TISPRO REGULATIONS 2017

FDI – any person resident outside India may purchase capital instruments in a listed Indian
company on a stock exchange, provided that such person has already acquired and continues
to hold ”control” of the company in accordance with the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeover) Regulations, 2011.

FPI –
where such investment is less than 10% of the post issue paid up share capital on a fully
diluted basis of a listed Indian company, or less than 10% of the paid-up value of each series
of capital instruments of a listed Indian company.

MERGER/DEMERGER/ AMALGAMATION
the transferee company may issue capital instruments to existing holders of the transferor
company resident outside India, as long as (1) the transfer is in compliance with the sectoral
caps, routes, investment limits, and other conditions of investment by a person resident
outside India, and (2) the reporting is made to the RBI under the new TISPRO regulations
within 30 days of receipt of approval, giving full details of the shareholding of the non-
resident investor before and after the restructuring.

Liberalization of NRI/OCI investments regime. The new TISPRO regulations have relaxed
the rules for non-resident Indians (NRIs)/Overseas Citizen of India cardholders (OCIs) to be
able to transfer the capital instruments to any person resident outside India by way of sale or
gift, provided that the investment made is on a repatriation basis.

Clarity on FDI & FPI: The 2017 Regulations clarify that any foreign investment in the capital
of a listed Indian company would constitute Foreign Direct Investment (“FDI”), if the
investor’s stake in the equity capital of the company (on a fully diluted basis) is 10% or more.
Such investment would continue to be categorised as FDI, even if the investor’s stake
subsequently falls below 10%. Investments less than 10% would constitute Foreign Portfolio
Investments (“FPI”).
Consolidation of Sectoral Caps and Investment Conditions: The 2017 Regulations
consolidate the changes introduced by the Government of India to India’s FDI policy,
particularly with respect to sectoral caps and investment conditions applicable to FDI in
various sectors.
Revised Timeline for Issuance of Capital Instrument: To align Indian foreign exchange
regulations with company law, the 2017 Regulations now require Indian companies to issue
capital instruments (equity shares, preference shares, debentures and share warrants) to
foreign investors within 60 days of receiving the investment. Companies were previously
permitted up to 180 days to issue such instruments.
Acquisition of Capital Instruments through Rights Issue: The 2017 Regulations stipulate
several conditions subject to which a foreign investor may subscribe to capital instruments
(other than share warrants) of an Indian company through a rights issue. These regulations
clarify that such conditions would continue to apply where the securities acquired by the
investor are renounced by the person to whom they were first offered.
Transfer of Capital Instruments under a Scheme of Arrangement: Subject to certain
conditions, an Indian company is now permitted to issue non-convertible redeemable
preference shares or debentures, by way of bonus to foreign shareholders, where a ‘Scheme
for Arrangement’ has been approved by the National Company Law Tribunal (NCLT) or
other competent authority.
Cure Period for Breach of FPI Caps: The 2017 Regulations empower the RBI to prescribe a
time period within which a foreign portfolio investor may transfer capital instruments of an
Indian company to a person resident in India, where the acquisition of such instruments has
resulted in a breach of the applicable sectoral cap on FPI. The 2017Regulations clarify that
where the transfer is completed within the prescribed timeline, the original acquisition of
such instruments would not be treated as a contravention of FEMA.
Coverage of Investment Vehicles: A foreign investor is now permited to pledge units held by
it in an Investment Vehicle such as Real Estate Investment Trusts (REITs), Infrastructure
Investment Trusts (InVIts) and Alternative Investment Funds (AIFs), to secure credit
facilities being extended by an Indian bank to such entity.
Foreign DI & NDI regulations 2019 – bifurcation of regulations for Debt and Non debt
instruments
As per the definition, debt instruments mean all the instruments other than non-debt
instruments. Non-debt instruments mean
(i) all investments in equity instruments in incorporated entities: public, private, listed
and unlisted;
(ii) (ii) capital participation in LLP;
(iii) (iii) all instruments of investment recognized in the FDI policy notified from time to
time;
(iv) (iv) investment in units of Alternative Investment Funds (AIFs), Real Estate
Investment Trust (REITs) and Infrastructure Investment Trusts (InvIts); (v)
investment in units of mutual funds or Exchange-Traded Fund (ETFs) which invest
more than 50% in equity;
(v) (vi) junior-most layer (i.e., equity tranche) of securitization structure;
(vi) (vii) acquisition, sale or dealing directly in immovable property;
(vii) (viii) contribution to trusts; and
(viii) (ix) depository receipts issued against equity instruments.Earlier the acquisition and
transfer of immovable property was governed by the ATIP. Under the NDI Rules,
any dealing in immovable property by a person resident outside India will be treated
as a non-debt instrument. In this case, the nonresident will have to comply with the
provisions specified in Chapter IX of the NDI Rules.