Ministry of Finance amends norms on transfer of equity instrument of an Indian company by an FPI

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The Ministry of Finance vide Notification dated 5th December 2019 has published the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019 by amending the norms on ‘Transfer of equity instruments of an Indian company by FPI. An FPI holding equity instruments 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, prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires the Government approval;

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. As per the provision, the FPI in breach shall have:

a) option of divesting their holdings within 5 trading days from the date of settlement of the trades causing the breach.

b) In case the FPI chooses not to divest, then the entire investment in the company by such FPI and its investor group shall be considered Foreign Direct Investment (FDI) and the FPI and its investor group shall not make further portfolio investment in the company .

An explanation has been inserted under the pricing guidelines as follows:

“In case of convertible equity instruments, the price or conversion formula of the instrument should be determined upfront at the time of issue of the instrument. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with these rules”.

Further, certain clauses under schedule I and Schedule II has been amended.

Click here to read the Notification.

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