FEMA OCRPS QUESTION

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Devanshi Shukla (Querist)
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23 January 2025 Hi,

Just wanted to know what rules/regulation under FEMA would be applicable when a foreign entity issues OCRPS (optionally convertible preference shares) to an indian entity? would it be governed by ODI framework?

Thanks.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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23 January 2025 When a foreign entity issues optionally convertible preference shares (OCRPS) to an Indian entity, several rules and regulations under the Foreign Exchange Management Act (FEMA) are applicable. The transaction is primarily governed by the Overseas Investment (OI) Framework as established by the Reserve Bank of India (RBI) and related FEMA regulations.
Applicable FEMA Regulations
Overseas Investment Rules: The issuance of OCRPS by a foreign entity to an Indian entity falls under the Foreign Exchange Management (Overseas Investment) Rules, 2022. These rules outline the conditions under which Indian entities can make overseas investments, including investments in foreign securities like OCRPS.
Pricing Guidelines: The transaction must comply with the pricing guidelines specified by the RBI. This includes ensuring that the pricing of the OCRPS aligns with market rates and adheres to any valuation norms set forth by FEMA regulations.
Reporting Requirements: Indian entities acquiring OCRPS are required to report their investments to the RBI, typically through an Annual Performance Report (APR). This reporting ensures compliance with FEMA and allows for monitoring of foreign investments in India.
Automatic Route vs. Approval Route: Depending on the nature of the investment and the sectors involved, the transaction may be processed under either the automatic route or may require prior approval from the RBI. Generally, investments in sectors that do not require government approval can proceed under the automatic route.
Overseas Direct Investment (ODI): If the OCRPS are considered as part of an Overseas Direct Investment, they must comply with specific ODI frameworks which dictate how such investments can be structured and reported. This includes limits on investment amounts based on the net worth of the Indian entity involved

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