The Ministry of Finance has, by way of notification dated August 16th, 2024, amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘Principal Rules’) with effect from the date of the notification. The key amendments brought about by the amendment are set out below:

1.Definition of Control

Pursuant to the amendment, the Principal Rules now provide for a definition of “Control” encompassed under the newly inserted Rule 2(da) which provides that control shall have the same meaning as assigned to it in the Companies Act, 2013 (“Act”), and for a Limited Liability Partnership, means to have the right to appoint the designated partners who will have control over the policies of the Limited Liability Partnership.

This inclusion ensures clarity across various regulations by providing a standardised definition of Control.

2.Definition of Startup Company

The definition of “startup company” as provided under Rule 2(an) of the Principal Rules has been modified to be aligned with the government’s 2019 notification. Rule 2(an) has been substituted to mean that a startup company is a private company incorporated under the act and identified as a startup via notification of the government under G.S.R. 127 (E), dated the 19th February 2019 issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce, and Industry, as amended from time to time.

3.Cross-border Share Swaps

Rule 9 of the Principal Rules is now proceeded by Rule 9A, as inserted by way of the amendment. Rule 9A provides that the transfer of equity instruments of an Indian company between a person resident in India and a person resident outside India may be by way of––

1. swap of equity instruments, in compliance with the rules prescribed by the Central Government and the regulations specified by the Reserve Bank from time to time;
2. swap of equity capital of a foreign company in compliance with the rules prescribed by the Central Government including the Foreign Exchange Management, (Overseas Investment) Rules, 2022, and the regulations specified by the Reserve Bank from time to time:

Provided that prior Government approl shall be obtained for transfer in all cases wherever Government approval is applicable.

Rule 9A is further qualified by an Explanation whereby it is clarified that the expression “equity capital” shall have the same meaning as assigned to it in the Foreign Exchange Management, (Overseas Investment) Rules, 2022, as amended from time to time.

4.FDI in White Label ATMs

Pursuant to the amendment, the Principal Rules now allow for 100% FDI in white- label ATMs via automatic route. These kinds of ATMs are those that are set up, operated, and owned by non-banks.