Notification of Non-Debt Instruments Rules, 2019

The Ministry of Finance, Government of India has now classified instruments issued under Foreign Exchange Management Act, 1999 (FEMA) as debt and non-debt instruments and has notified the rules/ regulations in this regard. On 15th October 2019, the Ministry of Finance, Government of India, notified the provisions of Sections 139, 143 and 144 of the Finance Act, 2015 (the "Notified Sections"). The Notified Sections amends certain provisions of the Foreign Exchange Management Act, 1999.


  1. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 ("TISPRO Regulations") and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, stands repealed with effect from 17th October 2019. 
  2. Debt Instruments

Government Bonds

Corporate Bonds

All tranches of securitization structure  which are not equity tranche

Borrowings by Indian firms through loans

Depository receipts whose underlying  securities are debt securities


  1. Non-Debt Instruments
  1. All investments in equity in incorporated  entities (public, private, listed, unlisted) Capital participation in LLPs
  2. Instruments of investment as in FDI policy
  3. Investment in units of AIFs, REITs and  InVITs
  4. Juniormost layer (e.g. equity tranche) of  securitization structure
  5. Acquisition, sale or dealing directly in  immovable property
  6. Contribution to trusts
  7. Depository receipts issued against equity  instruments

All other Instruments which are not notified as Debt or Non-Debt Instruments shall be deemed as  Debt-Instruments

  1. Equity Instruments: The expressions "equity instruments" means equity shares, convertible debentures, preference shares and share warrants issued by an Indian company.
  2. Hybrid Securities: The term "hybrid securities" means hybrid instruments such as optionally or partially convertible preference shares or debentures and other such instruments as may be specified by the Central Government from time to time, which can be issued by an Indian company or a trust to a person resident outside India.
  3. Press Note 4 of 2019 (the "Relevant Press Note") had introduced many changes to the foreign investment norms governing single-brand retail trading, contract manufacturing, coal mining and digital media. The Relevant Press Note clearly provides that policy pronouncements contained therein would take effect from the date of notification of amendments to the TISPRO Regulations. The expectation was that the Government would use this opportunity and notify the changes by way of incorporating the changes in the Non-Debt Instruments Rules. However, the Government has not fulfilled this expectation.

NDI Rules has brought about a substantial change in the Schedule II stating that effective from April 1, 2020, the aggregate limit would be the sectoral cap applicable to such Indian company. An Indian company may, with the approval of its board of directors and members, by a resolution and a special resolution, respectively: (i) decrease the aggregate limit before March 31, 2020 to a lower threshold of 24% or 49% or 74% as deemed fit, or (ii) increase the aggregate limit to 49% or 74% or the sectoral cap or statutory ceiling respectively as deemed fit. However, once the aggregate limit is increased, the limit cannot be reduced la