This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.
Date: 14 August 2020
FDI Policy: Empowering RBI to solely administer FDI and approve investment proposals – Impetus to further ease of doing business in India
The Ministry of Finance, vide its notification dated 27 July 2020, has amended Foreign Exchange (Non-debt Instruments) Rules, 2019 / NDI Rules by introducing Foreign Exchange (Non-debt Instruments) Third Amendment Rules, 2020. The amended NDI Rules gives more powers to the Reserve Bank of India / RBI to administer issues relating to foreign direct investment / FDI.
RBI earlier used to be the sole regulator for FDI as per the powers given under the Foreign Exchange Management Act, 1999 / FEMA Act. However, the Central Government had introduced NDI Rules on 17 October 2019 under Section 46 of the FEMA Act which mandated greater involvement of the Central Government for considering the FDI proposals not covered in general permission route. Such proposals could be decided by RBI only after consulting the Central Government. The NDI Rules had significantly diluted the powers of RBI and effectively transferred powers of administering FDI regime to the Central Government.
Now, the amended NDI Rules has vested RBI with more administrative power for effective implementation of these rules. Further, the requirement to consult the Central Government while considering the specified FDI Proposals has also been done away with.
Key takeaways:
1. RBI gets more administrative powers for effective implementation of the NDI Rules:
As per the amendment, the RBI will administer the NDI rules. While doing so, RBI may interpret and issue directions, circulars, instructions, clarifications as it may deem necessary for effective implementation of the NDI Rules. Accordingly, RBI will have more administrative powers to implement the NDI Rules, while the rule-making power of the Central Government through the Ministry of Finance remains unchanged.
Further, the amendment have also removed the requirement on RBI to consult the Central Government for approving FDI proposals of Persons Resident Outside India and Indian Entity which are not specifically permitted under the FEMA Act. Accordingly, the RBI will now be the sole authority to approve such FDI proposals. This will significantly reduce the time and effort taken in securing the approval for such FDI proposals. However, if a proposal proposes FDI in sector covered under the Government route, the approval will be required to be sought from Department for Promotion of Industry and Internal Trade / DPIIT and/ or any of the prescribed ministry / Government department and RBI will not have jurisdiction to grant such approvals.
2. FDI in Civil Aviation Sector:
The NDI Rules have been amended to incorporate changes to the FDI Policy for civil aviation announced by the DPIIT vide its Press Note No. 2 of 2020 dated 19 March 2020. Earlier, NRIs and OCIs were permitted to invest up to 100% under the automatic route (i.e. without any Government approval) in Scheduled Air Transport Service / Domestic Scheduled Passenger Airline and Regional Air Transport Service. Now, the amendment has excluded OCIs from the same and thus only NRIs are now permitted to invest in the said aviation services under automatic route. Any reference to OCIs in the conditions for foreign investment in the civil aviation sector has also been removed.
Further, the conditions stipulated in Schedule XI of the Aircraft Rules, 1937 for grant of Air Operator Certificate to operate Scheduled Air Transport Services (including Domestic Scheduled Passenger Airline or Regional Air Transport Service) have been added in the NDI Rules. Accordingly, the said certificate will be issued to such company or a body corporate:
(a) which is registered and has its principal place of business within India;
(b) whose Chairman and at least two-thirds of its Directors are citizens of India; and
(c) whose substantial ownership and effective control is vested in Indian nationals.
CRI Comment:
The amended NDI Rules will significantly affect the overall process and timelines. It will reduce the time and effort to secure approval for investments in the sector not covered in general permission route. It is likely that the processing time for securing approval to such FDI proposals will be reduced to just 5-6 weeks as compared to the present timeline of 3-4 months. It will provide an impetus to further ease of doing business in India.
Chambers of Rajan & Indraneel
T: +91 11 41000224, 41030225| Fax:+91 11 29239074
E-mail:rajan.gupta@chrilegal.com
Mobile: +91 9810404086
N 103 Greater Kailash - I, New Delhi - 110048, India.
About us
Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.
We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.
The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.
We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India.
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