Issuance of updated Master Direction – Foreign Investment in India (Master Direction) clarifying key aspects concerning the framework governing foreign investments in India

The key updates are outlined below:

• The definition of ‘Indian Company/Investee Company’ has been clearly provided, specifically excluding societies and trusts from the ambit of this definition.
• Swap transactions and deferred consideration mechanisms have been permitted for downstream investments, at par with foreign direct investments. Moreover, it has now been expressly provided that transactions involving deferred payment, indemnification or escrow arrangements, must be clearly mentioned in the share purchase/transfer agreement, including all the key details and conditions.
• Indian companies can modify the tenure of convertible debentures or preference shares issued to foreign investors, subject to compliance with corporate law and pricing regulations.
• The applicability of entry routes, sectoral caps, pricing guidelines and additional conditions applicable on foreign investment has been extended to include the unallotted/unsubscribed segment of the rights issue that the Board allocates to foreign investors.
• The transmission of shares of an Indian company from resident to non-resident legal heir by way of inheritance shall be considered to be held on a non-repatriation basis. Moreover, in the case of a change of residential status from resident to non-resident, the investment held when person was resident, in the Indian company shall be construed on a non-repatriation basis.
• Indian investee company whose proposed activities are regulated by a financial sector shall exclusively utilize funds procured through foreign direct investment (FDI) to satisfy the minimum net owned fund requirements. If the investee company does not have the necessary registration or license, such FDI should either be repatriated or be subjected to government approval for engaging in such activities.

Source: FED Master Direction No. 11/2017-18 updated 20 January 2025