As a law firm, it is imperative for us to provide clarity on the provisions of Section 7 of the Foreign Trade (Development and Regulation) Act, 1992 pertaining to investments made by Non-Resident Indians (NRIs) in India. The said section permits NRIs to invest in India subject to certain conditions, which must be adhered to appropriately.
As per Section 7(1)(b) of the aforementioned Act, investment by an NRI shall not exceed ten percent of the paid-up value of equity share capital in any company engaged in production or manufacturing except as otherwise may be notified by the Central Government. This highlights that NRIs cannot hold more than ten percent equity share capital in Indian companies involved with production or manufacturing activities without prior approval from authorities.
Additionally, under Section 7(8) of the same act, NRIs can also transfer their shares/convertible debentures held in an Indian venture back into foreign currency. However one must adhere to RBI guidelines while doing so.
Relevant case laws include Kotak Securities v SEBI , where it was observed that investors who are non-residents have different rights from residents with respect to investing and trading securities; and Aditya Birla Finance Ltd v P K Creation & Co , where it was held that there is no provision restricting NRIs from participating fully as bidders at auctions conducted under Securitization Act.
Furthermore, Reserve Bank of India vide Master Circular No.5/2016-17 has provided various schemes available for investment such as – automatic route scheme which allows investment up-to percentage limit specified without prior approval;Government Route involves proposal seeking FIPB clearance is first looked into by concerned Ministry/Department if they find justified then forward request for consideration before FIPB etc.
Ultimately, this provision holds significant relevance for NRIs looking to make secure investments within India’s market. It is crucial to comply with all relevant provisions of law and seek appropriate legal consultation before making any investment decisions in India. This helps ensure full protection of their investment, rights and obligations as a shareholder while remaining compliant.