The Reserve Bank of India on 22nd August 2022, has published the Foreign Exchange Management (Overseas Investment) Regulations, 2022 which has simplified the existing framework for overseas investment and has aligned with the current business and economic dynamics. Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment related transactions that were earlier under approval route are now under automatic route, significantly enhancing “Ease of Doing Business”.
As per the regulation, The Indian entity may lend or invest in any debt instrument issued by a foreign entity or extend non-fund based commitment to or on behalf of a foreign entity including overseas step down subsidiaries of such Indian entity subject to the following conditions within the financial commitment limit as prescribed in the Foreign Exchange Management (Overseas Investment) Rules, 2022
- the Indian entity is eligible to make Overseas Direct Investment (ODI);
- the Indian entity has made ODI in the foreign entity;
- the Indian entity has acquired control in such foreign entity at the time of making such financial commitment.
An Indian entity may lend or invest in any debt instruments issued by a foreign entity subject to the condition that such loans are duly backed by a loan agreement where the rate of interest shall be charged on an arm’s length basis.
Explanation.–– For the purpose of this regulation, the expression “arm’s length” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.
Where a person resident in India acquires equity capital by way of subscription to an issue or by way of purchase from a person resident outside India or where a person resident outside India acquires equity capital by way of purchase from a person resident in India, and where such equity capital is reckoned as ODI, the payment of amount of consideration for the equity capital acquired may be deferred for such definite period from the date of the agreement as provided in such agreement subject to the following terms and conditions, namely:–
- the foreign securities equivalent to the amount of total consideration shall be transferred or issued, as the case may be, upfront by the seller to the buyer;
- the full consideration finally paid shall be compliant with the applicable pricing guidelines: Provided that the deferred part of the consideration in case of acquisition of equity capital of a foreign entity by a person resident in India shall be treated as non-fund based commitment.
