Monitoring of Foreign Investment limits in listed Indian companies
Summary
This circular establishes a new system for monitoring foreign investment limits in listed Indian companies to ensure compliance with FEMA regulations. It mandates that depositories and stock exchanges implement IT infrastructure to track FPI, NRI, and sectoral caps. The system requires companies to submit specific data to their Designated Depository by April 30, 2018, with the mechanism becoming operational on May 1, 2018. This section mandates that depositories inform exchanges of red flag activations and limit breaches, triggering public notifications. Foreign investors must divest excess holdings within five trading days to domestic investors using a proportionate methodology if limits are breached. The document outlines specific timelines for breach detection based on T+1 settlement cycles and imposes penalties for failure to disinvest while prohibiting trade annulments.
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Foreign Investment in India is regulated in terms of clause (b) of sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017... FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap.
As per FEMA, the onus of compliance with the various foreign investment limits rests on the Indian company. In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits.
The depositories (NSDL and CDSL) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism described at Annexure A. The Stock Exchanges (BSE, NSE and MSEI) shall also put in place the necessary infrastructure and IT systems for disseminating information on the available investment headroom in respect of listed Indian companies.
The depositories shall issue the necessary circulars and guidelines for collecting data on foreign investment from listed companies. The system for collecting this data from the companies shall go live on the date of the issuance of this circular. The companies shall provide the necessary data... latest by April 30, 2018.
The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 01, 2018. The existing mechanism for monitoring the foreign investment limits shall be done away with once the new system is operationalized.
The system for monitoring the foreign investment limits in listed Indian companies shall be implemented and housed at the depositories (NSDL and CDSL).
A Designated Depository is a depository which has been appointed by an Indian company to facilitate the monitoring of the foreign investment limits of that company. As defined at Regulation 2(xxiii) of FEMA, the term ‘Indian company’ means a company incorporated in India and registered under the Companies Act, 2013.
The Designated Depository shall act as a lead depository and the other depository shall act as a feed depository.
The company shall appoint any one depository as its Designated Depository for the purpose of monitoring the foreign investment limit.
The stock exchanges (BSE, NSE and MSEI) shall provide the data on the paid-up equity capital of an Indian company to its Designated Depository. This data shall include the paid-up equity capital of the company on a fully diluted basis.
The depositories shall provide an interface wherein the company shall provide the following information to its Designated Depository: i. Company Identification Number (CIN)... xiii. ISIN-wise details of the downstream investment in other Indian companies... The information provided by the companies shall be stored in a Company Master database.
In the event of any change in any of the details pertaining to the company, such as increase/decrease of the aggregate FPI/NRI limits or the sectoral cap or a change of the sector of the company, etc. the company shall inform such changes along with the supporting documentation to its Designated Depository.
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Source: SecMarx — Monitoring of Foreign Investment limits in listed Indian companies. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.