INDIA Law and Practice Contributed by: Raj Ramachandran, Kartik Jain, Mannat Nirola and Anmol Mahajan, JSA Advocates & Solicitors
to the pricing guidelines and regulatory approval requirements applicable to FDI. • Investment as a Foreign Venture Capital Investor (FVCI), subject to prior registration with SEBI and compliance with the applicable FVCI regulations. This route is preferred by venture capital funds and early-stage investors investing in start-ups and high-growth businesses. • Investment by a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI): (a) on a repatria - tion basis through a recognised stock exchange in India, subject to the prescribed limits; or (b) on a non-repatriation basis, including through a company, trust or partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, subject to the applicable sectoral caps and entry routes. These routes are preferred by NRIs and OCIs investing in India, to retain flexibility for repatriation of investment. Investments on a non- repatriation basis are generally treated as domestic investment. • Investment in units of an Investment Vehicle, being an entity registered and regulated by SEBI under the applicable regulatory framework, including alternative investment funds, real estate investment trusts and infrastructure investment trusts. The NDI Rules comprehensively regulate foreign investment in India and prescribe sectoral caps, entry routes, pricing guidelines, reporting requirements and sector-specific conditions applicable to foreign investments. The NDI Rules also prescribe additional conditions for certain sectors, including retail trading, e-commerce and construction and development. Prohibited Sectors The Consolidated FDI Policy identifies certain sectors in which foreign investment is prohibited, including lottery business, gambling and betting, chit funds, Nidhi companies, atomic energy, trading in trans - ferable development rights, real estate business or construction of farmhouses, and the manufacturing of tobacco or tobacco substitutes. Further, as per the Press Note 3 issued in 2020, invest - ments from entities situated in, or beneficially owned by persons resident in, countries sharing a land border with India (LBCs) require prior government approval.
However, investments involving non-controlling ben - eficial ownership of up to 10% from such jurisdictions may be made under the automatic route, provided the applicable sectoral caps and sector-specific condi - tions are complied with. Additionally, the government has introduced a time-bound approval framework for LBC investments in certain specified sectors, includ - ing manufacturing of capital goods, electronic capital goods, electronic components, polysilicon and ingot- wafer. 2.2 Procedure to Obtain Approval and Sanctions for Non-Compliance Foreign investment falling under the government approval route requires approval before the invest - ment is made. Applications are submitted through the Foreign Investment Facilitation Portal and examined by the relevant ministry or department. The applica - tion generally includes details relating to the investor, the investee entity, the proposed investment structure, the source of funds, beneficial ownership and com - pliance with applicable sector-specific conditions. Applications are generally processed within eight to 12 weeks. All such applications are processed by DPIIT through the National Single Window System. DPIIT is respon - sible for processing such applications and co-ordinat - ing with the competent authorities. Upon submission, the proposal is considered by the relevant competent authorities, such as the Ministry of Defence, the Min - istry of Information and Broadcasting, the Department of Economic Affairs, etc. Applications requiring secu - rity clearance are examined by the Ministry of Home Affairs and the Ministry of External Affairs. The FEMA framework also imposes certain post- investment compliance obligations, such as the requirement to file Form FC-GPR, Form FC-TRS and annual Foreign Liabilities and Assets returns with the RBI. Making an investment under the government approval route without prior authorisation constitutes a viola - tion of FEMA. Non-compliant transactions may face directions requiring the investment to be regularised, restructured or unwound, alongside potential mon - etary penalties or compounding proceedings before
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