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Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India came with circular for consolidated policy of FDI. This consolidated policy is effective from 7th June, 2016.

Consolidated FDI Policy Circular is a policy framework on Foreign Direct Investment, which consolidates all Press Notes/Press Releases/Clarifications/ Circulars issued by DIPP, which are in force. The first Circular was issued in March, 2010, which has been updated periodically. The last such Circular was released on 12.05.2015. ‘Consolidated FDI Policy Circular of 2016’ is the ninth edition of the series.

FDI Policy Circular, 2016 has been made simpler and investor friendly; and will serve as a ready reference for foreign investors on various provisions of the FDI policy.

Meaning of FDI: FDI means investment by below mentioned the capital of an Indian Company:-

  • Non- resident entity
  • Person resident outside India


Economic Growth: It is the intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth.

It is also for “Make in India”

The clauses corresponding to the following Press Notes have been incorporated in the Consolidated FDI Policy Circular of 2016.


6 of 2015 Series

Investment Limit for Cases involving FIPB/CCEA approval


7 of 2015 Series

Investment by NRIs, PIOs and OCIs


8 of 2015 Series

Introduction of Composite Caps


9 of 2015 Series

Partly Paid Shares and Warrants


11 of 2015 Series

FDI in White Label ATM Operations


12 of 2015 Series

Review of FDI Policy on Various Sectors


1 of 2015 Series

Review of FDI Policy on Insurance Sector


2 of 2015 Series

Review of FDI Policy on Pension Sector


3 of 2015 Series

Guidelines for Foreign Direct Investment (FDI) on E-commerce


4 of 2015 Series

Review of FDI Policy on Asset Reconstruction Companies

Type of Securities Issued under FDI Policy:

Equity Shares: The equity shares issued in accordance with the provisions of the Companies Act, as applicable, shall include equity shares that have been partly paid

Preference Shares: Fully, compulsorily & mandatorily convertible preference shares Preference shares shall be required to be fully paid, and should be mandatorily and fully convertible.

Debenture: Fully, compulsorily & mandatorily convertible Debentures.

Debentures shall be required to be fully paid, and should be mandatorily and fully convertible.

Warrant: Fully, compulsorily & mandatorily convertible Warrant.

Further, ‘warrant’ includes Share Warrant issued by an Indian Company in accordance to provisions of the Companies Act, as applicable

I.  Whether Company can issue Non-Convertible Preference Share or debenture to Foreign National.

No as per FDI Policy, Company can issue only Fully, compulsorily & mandatorily convertible Preference Share or Debenture. I Company issue non-convertible preference shares then it will be considered as Debt.

General Condition on FDI:

Eligible Investors:

I. A  [1] non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.

Citizen of Bangladesh:

A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.

Citizen of Pakistan:

· A citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route.

· Restricted sectors/activities: other than defence, space and atomic energy and sectors/activities prohibited for foreign investment.

II. A  Non Resident Indian (NRI):

Citizen of Nepal & Bhutan: NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian Companies on repatriation basis.

Condition: The amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

III.​  A Overseas Corporate Body (OCBs): [2]OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities.


  1. with the prior approval of Government of India if the investment is through Government route; and
  2. with the prior approval of RBI if the investment is through Automatic route.

IV. Company/ Trust/ Partnership:

A Company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.

V. Only registered FIIs/FPIs and NRIs:

Only registered FIIs/FPIs and NRIs as per Schedules 2,2A and 3 respectively of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, can invest/trade through a registered broker in the capital of Indian Companies on recognized Indian Stock Exchanges.

VI. National Pension Fund System:

A Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA),


  • Such subscriptions are made through normal banking channels and
  • The person is eligible to invest as per the provisions of the PFRDA Act.
  • The annuity/ accumulated saving will be repatriable

VII. SEBI registered Foreign Venture Capital Investor (FVCI):

Automatic Route: A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute

  • Up to 100% of the capital of an Indian company
  • Engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000,
  • Including startups irrespective of the sector in which it is engaged, under the automatic route.

**SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA regulations

Investment in domestic venture capital fund: A SEBI registered FVCI can invest in a domestic venture capital fund registered under the SEBI (Venture Capital Fund) Regulations, 1996 or a Category- I Alternative Investment Fund registered under the SEBI (Alternative Investment Fund) Regulations, 2012.


Such investments shall also be subject to the extant FEMA regulations and extant FDI policy including sectoral caps, etc.

The investment can be made in equities or equity linked instruments or debt instruments issued by the company (including start-ups and if a startup is organised as a partnership firm or an LLP, the investment can be made in the capital or through any profit-sharing arrangement) or units issued by a VCF or by a Category-I AIF

Either through purchase by private arrangement either from the issuer of the security or from any other person holding the security or on a recognised stock exchange.

Domestic Asset Management Company: It may also set up a domestic asset management company to manage its investments.

VIII. Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI):

Portfolio Investment Scheme

Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) may in terms of Schedule 2 and 2A of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, as the case may be, respectively Invest in the capital of an Indian company under the Portfolio Investment Scheme.


Which limits the individual holding of an FII/FPI below 10% of the capital of the company; and

The aggregate limit for FII/FPI investment to 24% of the capital of the Company.

Increase more than 24%: This aggregate limit of 24% can be increased to the Sectoral cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI

The aggregate FII/FPI investment, individually or in conjunction with other kinds of foreign investment, will not exceed Sectoral/statutory cap.

Reporting requirement of Company:

An Indian company which has issued shares to FIIs/FPIs under the FDI Policy for which the payment has been received directly into company’s account should report these figures separately under item no. 5 of Form FC-GPR.

To read the full article: Click here

[1] ‘Non-resident entity’ means a ‘person resident outside India’ as defined under as defined at Section 2(w) of FEMA, 1999.

 [2] OCBs have been derecognized as a class of investors in India with effect from September 16, 2003.


Published by

CS Divesh Goyal
(Practicing Compnay Secretary)
Category Corporate Law   Report

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