Instruments and options available under FDI route

The past two to three years have been an exciting time to practise private equity law in India with the government heightening its focus on creating a more navigable terrain for foreign investors. Various amendments to laws governing foreign direct investment (FDI) have been consolidated into the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 (FEMA regulations), introduced in November 2017.

Capital instruments that may be acquired by non-resident investors may be classified as: (1) fully paid-up instruments (i.e. where the acquisition consideration needs to be paid at the time of delivery of the instrument); and (2) partly paid instruments (i.e. where the acquisition price can be paid subsequent to delivery of the instrument). Equity shares, compulsorily and fully convertible preference shares and compulsorily and fully convertible debentures can be issued on a fully paid or a partly paid basis. Warrants are another type of partly paid instruments. In connection with startup companies, the FEMA regulations also permit issuance of convertible notes.

The discussion below focuses on partly paid capital instruments that may be purchased or subscribed to by non-resident investors under the FDI route.

Apurva Jayant is a partner and Vishakha Panchangam is an associate at Luthra & Luthra Law Offices. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.