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Anirudh Grover, Executive | finserv@vinodkothari.com

Background and Existing Framework

The International Financial Services Centre (“IFSC”) situated in the GIFT city is deemed to be a quasi-foreign territory from the lens of Foreign Exchange Management Act, 1999 however a domestic area under the tax regime. The objective of setting up specified territory lies in the benefits an IFSC jurisdiction provides in the form of free flow of foreign transactions and investor confidence; this setting up is commonly termed as onshoring the offshore. 

In order to materialize the underlying objective, a specific regulatory framework has been designed which includes the incorporation of the following major entities:

1. Finance Companies: The concept of Finance Companies are pari materia to the concept of non-banking financial companies, the unified regulator IFSCA has issued regulations specifically dealing with the concept of Finance Companies. The detailed write up of which can be found in our write up.
2. Fund Management Entities (‘FMEs’): FMEs are entities which act as pooling vehicles for various kinds of investors, this concept of FME’s is equivalent to the concept of Alternative Investment Fund. A designated regulatory framework has been specially established by the unified regulatory for governing the framework of FMEs in IFSC, the details of which can be captured from our write up
3. Banking Units: As far as Banking Units are concerned, the IFSCA has outlined a framework through which Indian banks or foreign banks can set up their shop in the form of branches in IFSC GIFT City. The IFSCA (Banking) Regulations, 2020 are the principal regulations governing the Banking Units established in the IFSC GIFT City. My colleague has already covered the regulatory overview on this aspect in our write up. 

Apart from these entities there are other entities as well which are running their businesses from IFSC GIFT City which includes Fintech Entities, Capital Market Intermediaries and Insurance Intermediaries. The Union Budget of 2022 paved the way for bringing fundamental changes in the IFSC jurisdiction which resulted in the establishment of a regulatory framework namely IFSCA (Setting up and Operation of International Branch Campuses and Offshore Education Centres) Regulations, 2022. By virtue of these regulations now Foreign Universities have been allowed to set up their base in IFSC. Further the Union Budget 2022 also laid the ground for establishment of an Arbitration Centre which would allow disputes to be resolved in record time. 

Albeit these announcements came out to be a key in evincing interest in the IFSC jurisdiction however it is perceived that there are certain pivotal areas of law which require further modifications/clarifications which is expected to be a part of the Union Budget of 2023.