RBI Specifies Norms for Mode of Payment and Remittance of Sale Proceeds for Equity Shares of Indian Cos Listed on IEs

Notification No. FEMA. 395(2)/2024-RB; Dated: 19.04.2024

Earlier, the Govt. vide. Notification No. S.O. 332(E) dated 24.01.2024 notified the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024, whereby a new Rule 34 in Chapter X has been inserted, which permits the Investment by permissible holders in Equity Shares of Public Companies Incorporated in India and Listed on International Exchanges.

Now, the RBI has amended Regulation 3.1 of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. Regulation 3.1 deals with the instructions on the Mode of payment and Remittance of sale proceeds.

A new schedule XI has been added after Schedule X. Schedule XI prescribes the norms regarding the mode of payment and remittance of sale proceeds for the purchase/subscription of equity shares of an Indian company listed on an International Exchange.

Further, regulation 4 has been amended. Regulation 4 deals with the reporting requirement. Now, the Investee Indian Company shall be under an obligation to report (through an Authorised Dealer Category I bank) to the Reserve Bank in Form LEC (FII) the purchase/subscription of equity shares (where such purchase/subscription is classified as Foreign Portfolio Investment under the rules) by permissible holder, other than transfers between permissible holders, on an International Exchange. The discussion of the amendments is elaborated as follows:

1. Mode of Payment for Purchase or Subscription of Equity Shares of Indian Companies on International Exchanges Scheme by Permissible Holder

The amount of consideration for the purchase/subscription of equity shares of an Indian company listed on an International Exchange shall be paid:

(a) through banking channels to a foreign currency account of the Indian company held in accordance with the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015, as amended from time to time or

(b) as inward remittance from abroad through banking channels.

Further, it is to be noted that the proceeds of the purchase/subscription of equity shares of an Indian company listed on an International Exchange shall either be remitted to a bank account in India or deposited in a foreign currency account of the Indian company held in accordance with the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015, as amended from time to time.

2. Remittance of sale proceeds of Equity Shares of Indian Companies on International Exchanges Scheme by Permissible Holder

The sale proceeds (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.

3. Obligation on the investee Indian Company to report purchase/subscription of equity shares, classified as FPI in form LEC (FII)

As per the amended regulation 4, the Investee Indian Company shall be under an obligation to report (through an Authorised Dealer Category I bank) to the Reserve Bank in Form LEC (FII) the purchase/subscription of equity shares (where such purchase/subscription is classified as Foreign Portfolio Investment under the rules) by permissible holder, other than transfers between permissible holders, on an International Exchange.

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