Archive for category: FDI

– Vinita Nair, Senior Partner & Prapti Kanakia, Manager | corplaw@vinodkothari.com | November 15, 2024

Classification of foreign investments as Foreign Direct Investment (‘FDI’) or foreign portfolio investment is critical for determining the compliance applicable. A person resident outside India may hold foreign investment either as FDI or as foreign portfolio investment in any particular Indian company. Investments by Foreign Portfolio Investors (‘FPIs’) registered with SEBI is mainly governed by the investment restrictions and thresholds provided in SEBI (FPIs) Regulations, 2019 and Part C of SEBI Master Circular for FPIs. Pursuant to Reg. 20 (7) of SEBI regulations, a single FPI (including its investor group^[1]) can invest upto 10% of the total paid- up equity capital on a fully diluted basis of the company. In case of breach of this threshold, the FPIs get 5 trading days from the date of settlement of the trades resulting in the breach to correct the position, in terms of the SEBI Regulations as well as Rule 10(1) of FEM (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’), failing which the entire investment is considered as FDI and procedure prescribed by SEBI in Para 17 of Part C of the SEBI Master Circular is required to be followed i.e.:

• Follow extant FEMA rules & RBI prescribed norms in this regard;
• No further foreign portfolio investment in that company;
• FPI to inform respective custodians of the choice who in turn will report this to SEBI, depositories and the issuer;
• Sale of these securities permitted only through the route they were acquired & LEC reporting by custodian.