Entry India - Pricing Guidelines of Foreign Direct Investments (FDI) in India under different statues

Entry India - Pricing Guidelines of Foreign Direct Investments (FDI) in India under different statues

Foreign Exchange Management Act (FEMA)

Foreign Investment in India is regulated in terms of clause (b) sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017.

Capital Instruments such as equity shares, debentures, preference shares and share warrants are permitted for receiving foreign investment in an Indian company.

The pricing guidelines in respect of transfer/issue of Capital Instruments and also, for exit from investment in Capital Instruments have since been reviewed so as to provide greater freedom and flexibility to the parties concerned under the FDI framework. The new pricing guidelines shall be as under:

  1. Issue of Capital Instruments by an Indian Company    
  1. Pricing of equity shares, debentures and preference shares (referred to as “Capital Instruments”) issued by an Unlisted Indian Company to a person resident outside India should not be less than the fair valuation of Capital Instruments, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a Practicing Cost Accountant.
  2. Pricing of Capital Instruments issued by a Listed Indian Company to a person resident outside India should not be less than the price worked out in accordance with the relevant SEBI Guidelines.

 

  1. Transfer of Capital Instruments by an Indian Resident
  1. Pricing of Capital Instruments of an Unlisted Indian Company which is transferred by an Indian Resident to a person resident outside India should not be less than the fair valuation of Capital Instruments, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a Practicing Cost Accountant.
  2. Pricing of Capital Instruments of a Listed Indian Company which is transferred by an Indian Resident to a person resident outside India should not be less than the price worked out in accordance with the relevant SEBI Guidelines.

 

  1. Transfer of Capital Instruments to an Indian Resident
  1. Pricing of Capital Instruments of an Unlisted Indian Company which is transferred to an Indian Resident by a person resident outside India should not exceed the fair valuation of Capital Instruments, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a Practicing Cost Accountant.
  2. Pricing of Capital Instruments of a Listed Indian Company which is transferred to an Indian Resident by a person resident outside India should not exceed the price worked out in accordance with the relevant SEBI Guidelines.

 

The guiding principle would be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit.