loader image

Draft Overseas Investments Framework: Overview


On 9 August 2021, the Reserve Bank of India (“RBI”), with a view to liberalize the regulatory framework pertaining to overseas direct investment (“ODI”) and also to promote ease of doing business, decided to rationalize the existing provisions governing ODI. Accordingly, the RBI published two drafts on its forum – i.e., the draft Foreign Exchange Management (Non-debt Instruments – Overseas Investment) Rules, 2021 (“Draft Rules”) and the draft Foreign Exchange Management (Overseas Investment) Regulations, 2021 (“Draft Regulations”) (collectively, “Draft Framework”). We have examined a few key changes envisaged under the Draft Framework below:

  1. Financial Commitment

(a) As per the extant ODI framework, where a guarantee was given by a group/ holding/ subsidiary/ promoter group company of the Indian entity making ODI investment to secure any obligations of the entity in which ODI was made, such limits were calculated within the limits of the financial commitment of the Indian entity. The Draft Framework clarifies that such limits will now be calculated within the limits for each such individual entity. Where a resident individual promoter provides such guarantee, then such amount shall be calculated towards the net worth of the Indian entity making the ODI investment.

(b) As per the extant ODI framework, pledge/ creation of charge on assets was allowed to secure loans of the entity in which ODI has been made. However, the value of the loan was blocked as the financial commitment. The Draft Framework provides that the value of the pledge/ charge or the amount of the facility, whichever is less, shall be reckoned towards the financial commitment limit in force at the time of such pledge/ charge provided such facility has not already been reckoned towards the limit specified and excluding cases where the facility has been availed in India by the Indian entity for itself.

(c) In calculating the extent of financial commitment for an Indian entity, the Draft Rules have made two pertinent changes (i) the limit shall not apply where the investment is made out of the balances held in the Indian entity’s Exchange Earners’ Foreign Currency (EEFC) account; and (ii) that utilisation of the proceeds from External Commercial Borrowings (ECB) for making financial commitment shall also be included towards the above limit to the extent the corresponding pledge or creation of charge on assets to raise such ECB has already not been calculated towards the above limit of the Indian entity.

  1. Lender Consent

In case an Indian entity, making any financial commitment or undertaking disinvestment of financial commitment, has an account appearing as a special mention account or a non-performing asset or is a wilful defaulter or if such person is under investigation by any regulatory authority, then such person is required to obtain a no-objection certificate as per the Draft Framework from the concerned lender bank or regulatory body or investigative agency for making any financial commitment or undertaking any disinvestment.

3. Pricing

(a) The Draft Rules have added a cushion for the applicable pricing guidelines in case of any issue or transfer of shares of an unlisted foreign entity. The Draft Rules have now stipulated that the price should be within 5 percent range of the fair value arrived on an arm’s length basis as per any internationally accepted pricing methodology for valuation duly certified by a registered valuer as per the Companies Act 2013; or similar valuer registered with the regulatory authority in the host jurisdiction to the satisfaction of the authorized dealer bank. Moreover, the Draft Rules have clearly provided that the valuation certificate shall be dated not more than six months before the date of the transaction.

(b) The Draft Framework also introduces the concept of deferred payment, according to which, foreign securities equivalent to the amount of total consideration shall be transferred or issued, as the case may be, upfront by the seller to the buyer, subject to pricing guidelines. However, consideration for the same can be paid on a deferred basis.

  1. Acquisition of Immovable Property

(a) Under the Draft Framework, acquisition of immovable property by individuals is now permitted out of remittances sent under the Liberalized Remittance Scheme and out of income or assets outside India (other than ODI). Under the current regime, acquisition of immovable property by individuals is permitted by way of gift, and inheritance or acquisition by way of purchase from foreign exchange held in resident foreign currency account or joint acquisition with a relative who is a person resident outside India, provided there is no outflow of funds from India.

(b) In relation to transfer of immovable property outside India, a person reason resident in India is required to obtain a general or specific permission from RBI under the current regime for such transfer. Under Draft Framework, transfer of immovable property by a person resident in India is permitted by way of (i) gift to a person resident in India; (ii) inheritance to an individual; or (iii) sale.

  1. Transfer of ODI

Under the Draft Framework, a person resident in India holding equity capital may transfer such investment by way of sale to another person resident in India or a person resident outside India. In case of transfer on account of merger, amalgamation or demergers or buyback or liquidation, the transfer is required to be approved by the competent authority as per Indian laws or the laws of the host country.

  1. Revised reporting requirements

Under the Draft Regulations, the RBI has also introduced a new form of reporting for ODI. The relevant forms that have been introduced are:

(a) Form FC:

A person resident in India making financial commitment or undertaking disinvestment in a foreign entity shall, in Form FC, report: (a) such financial commitment, whether it is reckoned towards the financial commitment limit or not, at the time of sending outward remittance or making financial commitment, whichever is earlier; and (b) such disinvestment at the time of disinvestment.

(b) Form OPI:

A person resident in India making any overseas portfolio investment or transferring such investment by way of sale shall report such investment/transfer in Form OPI within 30 days from the end of the half-year in which such investment/ transfer is made as at September/March-end.

(c) Annual Performance Report (APR):

A person resident in India acquiring equity capital in a foreign entity which is reckoned as ODI, shall submit an APR with respect to each foreign entity within six months from the date of the end of the accounting period of the foreign entity concerned. There are a few other conditionalities attached to the submission of the APR. This is as per the extant regime.

(d) Annual Return on Foreign Liabilities and Assets (FLA):

Indian entity, which has made ODI, shall submit an Annual Return on Foreign Liabilities and Assets in the format and by dates specified by the Reserve Bank. This is as per the extant regime.

(e) Report in case of any alteration:

For investment by way of ODI, an Indian entity is required to report the setting up/ winding up of a step-down subsidiary or alteration of shareholding pattern in overseas entity – within 30 days of approval of such decisions by the competent authority of the foreign entity; and also include the said information in the APR. This is as per the extant regime.


Given that these Draft Framework is still in its draft stages, the RBI may further modify the rules and regulations, or provide further clarifications through its FAQs. The clarifications brought on by the RBI with respect to financial commitment/ transfer of ODI and acquisition and sale of immovable property abroad would be a welcome change. However, as is always the case, once the new framework is implemented, there will be a need for clarificatory assistance from the RBI.

Varsha Jalan


Anisa Bawari

Senior Associate

Sanjana Dasgupta

Senior Associate

Parmeshwar Prapann


This page contains general information regarding Khaitan Legal Associates and is not intended as a solicitation or an advertisement of its services or any invitation or inducement of any sort. Nothing contained in this website constitutes legal advice or creation of a lawyer-client relationship. If you have any issues, you must seek legal advice. Khaitan Legal Associates is not liable for the consequences of any action taken by relying on the material/information provided on this website. For more information, please read our terms of use and our privacy policy.