6/24/22, 4:46 PM Clarifications by IFSCA | Amendments by NFRA | ELPLAW

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Clarifications by IFSCA | Amendments by NFRA

Clarifications by IFSCA | Amendments by NFRA

Jun 22, 2022

Author(s) :
Manendra Singh (https://elplaw.in/people/manendra-singh)
Tanvi Goyal, Aditi Ladha

RESIDENT INDIVIDUALS NOT PERMITTED TO INVEST IN BULLION DEPOSITORY RECEIPTS ON IIBX IN

IFSC UNDER LRS ROUTE | NON-COMPLIANCE WITH THE NATIONAL FINANCIAL REPORTING
AUTHORITY RULES, 2018 TO ATTRACT SPECIFIC PUNISHMENT

A. Resident individuals not permitted to invest in Bullion Depository Receipts (BDRs) on India
International Bullion Exchange (IFSC) Limited (IIBX) through the Liberalized Remittance Scheme (LRS)
route: IFSCA has clarified that resident individuals are not permitted to transact/invest in BDRs on IIBX
through the liberalized remittance scheme route.

B. Non-compliance with National Financial Reporting Authority Rules, 2018 to attract specific
punishment: MCA has amended the National Financial Reporting Authority Rules, 2018 (NFRA Rules) to
provide for a specific punishment for non-compliance with the NFRA Rules.  Such contravention will now
be punishable with a fine not exceeding INR 5,000. Also, where the contravention is a continuing one, there
is a further fine not exceeding INR 500 for every day after the first during which the contravention
continues.

The above changes have been analyzed in detail below:

A. Resident individuals not permitted to investment in Bullion Depository Receipts (BDRs) on India
International Bullion Exchange (IFSC) Limited (IIBX) through LRS route

For the purposes of foreign exchange laws, any unit set-up in International Financial Services Centre (IFSC)
is treated as being outside the domestic jurisdiction, thereby requiring investment in IFSC to comply with
the provision of Foreign Exchange Management Act, 1999 read with the relevant regulations.

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6/24/22, 4:46 PM Clarifications by IFSCA | Amendments by NFRA | ELPLAW

In this regard, vide circular dated February 16, 2021 (available here
(https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT9952781DE54AA141D3B89703E895DDA10C.PDF))
(LRS Circular), the Reserve Bank of India had permitted resident individuals to make remittances under the
liberalized remittance scheme (LRS) route in International Financial Services Centres (IFSC) in India only
for making investments in IFSCs in securities, other than those issued by entities/companies resident
(outside IFSC) in India.

Earlier, vide notification dated August 31, 2020 (available here (https://ifsca.gov.in/Viewer/Index/92)), the
Ministry of Finance had notified the bullion spot delivery contract and BDR with underlying bullion as a
financial product and related services as financial services. Further, bullion spot delivery contract and BDR
with underlying bullion have also been included in the definition of ‘securities’ under the Securities Contract
Regulations Act, 1956 vide notification dated December 24, 2021 (available here
(https://ifsca.gov.in/Viewer/Index/298)).

IFSCA has now clarified that resident individuals, as referred to in the LRS Circular, are not permitted to
transact/invest in BDR on IIBX through the LRS route.

However, it has been stated that the aforesaid clarification is without prejudice to the participation of
Qualified Jewellers notified by the IFSCA, in terms of DGFT notification no.49/2015-2020 dated January 05,
2022 for purchase of BDRs for the sole purpose of import of gold through IIBX.

This clarification was issued by the IFSCA vide circular dated June 17, 2022 (available here
(https://ifsca.gov.in/Viewer/Index/313)).

B. Non-compliance with NFRA Rules to attract specific punishment

The Ministry of Corporate Affairs has amended the National Financial Reporting Authority Rules, 2018
(NFRA Rules) to provide for a specific punishment for non-compliance.  Contraventions of any of the
provisions of the NFRA Rules, shall be punishable with a fine not exceeding INR 5,000.  If  the contravention
is a continuing one, there is a further fine not exceeding INR 500 for every day after the first during which
the contravention continues.

The above amendment has been introduced vide the National Financial Reporting Authority Amendment
Rules, 2022 dated June 17, 2022 (available here
(https://egazette.nic.in/WriteReadData/2022/236669.pdf)).

Disclaimer:  The information contained in this document is intended for informational purposes only and
does not constitute legal opinion or advice. This document is not intended to address the circumstances of
any individual or corporate body. Readers should not act on the information provided herein without
appropriate professional advice after a thorough examination of the facts and circumstances of a situation.
There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the
views mentioned herein.

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6/24/22, 4:46 PM Clarifications by IFSCA | Amendments by NFRA | ELPLAW

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