Centre allows FDI through partly paid shares, warrants

The Indian Government has eased the Foreign Direct Investment (“FDI”) norms by allowing partly paid shares and warrants as eligible capital instruments. This means an Indian company looking to bring in funds can now issue such instruments without any approval. Accordingly, the Department of Industrial Policy & Promotion (“DIPP”) on 15th September, 2015 issued a Press Note notifying the amendments to the ‘Consolidated FDI Policy of 2015’.
As per the amendment, “Capital” now means equity shares; fully, compulsorily & mandatorily convertible preference shares; fully, compulsorily & mandatorily convertible debentures and warrants. The equity shares issued in accordance with the provisions of the Companies Act shall include equity shares that have been partly paid. The preference shares & convertible debentures shall be required to be fully paid and should be mandatorily and fully convertible. Further ‘warrants’ shall include Share Warrant issued by an Indian Company in accordance with the provisions of the Companies Act.
The Government has also inserted a new clause in the policy that which says, that an Indian Company may issue warrants and partly paid shares to a person resident outside India subject to terms and conditions stipulated by the Reserve Bank of India (“RBI”) in this behalf, from time to time.
Till now warrants and partly paid shares could be issued to foreign investors only after approval through the Government route. Bringing them under eligible foreign investment instruments means that prior Government permission will not be required for raising money through these instruments in sectors where FDI is allowed under the automatic route. DIPP has synchronized its rules with the RBI guidelines, after more than a year when the RBI stated that partly-paid shares and warrants issued by an Indian company would qualify as eligible instruments for FDI/Foreign Portfolio Investment.

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