Jurisdiction of the RBI in overseas investment

Overseas investments by Indian entities are governed by the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, read with the Master Circular on Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) Abroad, issued by the Reserve Bank of India (RBI) on 1 July 2011. The regulations and the master circular were issued in exercise of powers granted to the RBI under the Foreign Exchange Management Act, 1999 (FEMA).

While overseas investments by Indian entities are viewed as important avenues for promoting global businesses of Indian entrepreneurs, it is not always certain if an effective legal regime exists to enable Indian entrepreneurs to structure, restructure and disinvest their overseas ventures in a commercially efficient manner.

Automatic route

Indian parties are permitted to invest in an overseas venture (either a JV or WOS) under the automatic route subject to compliance with certain conditions stipulated in the regulations and the master circular. Further, while the regulations do not expressly permit a special purpose vehicle (SPV) established abroad by an Indian party to set up overseas ventures, the master circular and FAQs issued by the RBI expressly permit this, subject to complying with the overall investment caps and guidelines.

Anuj Prasad is a partner and Anubhuti Agarwal is a principal associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.