The Ministry of Finance vide its notification dated 12th April 2022, has published the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022 to further amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
Through this amendment the definition for the term “Share Based Employee Benefits”, “subsidiary” and “Indian company” has been notified and the explanation for the term “equity instrument” under section 2(k) has been substituted as follows:
“(i) Equity shares issued by an Indian Company in accordance with the provisions of the Companies Act, 2013 or any other applicable law, shall include equity shares that have been partly paid. “Convertible debentures” means fully and mandatorily convertible debentures which are fully paid. “Preference shares” means fully and mandatorily convertible preference shares which are fully paid. “Share Warrants” are those issued by an Indian Company in
accordance with the regulations made by the Securities and Exchange Board of India, the Companies Act, 2013 or any other applicable law. Equity instruments can contain an optionality clause subject to a minimum lock-in period of one year or as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured price”
Rule 8 which deals with ‘Issue of Employees Stock Options, sweat equity shares and Share Based Employee Benefits to persons resident outside India’ has been substituted & reads as- 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.
Further rule 19 which deals with merger or demerger or amalgamation of indian company has been subituted as follows:
Where a scheme of compromise or arrangement or merger or amalgamation of two or more Indian companies, 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, 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 transferor company or the transferee or new company may obtain necessary approval from the Central Government;
(b) the transferor company or the transferee company or the new company is not engaged in any sector prohibited for investment by a person resident outside India.
