The Department of Industrial Policy and Promotion (DIPP) has released its revised consolidated foreign direct investment (FDI) policy (circular 2 of 2011). The new FDI policy, effective from 1 October, supersedes the previous version of the policy, which took effect on 1 April.
The key changes are outlined below.
Options to lose equity character
The new FDI policy restricts the exit rights that are typically available to foreign investors so that neither “put options” nor “call options” can be used for FDI purposes. Clause 3.3.2.1 of the new FDI policy states that any “options” attached to equity instruments offered to foreign investors will cause such equity instruments to lose their equity character and will need to comply with external commercial borrowing regulations.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
