Western India Regional Council of
The Institute of Chartered Accountants of India

(Setup by an Act of Parliament)

June 29, 2019

CA. Manoj Shah, CA. Sudha G. Bhushan, CA. Mitesh Majithia

Voluntary Retention Route (VRR) for Foreign Portfolio Investors (FPI) investment in Debt

A.P. (DIR Series) Circular No. 34 dated May 24, 2019

Based on the feedback received the RBI has revised the directions issued vide A.P. (DIR Series) Circular No. 21 dated March 01, 2019. These changes include, inter alia, the following:

(i) Introduction of a separate category, viz., VRR-Combined
(ii) The requirement to invest at least 25% of the Committed Portfolio Size within one month of allotment has been removed
(iii) FPI are provided with an additional option at the end of the retention period, viz., continue to hold their investment until the date of maturity or the date of sale, whichever is earlier
(iv) FPIs that were allotted investment limits under the ‘tap’ open during March 11, 2019 – April 30, 2019 may, at their discretion, convert their full allotment to VRR-Combined

Revised direction may be referred to on RBI website at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11561&Mode=0

Gist of some Compounding Orders passed by Reserve Bank of India

Sr. No. Subject Matter Party Name Contraventions Compounded  
1. Acquisition of Immovable Property in India – FEMA Notification No. 21 Sha Mathew Regulation 8 of Notification No. FEMA 21/2000-RB dated May 03, 2000 states that save as otherwise provided in the Act or regulations, no person resident outside India shall transfer any immovable property in India. In terms of Regulation 8 of FEMA 21, no person resident outside India shall transfer any immovable property in India. NRIs are not allowed to acquire agricultural land in India. In the instant case, Mr. Mathew being NRI had purchased two agricultural lands without prior RBI approval. Since NRIs are not allowed to own agricultural land, Mr. Mathew was asked to sale the agricultural land by RBI and after sale of land RBI compounded the contravention. The undue gain earned by Mr. Mathew was recovered by RBI as compounding fees.
2. Overseas Direct Investment – FEMA Notification No. 120 Aricent Technologies (Holdings) The resultant structure of ODI in an entity with pre-existing FDI lead to contravention of Regulation 5(1) of Notification No. FEMA 120/2004-RB. Such investment is not allowed without prior RBI approval. In terms of Regulation 5(1) of FEMA 120, save as otherwise provided in the Act, rules or regulations made or directions issued or without prior approval of RBI, no person resident in India shall make any direct investment outside India. The transaction of making ODI in an entity with pre-existing FDI without prior approval of RBI is contravention of Regulation 5(1). ODI – FDI structure is regularized by either unwinding FDI leg or unwinding ODI leg of the transaction. RBI considers ODI-FDI structure as round tripping and hence does not consider the same as bonafide business activity for the purposes of overseas investment even though overseas entity may be an operating entity with permitted businesses. The act of investing back to India is considered as ‘non bonafide’ business activity.
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