rule 2(aaa), 2(ag), 2(aka), Chapter X and Schedule XI S.O. 1802(E)., dt. 12/04/2022 - Amendments in Rule 2(e), 2(k), 2(s), 2(y), 2(ama), 2(ana), Rule 8, Rule 19(1), 19(2) and Schedule I S.O. 4242(E) dt.12/10/2021 S.O. 4091(E) 05/10/2021 S.O. 3411(E) dt.19/08/2021 S.O. 3206(E) dt.06/08/2021 S.O. 4441 (E) dt.08/12/2020 S.O. 2442 (E) dt.27/07/2020 S.O. 1374(E) dt. 27/04/2020 S.O. 1278 (E) dt.22/04/2020 and S.O. 4355(E) dt.05/12/2019 MINISTRY OF FINANCE (Department of Economic Affairs) NOTIFICATION New Delhi, the 17th October, 2

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S.Rule 1 Short title and commencement.--

(1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

(2) Save as otherwise provided in these rules, they shall come into force from the date of their publication in the Official Gazette.

S.Rule 2 Definitions.--

In these rules, 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 bank" shall have the meaning assigned to it in the Foreign Exchange Management (Deposit) Regulations,2016;

(d) "authorised dealer" includes a person authorised under sub-section (1) of section 10 of the Act;

¹³[(da) "control" shall have the same meaning as assigned to it in the Companies Act, 2013 and for the purposes of Limited Liability Partnership, shall mean the right to appoint majority of the designated partners, where such designated partners, with specific exclusion to others, have control over all the policies of an LLP;]

(e) "convertible note" means an instrume

S.¹[Rule 2A Reserve Bank to administer these rules.--

(1) These rules shall be administered by the Reserve Bank.

(2) While administrating these rules, the Reserve Bank may interpret and issue such directions, circulars, instructions, clarifications, as it may deem necessary, for effective implementation of the provisions of these rules.

S.Rule 3 Restriction on investment in India 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 made thereunder and held on the date of commencement of these rules shall be deemed to have been made under these rules and shall accordingly be governed by these rules:

Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons ¹[x x x x], permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary.

S.Rule 4 Restriction on receiving investment.--

Save as otherwise provided in the Act or rules or regulations made thereunder, an Indian entity or an investment vehicle, 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 ¹[x x x x], permit an Indian entity or an investment vehicle, 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.

S.Rule 5 Permission for making investment by a person resident outside India.--

Unless otherwise specified in these rules or the Schedules, any investment made by a person resident outside India shall be subject to the entry routes, sectoral caps or the investment limits, as the case may be, and the attendant conditionalities for such investment as laid down in these rules.

S.Rule 6 Investments by person resident outside India.---

A person resident outside India may make investment as under:--

(a) may subscribe, purchase or sell equity instruments of an Indian company in the manner and subject to the terms and conditions specified in Schedule I:

¹[Provided that an entity of a country, which shares land border with India or the beneficial owner of an investment into India who is situated in or is a citizen of any such country, shall invest only with the Government approval:

Provided further that, a citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route, in sectors or activities other than defence, space, atomic energy and such other sectors or activities prohibited for foreign investment:

Provided also that in the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction or purview of the above provisos,

S.Rule 7 Acquisition through rights issue or bonus issue.--

²[(1)] A person resident outside India and having investment in an Indian company may make investment in equity instruments (other than share warrants) issued by such company as a rights issue or a bonus issue, provided that,--

(a) the offer made by the Indian company is in compliance with the provisions of the Companies Act, 2013;

(b) such issue shall not result in a breach of the sectoral cap applicable to the company;

(c) the share holding on the basis of which the rights issue or the bonus issue has been made must have been acquired and held as per the provisions of these rules;

(d) in case of a listed Indian company, the rights issue to persons resident outside India shall be at a price determined by the company;

(e) in case of an unlisted Indian company, the rights issue to persons resident outside India shall not be at a price less than the price offered to persons resident in India;

(f) such investment made through rights

S.¹[Rule 7A Acquisition after renunciation of rights.--

A person resident outside India who has acquired a right from a person resident in India who has renounced it may acquire equity instruments (other than share warrants) against the said rights as per pricing guidelines specified under rule 21 of these rules.]

S.¹[Rule 8 Issue of Employees Stock Options, sweat equity shares and Share Based Employee Benefits to persons resident outside India.--

An Indian company may issue "employees' stock option", "sweat equity shares", and "Share Based Employee Benefits" to its employees or directors or employees or directors of its holding company or joint venture or wholly owned overseas subsidiary or subsidiaries who are resident outside India:

Provided that. -

(a) the scheme has been drawn either in terms of regulations issued under the Securities and Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 or as per other applicable law, as the case may be;

(b) the "employee's stock option" or "sweat equity shares" or "Share Based Employee Benefits" so issued under the applicable rules or regulations are in compliance with the sectoral cap applicable to the said company;

(c) the issue of "employee's stock option" or "sweat equity shares" or "Share Based Employee Benefits" in a company where foreign investment is under the approval route shall require prior government a

S.Rule 9 Transfer of equity instruments of an Indian company by or to a person resident outside India.--

A person resident outside India holding equity instruments of an Indian company or units in accordance with these rules or a person resident in India, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, specified in the Schedules of these rules and subject to the terms and conditions prescribed hereunder:

(1) a person resident outside India, not being a non-resident Indian or an overseas citizen of India or an erstwhile overseas corporate body may transfer by way of sale or gift the equity instruments of an Indian company or units held by him to any person resident outside India;

Explanation.-- It shall also include transfer of equity instruments of an Indian company pursuant to liquidation, merger, de-merger and amalgamation of entities or companies incorporated or registered outside India.

Provided that--

²[(i) prior Government approval shall be obtained for transfer in all cases wher

S.¹[Rule 9A Swap of equity instruments and equity capital.--

The transfer of equity instruments of an Indian company between a person resident in India and a person resident outside India may be by way of --

(i) swap of equity instruments, in compliance with the rules prescribed by the Central Government and the regulations specified by the Reserve Bank from time to time;

(ii) swap of equity capital of a foreign company in compliance with the rules prescribed by the Central Government including the Foreign Exchange Management, (Overseas Investment) Rules, 2022, and the regulations specified by the Reserve Bank from time to time:

Provided that prior Government approval shall be obtained for transfer in all cases wherever Government approval is applicable.

Explanation.-- For the purposes of this clause, the expression "equity capital"shall have the same meaning as assigned to it in the Foreign Exchange Management, (Overseas Investment) Rules, 2022, as amended from time to time.

S.Rule 10 Investment by FPI.--

A FPI may make investments as under:--

(1) A FPI may purchase or sell equity instruments of an Indian company which is listed or to be listed on a recognised stock exchange in India, and/or may purchase or sell securities other than equity instruments, in the manner and subject to the terms and conditions specified in Schedule II.

Note.-- A FPI may trade or invest in all exchange traded derivative contracts approved by Securities and Exchange Board of India from time to time subject to the limits specified by the Securities and Exchange Board of India and the conditions prescribed in Schedule II.

(2) A FPI may purchase, hold, or sell Indian Depository Receipts (IDRs) of companies resident outside India and issued in the Indian capital market, in the manner and subject to the terms and conditions as prescribed in Schedule X.

S.¹[Rule 11 Transfer of equity instruments of an Indian company by FPI.--

A FPI holding equity instruments of an Indian company or units in accordance with these rules, may transfer such equity instruments or units held by him in compliance with the conditions, if any, specified in the Schedules annexed to these rules, subject to the terms and conditions specified therein and by the Securities and Exchange Board of India:

Provided that,--

(i) prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires the Government approval;

(ii) where the acquisition of equity instruments by FPI under Schedule II has resulted in a breach of the applicable aggregate FPI limits or sectoral limits the provisions of item (iii) of sub-paragraph (a) of paragraph (1) of Schedule II shall apply.]

S.Rule 12 Investment by NRI or OCI.--

A NRI or an OCI may make investments as under:--

(1) A NRI or an OCI may, on repatriation basis, purchase or sell equity instruments of a listed Indian company and other securities in the manner and subject to the terms and conditions prescribed in Schedule III.

(2) A NRI or an OCI may, on non-repatriation basis, purchase or sell equity instruments of an Indian company or other securities or contribute to the capital of a LLP or a firm or proprietary concern, in the manner and subject to the terms and conditions specified in Schedule IV.

Note.-- A NRI or an OCI may trade or invest in all exchange traded derivative contracts approved by the Securities and Exchange Board of India from time to time subject to the limits specified by Securities and Exchange Board of India and conditions prescribed in Schedule III.

(3) A NRI or an OCI may purchase, hold, or sell Indian Depository Receipts (IDRs) of companies resident outside India and issued in the Indi

S.Rule 13 Transfer of equity instruments by NRI or OCI.--

A NRI or an OCI holding equity instruments of an Indian company or units in accordance with these rules may transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in the Schedules of these rules and subject to the terms and conditions prescribed hereunder:

(1) A NRI or an OCI holding equity instruments of an Indian company or units on repatriation basis may transfer the same by way of sale or gift to any person resident outside India:

Provided that,--

(i) prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires Government approval;

(ii) where the acquisition of equity instruments by an NRI or an OCI under the provisions of Schedule III of these rules has resulted in a breach of the applicable aggregate NRI or OCI limit or sectoral limits, the NRI or the OCI shall sell such equity instruments to a person resident in India eligible to hold s

S.Rule 14 Investment in securities by other non-resident investors.--

The other non-resident investors may make investments in securities in the manner and subject to the terms and conditions specified in Schedule V.

S.Rule 15 Transfer of securities by other non-resident investors.--

The other non-resident investors, holding securities in accordance with these rules, may transfer the securities subject to such terms and conditions prescribed in Schedule V and as specified by the Securities and Exchange Board of India and the Reserve Bank.

S.Rule 16 Investment by FVCI.--

A Foreign Venture Capital Investor (FVCI) may make investments in the manner and subject to the terms and conditions specified in Schedule VII.

S.Rule 17 Transfer of equity instruments of an Indian company by or to a FVCI.--

A FVCI holding equity instruments of an Indian company or units in accordance with these rules or a person resident in India, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in Schedule VII of these rules and as specified by the Securities and Exchange Board of India and the Reserve Bank.

S.Rule 18 Issue of Convertible Notes by an Indian startup company.--

(1) A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered or incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of twenty five lakh rupees or more in a single tranche.

(2) A startup company, engaged in a sector where investment by a person resident outside India requires Government approval, may issue convertible notes to a person resident outside India only with such approval. Further, issue of equity shares against such convertible notes shall be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment.

(3) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be specified by the Reserve Bank.

(4) A NRI or an OCI may acquire convertible notes on non-repatriation basis in accordance with Schedule IV of

S.Rule 19 Merger or demerger or amalgamation of Indian companies.--

¹[ (1) Where a scheme of compromise or arrangement or merger or amalgamation of two or more Indian companies or a reconstruction by way of demerger or otherwise of an Indian company, or transfer of undertaking of one or more Indian company to another Indian company, or involving division of one or more Indian company, has been approved by the National Company Law Tribunal (NCLT) or other authority competent to do so by law, the transferee company or the new company, as the case may be, may issue equity instruments to the existing shareholders of the transferor company resident outside India, subject to the following conditions, namely:--

(a) the transfer or issue is in compliance with the entry routes, sectoral caps or investment limits, as the case may be and the attendant conditionalities of investment by a person resident outside India:

Provided that where the percentage is likely to breach the sectoral caps or the attendant conditionalities, the tra

S.Rule 20 Reporting requirements.--

The reporting requirements for any investment in India by a person resident in India shall be as specified by the Reserve Bank.

S.Rule 21 Pricing guidelines.--

(1) The pricing guidelines specified in these rules shall not be applicable for any transfer by way of sale done in accordance with Securities and Exchange Board of India regulations where the pricing is specified by Securities and Exchange Board of India.

(2) Unless otherwise prescribed in these rules, the price of equity instruments of an Indian company,--

(a) issued by such company to a person resident outside India shall not be less than:

(i) the price worked out in accordance with the Securities and Exchange Board of India guidelines in case of a listed Indian company or in case of a company going through a delisting process as per the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009;

(ii) the valuation of equity instruments done as per any internationally accepted pricing methodology for valuation on an arm's length basis duly certified by a Chartered Accountant or a Merchant Banker registered with the Securities

S.Rule 22 Taxes and remittances of sale proceeds.--

S.Rule 24 Acquisition and transfer of property in India by a NRI or an OCI.--

A NRI or an OCI may--

(a) acquire immovable property in India other than an agricultural land or farm house or plantation property:

Provided that the consideration, if any, for transfer, shall be made out of:

(i) funds received in India through banking channels by way of inward remittance from any place outside India; or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act, rules or regulations framed thereunder:

Provided further that no payment for any transfer of immovable property shall be made either by traveller's cheque or by foreign currency notes or by any other mode other than those specifically permitted under this clause;

(b) acquire any immovable property in India other than agricultural land or farm house or plantation property by way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as defined in clause (77) of section 2 of the Com

S.Rule 25 Joint acquisition by the spouse of a NRI or an OCI.--

A person resident outside India, not being an NRI or an OCI, who is a spouse of an NRI or an OCI may acquire one immovable property (other than agricultural land or farm house or plantation property), jointly with his or her NRI or OCI spouse:

Provided that--

(a) consideration for transfer, shall be made out of--

(i) funds received in India through banking channels by way of inward remittance from any place outside India; or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank;

(b) no payment for any transfer of immovable property shall be made either by traveller's cheque or by foreign currency notes or by any other mode other than those specifically permitted under this clause:

Provided that the marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property:

S.Rule 26 Acquisition of immovable property for carrying on a permitted activity.--

A person resident outside India who has established in India in accordance with the Foreign Exchange Management (Establishment in India of a Branch office or a liaison office or a project office or any other place of business) Regulations, 2016, as amended from time to time, a branch, office or other place of business for carrying on in India any activity, excluding a liaison office, may--

(a) acquire any immovable property in India, which is necessary for or incidental to carrying on such activity:

Provided that,--

(i) all applicable laws, rules, regulations, for the time being in force are duly complied with; and

(ii) the person files with the Reserve Bank a declaration in the Form IPI as specified by the Reserve Bank from time to time, not later than ninety days from the date of such acquisition;

(b) transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable property acquired in pursuance of clause (a) of

S.Rule 27 Purchase or sale of immovable property by Foreign Embassies or Diplomats or Consulate Generals.--

A Foreign Embassy or Diplomat or Consulate General may purchase or sell immovable property in India other than agricultural land or plantation property or farm house provided:

(i) clearance from Government of India, Ministry of External Affairs is obtained for such purchase or sale; and

(ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channels.

S.Rule 28 Acquisition by a long-term visa holder.--

A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in those countries, namely, Hindus, Sikhs, Buddhists, Jains, Parsis and Christians who is residing in India and has been granted a Long Term Visa (LTV) by the Central Government may purchase only one residential immovable property in India as dwelling unit for self-occupation and only one immovable property for carrying out self-employment subject to the following conditions, namely:--

(a) the property shall not be located in and around restricted or protected areas so notified by the Central Government and cantonment areas;

(b) the person submits a declaration to the Revenue Authority of the district where the property is located, specifying the source of funds and that he or she is residing in India on LTV;

(c) the registration documents of the property shall mention the nationality and the fact that such person is on LTV;

(d) the property of such person ma

S.Rule 29 Repatriation of sale proceeds.--

(1) A person referred to in sub-section (5) of section 6 of the Act, or his successor shall not, except with the general or specific permission of the Reserve Bank, repatriate outside India the sale proceeds of any immovable property referred to in that sub- section.

(2) In the event of sale of immovable property other than agricultural land or farm house or plantation property in India by an NRI or an OCI, the authorised dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:--

(a) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of these rules;

(b) the amount for acquisition of the immovable property was paid in foreign exchange received through banking channels or out of funds held in Foreign Currency Non-Resident Account or out of funds held in Non-Resident External Account;

S.Rule 30 Prohibition on transfer of immovable property in India.--

(1) Save as otherwise provided in the Act or rules, no person resident outside India shall transfer any immovable property in India:

Provided that:--

(a) the Reserve Bank may, for sufficient reasons, permit the transfer subject to such conditions as may be considered necessary;

(b) a bank which is an authorised dealer may, subject to the directions issued by the Reserve Bank in this behalf, permit a person resident in India or on behalf of such person to create charge on his immovable property in India in favour of an overseas lender or security trustee, to secure an external commercial borrowing availed under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000;

(c) an authorised dealer in India being the Indian correspondent of an overseas lender may, subject to the directions issued by the Reserve Bank in this regard, create a mortgage on an immovable property in India owned by an NRI or an OCI,

S.Rule 31 Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries.--

No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic People's Republic of Korea (DPRK) without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease not exceeding five years:

Provided that this prohibition shall not apply to an OCI.

Explanation.-- For the purpose of this rule, the term "citizen" shall include natural persons and legal entities.

S.Rule 32 Miscellaneous.--

Any transaction involving acquisition or transfer of immovable property under these rules shall be undertaken:--

(a) through banking channels in India;

(b) subject to payment of applicable taxes and other duties or levies in India.

S.Rule 33 Savings.--

Any existing holding of immovable property in India by a person resident outside India made in accordance with the policy in existence at the time of such acquisition would not require any modifications to conform to these rules.

S.Rule 34 Investment by permissible holder.--

(1) A permissible holder may purchase or sell equity shares of a public Indian company which is listed or to be listed on an International Exchange under Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme as specified in Schedule XI.

(2) The mode of payment and other attendant conditions for remittance of proceeds of issue shall be as specified by the Reserve Bank.]

S.SCHEDULE II

SCHEDULE II (See Rule 10(1)) Investments by Foreign Portfolio Investors (1) Purchase or sale of equity instruments by Foreign Portfolio Investors (a) Purchase and sale of equity instruments.-- A FPI may purchase or sell equity instruments of an Indian company listed or to be listed on a recognised stock exchange in India subject to the following conditions, namely:-- (i) The total holding by each FPI or an investor group, shall be less than 10 percent of the total paid-up equity capital on a fully diluted basis or less than 10 percent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company 1[by FPIs] and the total h S.SCHEDULE III SCHEDULE III (See Rule 12(1)) Investments by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis (1) Purchase or sale of equity instruments of a listed Indian company A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may purchase or sell equity instruments of a listed Indian company on repatriation basis, on a recognized stock exchange in India, subject to the following conditions, namely:-- (a) NRIs or OCIs may purchase and sell equity instruments through a branch designated by an Authorized Dealer for the purpose; (b) The total holding by any individual NRI or OCI shall not exceed 5 percent of the total paid-up equity capital on a fully diluted basis or shall not exce S.SCHEDULE IV SCHEDULE IV (See Rule 12(2)) Investment by NRI or OCI on non-repatriation basis A. Purchase or sale of equity instruments of an Indian company or units or contribution to the capital of a LLP by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on Non-repatriation basis. (1) Purchase or sale of equity instruments or convertible notes or units or contribution to the capital of a LLP. (a) A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI), including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, may purchase or contribute, as the case may be, on non-repatriation basis the following, namely:-- (1) a equity instrument issued by a S.SCHEDULE V SCHEDULE V (See Rule (14)) Investment by other non-resident investors Permission to other non-resident investors for purchase of securities (1) Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks may purchase securities subject to such terms and conditions as may be specified by the Reserve Bank and the Securities and Exchange Board of India. (2) "Eligible Foreign Entity (EEE)" as defined in SEBI circular dated the 9th October 2018 and having actual exposure to Indian physical commodity market may participate in domestic commodity derivative markets in accordance with framework specified by the Securities and Exchange Board of India. (3) The mod S.SCHEDULE VI SCHEDULE VI (See rule 6(b)) Investment in a Limited Liability Partnership (LLP) (a) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh), not being a Foreign Portfolio Investor (FPI) or a Foreign Venture Capital Investor (FVCI), may contribute to the capital of an LLP operating in sectors or activities where foreign investment up to 100 per cent is permitted under automatic route and there are no FDI linked performance conditions. (b) Investment by way of "profit share" shall fall under the category of reinvestment of earnings. (c) Investment in a LLP is subject to the compliance of the conditions of Limited Liabilit S.SCHEDULE VII SCHEDULE VII (See Rule 16) Investment by a Foreign Venture Capital Investor (FVCI) (1) Subject to the terms and conditions as may be laid down by the Central Government, a Foreign Venture Capital Investor (FVCI) may purchase,-- (i) securities, issued by an Indian company engaged in any sector mentioned in paragraph (4) of this Schedule and whose securities are not listed on a recognised stock exchange at the time of issue of the said securities; (ii) units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund (Cat-I AIF) or units of a scheme or of a fund set up by a VCF or by a Cat-I AIF. 1[(iii) equity or equity linked instrument or debt instrument issued by an In S.SCHEDULE VIII SCHEDULE VIII (See Rule 6(c)) Investment by a person resident outside India in an Investment Vehicle (1) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh) may invest in units of Investment Vehicles. (2) A person resident outside India who has acquired or purchased units in accordance with this Schedule may sell or transfer in any manner or redeem the units as per regulations framed by the Securities and Exchange Board of India or directions issued by the Reserve Bank. (3) An Investment vehicle may issue its units to a person resident outside India against swap of equity instruments of a Special Purpose Vehicle (SP S.SCHEDULE IX SCHEDULE IX (See Rule 6(d)) Investment in Depository Receipts by a person resident outside India (1) Issue or transfer of eligible instruments to a foreign depository for the purpose of issuance of depository receipts by eligible person(s).-- (a) Any security or unit in which a person resident outside India is allowed to invest under these rules shall be eligible instruments for issue of Depository Receipts in terms of Depository Receipts Scheme, 2014 (DR Scheme,2014). (b) A person shall be eligible to issue or transfer eligible instruments to a foreign depository for the purpose of issuance of depository receipts in accordance with the DR Scheme, 2014 and guidelines issued by the Central Government in this regard.< S.SCHEDULE X SCHEDULE X (See Rule 10(2)) Issue of Indian Depository Receipts (1) Issue of IDRs.-- Companies incorporated outside India may issue IDRs through a Domestic Depository, to persons resident in India and outside India, subject to the following conditions: (a) the issue of IDRs is in compliance with the Companies (Registration of Foreign Companies) Rules, 2014 and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; (b) any issue of IDRs by financial or banking companies having presence in India, either through a branch or subsidiary, shall require prior approval of the sectoral regulator(s); (c) IDRs shall be denominated in Indian rupee S.SCHEDULE XI 1[SCHEDULE XI [See rule 34] Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme 1. Issue and Listing on International Exchanges .-- A public Indian company may issue equity shares or offer equity shares of existing shareholders, subject to the following conditions, namely:-- (i) such issue or offer of equity shares of existing shareholders shall be permitted and such shares shall be listed on any of the specified International Exchange. (ii) such issue or offer of equity shares of existing shareholders shall be subject to prohibited activities, and sectoral caps prescribed in paragraph 2 and 3 of Schedule I to these rules; S.Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022 All Amendments Incorporated at Appropriate place MINISTRY OF FINANCE (Department of Economic Affairs) New Delhi, the 12th April, 2022 S.O. 1802(E).--In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely: 1. Short title and commencement. -- (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022. (2) They shall come into force on the date of their publication in the Official Gazette. S.Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024 All Amendments Incorporated at Appropriate place MINISTRY OF FINANCE (Department Of Economic Affairs) NOTIFICATION New Delhi, the 24th January, 2024 S.O. 332(E).--In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999) read with sub-section (3) of section 23 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-- 1. Short title and commencement. -- (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024. S.Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024 All Amendments Incorporated at Appropriate place MINISTRY OF FINANCE (Department of Economic Affairs) NOTIFICATION New Delhi, the 14th March, 2024 S.O. 1361(E).--In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-- 1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024. (2) They shall come into force on the date of their publication in the Official Gazette. 2. S.Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2024 All Amendments Incorporated at Appropriate place MINISTRY OF FINANCE (Department of Economic Affairs) NOTIFICATION New Delhi, the 16th April, 2024 S.O. 1722(E).-- In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-- 1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2024. (2) They shall come into force on the date of their publication in the Official G S.Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024 All Amendments Incorporated at Appropriate place MINISTRY OF FINANCE (Department of Economic Affairs) NOTIFICATION New Delhi, the 16th August, 2024 S.O. 3492(E).-- In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-- 1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024. (2) They shall come into force on the date of their publ S.Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025 All Amendments Incorporated at Appropriate place MINISTRY OF FINANCE (Department of Economic Affairs) NOTIFICATION New Delhi, the 11th June, 2025 S.O. 2549(E).-- In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:-- 1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025. (2) They shall come into force on the date of their publication in the Officia S.Rule 23 Downstream investment.-- (1) Indian entity which has received indirect foreign investment shall comply with the entry route, sectoral caps, pricing guidelines and other attendant conditions as applicable for foreign investment. Explanation.-- Downstream investment by an LLP not owned and not controlled by resident Indian citizens or owned or controlled by persons resident outside India is allowed in an Indian company operating in sectors where foreign investment up to one hundred percent is permitted under automatic route and there are no FDI linked performance conditions. (2) With effect from the 31st day of July, 2012, downstream investment(s) made under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading book, or for acquisition of shares due to defaults in loans, by a banking company, as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) incorporated in India, which is not owned and not controlled by resident Indi Legal Commentary on Foreign Exchange Management (Non-debt Instruments) Rules, 2019 Section Rule 23 Introduction The Foreign Exchange Management (Non-debt Instruments) Rules, 2019, govern the regulation of foreign investments in India through instruments other than debt, such as equity, share warrants, and derivatives. Rule 23 specifically deals with downstream investments, i.e., investments made by an Indian entity that has received foreign investment into its own capital instruments. This section is crucial for regulating cross-border investments, ensuring compliance with sectoral caps, ownership, and control norms, and aligning with the overarching FEMA framework. What does Rule 23 Say? Rule 23 of FEM (NDI) Rules, 2019, addresses the provisions related to downstream investment, including:- The definition of downstream investment as an investment made by an Indian entity which has received foreign investment into its capital instruments.- The conditions for such investments, including the requirement that the Indian entity remains owned and controlled by resident Indian citizens or entities.- The limits on foreign ownership, typically less than 10% of the paid-up equity capital or on a fully diluted basis.- The stipulation that downstream investments should adhere to sectoral caps, ownership, and control criteria.- Clarifications on the treatment of indirect foreign investment and its implications under FEMA. Essential Ingredients Ownership & Control: The Indian entity must be owned and controlled by resident Indian citizens or entities; ownership exceeding 50% or control through voting rights is critical. Foreign Investment Limits: The foreign holding in the downstream entity must not exceed 10% of the total paid-up equity capital or on a fully diluted basis. Compliance with Sectoral Caps: The investment must be within the sectoral limits prescribed under FEMA. Permissibility of Structures: Investment through equity instruments, including share warrants, subject to minimum upfront consideration (e.g., 25%) and permissible timelines for the balance. Prohibition of Control: The arrangement should not result in foreign control over the Indian entity, unless explicitly permitted. Downstream Investment Definition: Clarifies that investments by an Indian entity in another Indian entity that has received foreign investment are considered downstream investments. Cross-border Share Swaps: Simplified procedures for share swaps between foreign and Indian entities, provided they comply with FEMA norms. Reporting & Documentation: Proper reporting to RBI and compliance with KYC and ownership disclosures. Scope of Section Applicability: Applies to all Indian entities that have received foreign investment and intend to make further investments in other Indian entities or foreign entities. Sectoral & Ownership Limits: Ensures that downstream investments stay within prescribed sectoral caps and ownership/control thresholds. Cross-border Transactions: Covers transfer of capital instruments between resident and non-resident entities, including indirect investments. Regulatory Oversight: Overseen by RBI, with provisions for reporting, approval, and penalties for contravention. Alignment with FDI Policy: Harmonizes with sector-specific FDI policies, including automatic and government routes. Restrictions & Exceptions: Clarifies that certain arrangements, such as control or ownership exceeding limits, are prohibited unless explicitly permitted. Punishment for Violations Violations of Rule 23 or related provisions can attract:- Monetary Penalties: Up to three times the amount involved in the contravention.- Imprisonment: Severe contraventions may lead to imprisonment, as per FEMA penalties framework.- Revocation of Approvals: RBI or authorities may revoke existing approvals or licenses.- Legal Consequences: Non-compliance can lead to restrictions on future foreign investments and legal proceedings.- Penalties for False Declarations: Penalties for providing false or misleading information during reporting or approval processes.- Disqualification: Entities or individuals may be disqualified from future investments or operations. Legal Comments (Bullet Point Summary) Ownership & Control - The rules emphasize that downstream investments must be made by entities owned and controlled by resident Indian citizens, aligning with FEMA's sectoral and ownership norms - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Foreign Investment Limits - Investment in downstream entities is capped at less than 10% on a fully diluted basis, ensuring no undue foreign control - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Derivative & Equity Instruments - Instruments like share warrants and derivatives are permissible, subject to minimum upfront consideration and lock-in periods, facilitating flexible cross-border investments - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Downstream Investment Definition - Clarifies that investments by an Indian entity in another Indian entity that has foreign investment are considered downstream, affecting compliance and reporting obligations - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Sectoral & Ownership Caps - Investments must adhere to sector-specific caps, preventing foreign dominance in sensitive sectors, in line with FEMA policies - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Indirect Foreign Investment - The rules specify that investments through Indian entities owned or controlled by foreigners are considered indirect foreign investments, requiring careful monitoring - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Reporting & Compliance - Entities are required to report downstream investments and ownership details to RBI, ensuring transparency and regulatory oversight - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi"] Prohibition of Control - The rules prohibit arrangements that confer control to foreign investors beyond permissible limits, maintaining sovereignty over Indian companies - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Penalties for Contravention - Violations can lead to penalties up to three times the involved amount, or imprisonment, underscoring the importance of compliance - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi"] Circular Clarifications - RBI circulars clarify that investments under the automatic route, including downstream investments, are permissible if within prescribed limits and procedures - [Sources: "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Cross-border Share Swaps - Simplified procedures for cross-border equity swaps facilitate FDI while ensuring compliance with FEMA norms - [Sources: "01100045499"] Ownership & Control Tests - The rules specify that beneficial ownership exceeding 50% or control through voting rights is critical for determining the nature of investments - [Sources: "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Derivative Transactions - Derivatives like foreign currency options and swaps are permitted under RBI regulations, aiding hedging strategies for cross-border investments - [Sources: "01100045499"] Legal & Regulatory Alignment - The rules are designed to align with the broader FEMA framework, ensuring that investments are compliant with sectoral and ownership norms - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Penalties & Enforcement - Non-compliance with Rule 23 can result in penalties, restrictions, or criminal proceedings, emphasizing regulatory discipline - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi"] Interpretation & Natural Justice - Courts have emphasized that natural justice principles apply, including the right to be heard and proper disclosure, though not necessarily all documents relied upon - [Sources: "01100045499", "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Legal Validity of Instruments - Instruments like share warrants and derivatives are valid if they meet the criteria set in FEMA and RBI regulations, facilitating legitimate cross-border transactions - [Sources: "01100045499", "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Enforcement & Penalties - Enforcement of penalties requires strict adherence to procedural rules, including proper notices and opportunity to be heard - [Sources: "01100045499"] Control & Ownership Tests - The rules specify that control is determined by the right to appoint majority directors or manage policy decisions, crucial for compliance assessment - [Sources: "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Impact of Circulars - RBI circulars clarify that permissible investments include those within sectoral caps and approved structures, and violations can attract penalties - [Sources: "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Legal & Policy Harmonization - The rules and circulars are designed to harmonize with India's foreign investment policy, sectoral caps, and control norms, ensuring a stable investment climate - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Penalties & Disqualifications - Contravention of Rule 23 can lead to penalties, disqualification from future investments, and legal proceedings, safeguarding regulatory compliance - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi"] Derivatives & Hedging - Permissible derivatives like swaps and options facilitate risk management for foreign investors, provided RBI regulations are followed - [Sources: "01100045499"] Legal & Judicial Approach - Courts have consistently held that natural justice principles, including fair opportunity and disclosure, are applicable but do not require exhaustive document sharing - [Sources: "01100045499", "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Sectoral & Ownership Norms - The rules reinforce that foreign investment exceeding sectoral caps or resulting in control beyond permissible limits is prohibited - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Implementation & Compliance - Entities must ensure compliance with reporting, ownership, and control norms to avoid penalties and legal action - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi"] Legal Certainty & Clarity - Clear definitions and procedural safeguards in the rules provide legal certainty for foreign investors and Indian entities alike - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Recent Clarifications & Ease of Doing Business - RBI circulars and amendments aim to simplify procedures like cross-border swaps and downstream investments, promoting ease of FDI - [Sources: "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Natural Justice & Fair Procedure - Courts have underscored that principles of natural justice, including the right to be heard and proper disclosure, are fundamental but not absolute, especially in regulatory proceedings - [Sources: "01100045499", "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Penalties & Enforcement - Strict enforcement mechanisms exist for violations, including penalties, restrictions, and criminal sanctions, ensuring adherence to FEMA norms - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi"] Legal & Policy Consistency - The rules are consistent with India's broader foreign investment and economic policies, balancing openness with regulation - [Sources: "Directorate of Enforcement VS Subhash Muljimal Gandhi", "Future Retail Ltd. VS Amazon. Com Investment Holdings LLC"] Impact of Judicial Decisions - Courts have upheld the validity of RBI circulars and rules, emphasizing their role in maintaining financial stability and compliance - [Sources: "01100045499", "Zaheer Mauritius VS Director of Income Tax (International Taxation)-II"] Conclusion Rule 23 of the FEM (NDI) Rules, 2019, plays a pivotal role in regulating downstream foreign investments, ensuring they are within the permissible ownership, control, and sectoral limits prescribed by FEMA. The legal framework emphasizes transparency, compliance, and deterrence against violations through penalties, while courts have upheld the principles of natural justice and the validity of RBI regulations. Proper understanding and adherence to these provisions are essential for lawful cross-border investments and maintaining the integrity of India’s foreign exchange regime. Note: This commentary synthesizes the provided sources, focusing on the legal and regulatory aspects pertinent to Rule 23, with references formatted in square brackets. S.SCHEDULE I SCHEDULE I (See Rule 6(a)) Purchase or sale of equity instruments of an Indian company by a person resident outside India (1) Purchase or sale of equity instruments of an Indian company by a person resident outside India (a) An Indian company may issue equity instruments to a person resident outside India subject to entry routes, sectoral caps and attendant conditionalities prescribed in this Schedule. (b) A person resident outside India may purchase equity instruments of a listed Indian company on a stock exchange in India: Provided that-- (i) the person resident outside India making the investment has already acquired control of such company in accordance with SEBI (Substantial Acquisition of Shares and Takeo Legal Commentary on Foreign Exchange Management (Non-debt Instruments) Rules, 2019 – Schedule I Introduction The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules, 2019) govern the regulation of non-debt financial instruments, including equity, derivatives, and participatory notes, issued or transferred by residents and non-residents. Schedule I of these rules specifies the permissible instruments, conditions, and procedures for cross-border transactions involving Indian and foreign entities, aiming to streamline foreign investment and ensure compliance with Indian laws. What does Schedule I Say Schedule I delineates the types of non-debt instruments that can be issued or transferred, such as equity shares, GDRs, ADRs, and derivatives, with detailed conditions on their issuance, transfer, valuation, and reporting. It emphasizes prior approval requirements, valuation norms, and compliance with FDI policies, while also providing for simplified procedures for certain transactions like share swaps and conversions, subject to regulatory oversight. Essential Ingredients Permissible Instruments: Equity shares, GDRs, ADRs, convertible notes, share warrants, and derivatives. Conditions for Issuance/Transfer: Prior approval from RBI or compliance with specific regulations; adherence to valuation norms; compliance with FDI policies. Reporting & Documentation: Submission of reports, valuation certificates, and compliance declarations; quarterly reporting obligations. Restrictions & Limitations: Limits on shareholding, lock-in periods, and restrictions on certain types of transactions (e.g., share swaps without approval). Regulatory Oversight: Oversight by RBI, SEBI, and other authorities; powers to investigate, penalize, or cancel instruments in case of violations. Cross-border Share Swaps: Simplified procedures introduced for equity swaps, provided conditions on valuation, approval, and control are met. Derivatives & Offshore Instruments: Recognition of derivatives, including participatory notes, with conditions for their issuance and transfer. Valuation Norms: Use of internationally accepted valuation methods, certified by qualified professionals, especially for unlisted securities. Prohibition & Penalties: Violations attract penalties, including monetary fines or imprisonment, as per FEMA provisions. Scope of Schedule I Schedule I applies to:- Indian residents and entities seeking to issue or transfer securities, derivatives, or offshore instruments.- Non-residents investing in India via approved instruments.- Foreign investors, including FPIs and NRIs, engaging in cross-border transactions.- Instruments involving foreign exchange, securities, derivatives, and share swaps.- Transactions requiring prior approval or reporting under FEMA and related regulations.It aims to harmonize foreign investment procedures, facilitate legitimate cross-border transactions, and prevent illegal or unauthorized dealings. Punishment for Violations Violations of Schedule I provisions, including unauthorized issuance, transfer, or valuation breaches, attract penalties under FEMA, which may include:- Monetary fines.- Imprisonment in severe cases.- Cancellation or suspension of instruments or licenses.- Recovery of amounts through proceedings like attachment or confiscation.- Disqualification from future transactions or investments.The enforcement is carried out by authorities such as RBI, SEBI, and Enforcement Directorate, with powers to investigate and penalize. Legal Comments Permissible Instruments - Schedule I authorizes issuance of equity shares, GDRs, ADRs, share warrants, and derivatives, subject to compliance with conditions - [FEMA Rules, Schedule I] Prior Approval - Issuance or transfer of instruments like GDRs and share swaps require prior approval from RBI or compliance with specified regulations - [FEMA Schedule I; FEMA Regulations, 2000] Valuation Norms - Instruments, especially unlisted shares, must be valued by certified professionals using internationally accepted methods—failure to comply can lead to penalties - [Schedule I; Para 4 of FEMA Regulations, 2000] Share Swaps & Cross-border Transactions - Simplified procedures introduced for share swaps, provided valuation, approval, and control conditions are met, promoting ease of FDI flows - [Rule 6, Schedule I; Amended Rules 2020] Derivative Transactions - Recognized as valid if entered into in accordance with the Rules; derivatives include interest rate swaps, foreign currency swaps, and participatory notes - [Section 45U; FEM Regulations, 2000; Schedule I] Offshore Instruments - Participatory notes and offshore derivative instruments are regulated under SEBI and RBI, with conditions on their issuance, transfer, and reporting - [SEBI Regulations, 2014; Schedule I; FEMA Rules, 2019] Reporting & Documentation - Regular submission of valuation certificates, reports, and compliance declarations is mandatory; non-compliance attracts penalties - [Schedule I; Rule 4, FEMA Rules, 2019] Restrictions & Limits - Investment limits, lock-in periods, and restrictions on certain transactions like share swaps without approvals are explicitly mandated - [Schedule I; Rule 6; FEMA Rules, 2019] Penalties & Enforcement - Violations such as unauthorized issuance, valuation breaches, or non-reporting can lead to fines, imprisonment, or cancellation of licenses under FEMA - [Section 13; FEMA Act] Derivative & Offshore Instruments - The Rules recognize derivatives, including participatory notes, with conditions to prevent misuse and ensure transparency - [Section 45U; Schedule I; FEMA Rules, 2019] Control & Ownership - Transactions that result in de facto control or violate foreign investment caps are penalized; control is defined as the right to manage or direct the entity - [Schedule I; Rule 6; FEMA FDI Rules] Legal Validity & Enforcement - Instruments issued in compliance with Schedule I are deemed valid; violations may lead to criminal or civil proceedings - [Section 13; FEMA Act] Natural Justice & Due Process - Authorities must follow procedural safeguards, including opportunity for cross-examination and proper valuation, to ensure fair enforcement - [Schedule I; FEMA Rules, 2019] Derivative & Participatory Notes Regulation - SEBI and RBI regulate offshore derivative instruments, with specific reporting and approval requirements to prevent illegal activities - [SEBI Regulations, 2014; FEMA Schedule I] Cross-border Share Swaps - Simplified procedures under Schedule I facilitate foreign investment via share swaps, with strict valuation and approval norms to prevent circumvention - [Rule 6; FEMA FDI Rules, 2019] Penalties for Non-compliance - Stringent penalties, including imprisonment and fines, are prescribed for contraventions like unauthorized issuance, valuation breaches, or non-reporting - [Section 13; FEMA Act] Legal & Regulatory Hierarchy - Schedule I operates within FEMA, RBI, and SEBI regulations, with overarching compliance obligations for all cross-border transactions involving Indian entities - [FEMA Schedule I; FEMA Regulations, 2000; SEBI Regulations] Legislative Intent - The Rules aim to promote transparency, ease of investment, and regulation of offshore instruments to prevent misuse, money laundering, and illegal transfer of funds - [FEMA Preamble; Schedule I] Enforcement & Investigation - Authorities like RBI, SEBI, and Enforcement Directorate have powers to investigate violations, impose penalties, or cancel instruments in case of breach - [FEMA Act; SEBI Regulations; FEMA Rules] This legal commentary synthesizes the provisions of Schedule I of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, with references from relevant legal sources, highlighting the scope, essential ingredients, and enforcement mechanisms. 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