Sunday, 30 March 2014


Earlier Regime

Foreign portfolio investments in India were permissible through foreign institutional investors (FIIs) and were regulated under SEBI (Foreign Institutional Investor) Regulations, 1995 (“FII Regulations”) and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000, as amended from time to time. FIIs includes asset management companies, pension funds, mutual funds, and investment trusts as nominee companies, incorporated / institutional portfolio managers or their power of attorney holders, university funds, endowment foundations, charitable trusts and charitable societies.

Non- Resident Indians (NRIs) and Persons of Indian Origin (PIOs) could also purchase or sell shares/ fully and mandatorily convertible debentures of Indian companies on the stock exchanges under the Portfolio Investment Scheme. For this purpose, the NRI/ PIO were required to apply to a designated branch of a bank, which deals in portfolio investment. All sale/ purchase transactions by an NRI/PIO were to be routed through the designated branch.

Recent Developments
SEBI has notified the SEBI (Foreign Portfolio Investors) Regulations, 2014 (“FPI Regulations”) effective from January 7, 2014, pursuant to which any foreign investors proposing to make portfolio investments in India will be regulated under the FPI Regulations. On notification of the FPI Regulations, the FII Regulations stand repealed and corresponding circulars stand rescinded. However, all existing FIIs, sub accounts and QFIs foreign who hold a valid certificate of registration shall be deemed to be a FPI till the expiry of the block of three years for which fees have been paid under the FII Regulations.

Salient features of the FPI Regulations are as follows:

1.       A foreign investor, meeting the eligibility criteria under the FPI Regulations, is required to foremost register itself under the FPI Regulations under one of the following categories before making any investments under the Regulations:

(a)     Category I, which includes Government and Government related investors;

(b)     Category II, which includes (i) appropriately regulated broad based funds; (ii) appropriately regulated persons such as banks, portfolio managers; (iii) broad based funds whose investment manager is appropriately regulated; (iii) university and pension funds; and (iv) university related endowments already registered with SEBI.

(c)     Category III, which includes all other investors not falling under Category I or Category II.

2.       A foreign investor is eligible for registration as a FPI if such person (as per the Income Tax Act, 1961):

(a)     is not resident in India (as per the Income Tax Act, 1961);

(b)     is resident of a country whose securities market regulator is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the SEBI;

(c)     being a bank, is a resident of a country whose central bank is a member of Bank for International Settlements;

(d)     is not resident in a country identified in the public statement of Financial Action Task Force as: (i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply;  or (ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies;

(e)     is not a non-resident Indian (as per the Income Tax Act, 1961);

(f)       is legally permitted to invest in securities outside the country of its incorporation or establishment or place of business;

(g)     is authorized by its memorandum of association and articles of association or equivalent document(s) or the agreement to invest on its own behalf or on behalf of its clients;

(h)     has sufficient experience, good track record, is professionally competent, financially sound and has a generally good reputation of fairness and integrity;

(i)       is a fit and proper person based on the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008;

(j)       if the grant of certificate to such person is in the interest of the development of the securities market; and

(k)     fulfils any other criteria specified by SEBI from time to time.

3.       An application needs to be made in Form A with designated depository participant (as defined under the Regulations which includes scheduled banks) (“DDP”) for registration as a foreign portfolio investor (“FPI”). The registration granted by a DDP is permanent, unless cancelled by SEBI or surrendered by the FPI.

4.       After registration, an FPI can make investments in the securities (primary and secondary markets), including shares, listed or to be listed on a recognised stock exchange.

5.       The shares acquired by an FPI are to be held in dematerialized form only. Further, an FPI is required to appoint a bank for opening of foreign currency denominated account and special non-resident rupee account prior to making investments under the Regulations.

6.       Investments by a single FPI or an investor group must not exceed 10% of the total issued capital of an investee company.

7.       During the transition period, all existing FIIs & sub accounts can continue to buy, sell or otherwise deal in securities till the validity of their existing registration. However, all existing QFIs can continue to buy, sell or otherwise deal in securities only for a period of one year from the date of notification of the FPI regulations (i.e. 7 January 2015). In the meanwhile, they may obtain FPI registration under the FPI Regulations.

8.       FPIs are required to abide by the provisions of the FPI Regulations, circulars issued thereunder and any other terms and conditions specified by SEBI from time to time. These would include the prescribed code of conduct, investment restrictions generally and specific to certain securities, maintenance of books and accounts, appointment of compliance officer, etc.

9.       FPI are permitted to invest in the following securities in India:

a)       Securities in the primary and secondary markets (subject to additional conditions) including shares, debentures and warrants of companies listed or to be listed on a recognized stock exchange in India;

b)       Units of schemes floated by domestic mutual funds, whether listed or not;

c)       Units of schemes floated by a collective investment scheme;

d)       Derivatives traded on a recognized stock exchange;

e)       Treasury bills and dated government securities;

f)         Commercial papers issued by an Indian company;

g)       Rupee denominated credit enhanced bonds;

h)       Security receipts issued by asset reconstruction companies;

i)         Perpetual debt instruments and debt capital instruments, as specified by RBI from time to time;

j)         Listed and unlisted non-convertible debentures / bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant ECB guidelines;

k)       Non-convertible debentures or bonds issued by NBFCs categorized as ‘Infrastructure Finance Companies’ by RBI Rupee denominated bonds or units issued by infrastructure debt funds, Indian depository receipts; and

l)         Such other instruments specified by SEBI from time to time. 

10.    FPIs (except Category-III FPIs) are allowed to issue, or otherwise deal in offshore derivative instruments[1] (ODIs), directly or indirectly, subject to following conditions:

(a)     such ODIs are issued only to persons who are regulated by an appropriate foreign regulatory authority; and
(b)     such ODIs are issued after compliance with KYC norms;

Any investment made as ODIs issued under the FII Regulations will be deemed to have been made under the corresponding provision of the FPI Regulations.


The FPI Regulations appear to provide a uniform guideline for various categories of foreign portfolio investors like FIIs and their sub-accounts, QFIs including PIOs.

So far as the Foreign Direct Investment Policy of India (“FDI Policy”) is concerned, foreign investment in India by long term investors registered with SEBI such as Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, Foreign Central Banks on repatriation basis in Government securities and non-convertible debentures (NCDs) / bonds issued by an Indian company is recently recognised and regulated as in case of FIIs. However, a comprehensive amendment in the FDI Policy recognising investments by FPIs in all permitted securities as per the FPI Regulations is yet to be brought in.

[1] Offshore derivative instrument means any instrument, by whatever name called, which is issued overseas by a foreign portfolio investor against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying

February 2014

Notification/Circular no. Date Subject Amendment comment/effect
A.P. (DIR Series) Circular No.107 Feb 20, 2014 FDI in MSE and in Industrial Undertaking manufacturing items reserved for SSI/MSE a. Companies falling under the definition of MSE as per MSMED Act, 2006 may accept FDI investment subject to extant FDI Policy and Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000. Type of instruments permitted is only equity shares and convertible debentures Scope of FDI in MSE expanded in light of provisions of MSMED Act, 2006
b. Companies which are not MSE and hold industrial license under the provisions of the Industries (Development & Regulation) Act, 1951 for manufacturing items reserved for manufacture in the MSE sector may issue shares in excess of 24 per cent of its paid up capital with prior approval of the FIPB.
A. P. (DIR Series) Circular No. 105 February 17, 2014 ECB reporting Format of ECB-2 Return amended Amendments to capture details of the financial hedges contracted by corporates, of their foreign currency exposure relating to ECB and their foreign currency earnings and expenditure
A.P. (DIR Series) Circular No.102 February 11, 2014 FDI Report Form FC-GPR revised Amendment brought in to capture the granular details of FDI as regards Brownfield/Greenfield investments and the date of incorporation of investee company

PN/Document no. Date Subject Amendment
PN 2 of 2014 4.2.2014 FDI in Insurance Sector a. extended to include investments by NRI's as well as FII.
b. extented to apply to insurance brokers, TPA's, Surveyors and loss assessors

circular/notificationno. Date Subject Amendment
(1) An issuer making an initial public offer may obtain grading for such offer from one or more credit rating agencies registered with the Board.                         (2) The format of Statement of Assets and Liabilities to be a part of disclosures in offer document has been changed to include elaborate details
CIR/IMD/FIIC/4/2014  14-Feb-14 FII/QFI investments in Commercial Papers FII/QFI shall be permitted to invest upto US$ 2 billion in Commercial
Papers and upto US$5 billion in Credit
Enhanced Bonds within the Corporate Debt limit of US$ 51 billion

Intellectual Property
Date Subject Amendment comment/effect
28.2.2014 Patent (Amendment) Rules, 2014 a. increase in filing fee of patent applications Increase of filing and other fee and recognition of small entity as a separate class of applicant. 
b. new category of applicant viz. 'small entity' added. Small entity means a medium enterprice as per MSMED Act, 2006 viz. where, in case of manufacturing sector, investment in plant and machinery is between Rs. 5-10 crores and in case of service sector, the investment in equipments is between Rs. 2-5 crores. 
c. 10% additional fee for physical filing. 
d. new form prescribed for small entities to be filed with patent applications
e. New form for Representation Opposing Grant Of

Notification/Circular  No. Date Particulars
1-15-35 27-Feb-14 Section 135 of the Companies Act, 2013 along with Schedule VII thereof i.e. Provisions pertaining to corporate social responsibility have been brought into effect. This section requires that every company having a net worth exceeding INR 500 crores or turnover exceeding INR 100 crores or net profit exceeding INR 5 crores shall constitute a corporate social responsibility committtee and formulate a corporate socila responsibility policy of the Company. The Board of every such company is required to ensure that the compsny spends at least 2% of its average profits in the last three years towards Corporate Social Responsibility (CSR) activities
27-Feb-14 Companies (Corporate Social Responsibility Policies) Rules, 2014 were brought into force. This reules prescribes the activities for which the expenditures under Section 135 of the Companies Act, 2013 can be made, the reporting requirements, the constitution of the CSR committee, complainces regarding the same etc.
3 of 2013 14-Feb-14 Clarification regarding section 185 of the Companies Act 2013 is issued. It is clarified that in respect of any guarantee given or security provided by a holding company in respect of loans made by banks or financial institution to its
subsidiary company, exemption as provided in clause (d) of sub-section (8) of section 372A of the Companies Act, 1956 shall be applicable till section 186 of ths Companies
Act, 2013 is notified. This clarification is however are applicable only for those cases where loans are obtained exclusively for subsidiary company's principal business activity.

Competition Commission of India 
Order No. Section Particulars
C-2013/12/144 5 CCI approved the proposed acquisition of 50.1% stake by Etihad Airways PJSC in Jet Privilege Private Limited (JPPL) prusuant to hiviing off of loyalty business of Jet Airways into JPPL. Ipertinently, the CCI opined that since Jet’s loyalty business would be transferred to JPPL as part of the transcation, even value of assets and turnover of Jet were attributed to JPPL for the purposes of determining the requirement of a merger control filing. However, as oppposed to the majority order, a minority order is also issued by one of the CCI members stating that the loyalty inducing programs are intended to keep passengers closed within the relevant network and integration of frequent flyer programs of different airlines is likely to create entry/expansion barriers. Accordingly, there is a prima facie opinion that the proposed combination is likely to raise appreciable adverse effect on competition in the international air passenger transportation market, more particularly in those routes between India and Abu Dhabi
96 of 2013 3 & 4 Certain doctors working at Dr. Batra's Positive Health Clinic Pvt Ltd. (Company) filed a case against the Company claiming that the Company had a dominant position in the homeopathy services market and that consultancy agreement restricting the doctors working with the Company from practicing in any city where a clinic of the Company is situated even after termination were anti-cmpetitive. The CCI observed and held that due to many other players existing in the relevant market like Baksons, SBL, Ayush and Schwabe who have various clinics accross India, the Company does not appear to be in a dominant position in relevant market of the provision of homeopathic services in India. Further, since the Company is not a dominant player in that market it cannot possibly be a dominant player in the market of hiring of the doctors for the provision of homeopathy services in India. On the basis of foregoing, the CCI took a view that the is prima facie not dominant in the relevant market within the meaning of section 4 of the Act and accordingly the question of abuse thereof does not arise. Further, a plain read of the Consultancy Agreement clarifies that any doctor who chooses to practice with the OP is restricted to practise elsewhere even after the termination of the arrangement. Such restriction may fall foul of the provisions of the Act under section 3(1) read with section 3(4) of the Act if they have an appreciable adverse effect on competition in India. Considering that the market for provision of homeopathy services and market of hiring of the doctors for the provision of homeopathy services in India appears to be quite competitive, the restrictive condition does  not seem to have appreciable adverse effect on the competition in the concerned markets in India. Further there is no dearth of doctors practising
homeopathy in India. Therefore, the CCI did not consider it
appropriate to proceed further with this matter.