Kashvi D Jain, LLB, BMS College of Law, Bengaluru
Ayush Tiwari, BA LLB, BMS College of Law, Bengaluru
ABSTRACT
Indian companies have grown exponentially over the last thirty years and much of this can be owed to a liberal financial policy which has enabled these companies to not only expand their business operations domestically but also spread their wings across the territorial waters and establish their presence globally. Since then, investments by Indian Entities have become commonplace and many companies have extended their operations into foreign countries by virtue of entering into Joint Ventures (hereinafter referred to as “JV”) and forming Wholly-owned subsidiaries (hereinafter referred to as “WOS”). It was after the economy was liberalized, the Government started taking measures as to how the corporate structure of the country could be strengthened and how opportunities for growth could be sought not only in India but also elsewhere. Keeping this objective and intent, the Government enacted the Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA”), which sought to regulate investments through foreign exchange and put measures in place to effectively implement the objectives of the Act. Though the intent was to permit investment by Indian companies overseas, it was also ensured that there were reasonable fetters to ensure that money is not siphoned outside India.
Overseas Direct Investment (hereinafter referred to as “ODI”) through Foreign Direct Investment (hereinafter referred to as “FDI”), which is synonymous with “round-tripping”1, has had a controversial past ever since its evolution, owing to contentions about whether the transactions have a sense of sanctity attached to them and bonafide in nature. The Government and the Reserve Bank of India (hereinafter referred to as “RBI”), ever since the enactment of FEMA, have adopted a strict approach while approaching ODI transactions, but with the changing economic and geopolitical scenario, they have taken a more liberal approach with the introduction of the FEMA (Overseas Investment) OI Rules, 2022 (hereinafter referred to as “OI Rules”), coupled with the RBI’s FEMA (Overseas Investment) Regulations, 2022 (hereinafter referred to as “OI Regulations”) and FEMA (Overseas Investment) Directions, 2022 (hereinafter referred to as “OI Directions”) [collectively referred to as “Present Regime”]. Prior to the introduction of the Present Regime, ODI was regulated under the FEMA (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004 (hereinafter referred to as “ODI Regulations”) and FEMA (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015 (hereinafter referred to as “Transfer of Property Regulations”) [collectively referred to as “Erstwhile Regime”]. Through this paper, the authors make an attempt to holistically analyze the Present Regime of ODI along with highlighting the key takeaways and bringing to the fore how it would impact the overseas investment mechanism in the light of simplified and liberalized regulatory framework for ODI by a person resident in India and the Government’s consistent endeavour to promote ease of doing business.
Keywords: investment, overseas, companies, regime, business
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