Corporate Quarterly Milestones (January-March 2025)

Partner: Ankush Goyal, Senior Associates: Rohan Kohli and Natansh Jain

Key Developments

Reserve Bank of India issues updated Master Direction on Foreign Investment

On 20 January 2025, the Reserve Bank of India (RBI) updated the Master Direction on Foreign Investments in India (Master Direction). These updates, with the amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) notified on 24 January 2024 (NDI Rules Amendment), aim to clarify aspects of the regulatory framework surrounding foreign investments, particularly downstream investments and related governance matters.

Key clarifications include:

• Direct investment structures permitted for downstream investments

  The Master Direction clarifies that structures permitted for direct investment under the NDI Rules, such as equity instrument swaps and deferred payment arrangements, if they comply with other applicable provisions for downstream investments under the NDI Rules, may also be used for downstream investments.

  This resolves the longstanding ambiguity around whether foreign owned or controlled companies (FOCC) could use deferred payment arrangements in downstream investments. The NDI Rules allow deferring up to 25% of the consideration for a period of 18 months in transfers involving a non-resident. However, as FOCCs were not explicitly mentioned in the provision permitting deferred consideration, it was uncertain if they were eligible to use such payment structures.. (To read our detailed update on this clarification, click here.)

• Investment in foreign-listed Indian-incorporated public companies

  The NDI Rules Amendment permitted Indian-incorporated companies to list directly on international stock exchanges. It also mandated that any non-resident shareholder – who is a citizen, or an entity incorporated in, a country sharing a land border with India must obtain prior government approval to hold, sell or purchase such shares. The latest updates to the Master Direction incorporate these provisions of the NDI Rules Amendment, along with the broader framework around modes of payments and remittance of sale proceeds in respect of such shares.

• Greater flexibility in convertible instruments

  The updated Master Direction clarify that Indian companies may revise the tenure of compulsorily convertible debentures (CCD) or preference shares issued to foreign investors. This flexibility will allow companies and investors to increase the term of CCDs where the market value of the underlying equity remains below the predetermined conversion price at the end of the original term. This update aligns the exchange control regime with the provisions of the Companies Act, 2013 and will increase flexibility for investors to devise appropriate structures for extracting deal upside.

Amendments to the Issue of Capital and Disclosure Requirements Regulations, 2018

On 3 March 2025, the Securities and Exchange Board of India (SEBI) issued the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025 (Amendment Regulations), amending the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations). The Amendment Regulations mark a progressive shift in India’s capital markets framework by recognising various key concepts and innovative solutions to keep pace with evolving market conditions. Further, by simplifying procedures, tightening disclosure timelines, and expanding compliance, the amendments aim to enhance efficiency while safeguarding investors.

The Amendment Regulations were published in the official gazette on 8 March 2025.

The key amendments are discussed below.

• Removal of thresholds: SEBI has removed the threshold of INR 50 crore that governed the applicability of the ICDR Regulations to rights issues by a listed issuer. Now, rights issues by listed entities must comply with the provisions of the ICDR Regulations, irrespective of issue size.
• Recognition of stock appreciation rights: The Amendment Regulations give due recognition to stock appreciation rights (SAR) as valid reward instruments and incentive structures alongside employee stock options (ESOP). The Amendment Regulations treat SARs at par with ESOPs in various respects, such as:
  
  
  1. counting them towards the minimum promoters’ contribution (MPC),
  2. exempting equity shares allotted to employees upon conversion of ESOPs and SARs from promoters’ lock-in calculation,
  3. exempting bonus shares issued against equity shares allotted upon conversion of ESOPs and SARs from being counted towards promoters’ lock-in, and
  4. permitting further issue of ESOPs and SARs between filing the draft red herring prospectus and listing, subject to all necessary disclosures being made.
  
  

  A key difference the Amendment Regulations retain between ESOPs and SARs is in respect of survival post-listing. While ESOPs issued to employees may subsist post-listing, all outstanding SARs must be fully exercised for equity shares prior to filing the red herring prospectus.

• Enhanced promoter lock-in for initial public offering proceeds towards capex: The Amendment Regulations introduce a three-year lock-in (from the allotment date in an initial public offering (IPO)) vis-à-vis the MPC if the majority of the issue proceeds, excluding the portion of offer for sale, are earmarked for capital expenditure. This is longer than the 18-month lock-in ordinarily applicable towards MPC. Similarly, the lock-in for promoters’ holding in excess of the MPC in such situations has also been increased to one year, which is longer than the six-month period ordinarily applicable towards MPC. The Amendment Regulations also define the term ‘capital expenditure’ to include civil work, miscellaneous fixed assets, purchase of land, building, and plant and machinery, etc., and repayment of existing loans that may have been taken for such capital expenditure.
• Reporting obligations for transactions and placements: SEBI has placed significant emphasis on strengthening transparency in the pre-IPO stages. Amendments to Regulations 54 and 95 mandate that issuers must now disclose all pre-IPO placements and securities transactions undertaken by promoters and members of the promoter group within 24 hours of their occurrence.
• Procedural and documentation updates for rights issues: The documentation and approval process for rights issues has been streamlined to enhance efficiency. Issuers need not file the draft letter of offer with SEBI – it must now be submitted directly to the relevant stock exchanges. This change eliminates a significant layer of regulatory delay while maintaining investor access through stock exchanges.
  The revised Regulation 69 has also dispensed with the requirement to appoint a merchant banker for rights issues. The responsibilities previously undertaken by the merchant banker, such as ensuring regulatory compliance and facilitating the allotment process, have now been reallocated among the issuer, the registrar, and the stock exchanges.
• Agreement and litigations related disclosures: To address material risks to investors, the amendments mandate comprehensive disclosures of any agreements that affect management control or impose legal obligations on the issuer. Issuers are also required to disclose all criminal proceedings initiated and regulatory actions taken against key managerial personnel.

SEBI board meeting decisions impacting ease of doing business

SEBI held its 209th board meeting on 24 March 2025, approving a broad set of regulatory measures as a part of its continued efforts to enhance market transparency, reinforce institutional governance, and ensure investor protection.

Key highlights from the board meeting include:

• Enhanced disclosure thresholds for foreign portfolio investors: Under the current regulatory framework, Foreign Portfolio Investors (FPI) that, individually or together with their investor group, hold equity assets under management (AUM) exceeding INR 25,000 crore in Indian markets must make detailed ownership disclosures. These disclosures, which have no materiality thresholds, must provide details of all entities holding ownership, economic interest, or exercising control over the FPI on a full look through basis, up to the level of all natural persons. The information must be submitted to the Designated Depository Participants (DDP). In addition to this threshold, FPIs that have more than 50% of their Indian equity AUM invested in a single Indian corporate group are also required to make such disclosures.
  
  SEBI has now approved an increase in the former threshold from INR 25,000 crore to INR 50,000 crore. The other threshold (pegged to 50% of Indian equity AUM) remains unchanged.
• High-level committee to review conflict of interest and disclosure norms for SEBI members and officials: In a move to strengthen transparency and accountability, SEBI has announced the constitution of a High-Level Committee (HLC) to review the existing framework governing conflicts of interest, property and investment disclosures, and liabilities of its Board Members and Officials.
  The HLC will comprise eminent individuals and experts drawn from constitutional, statutory, and regulatory bodies, as well as from the government, public and private sectors, and academia. Its mandate is to undertake a comprehensive review of the current framework and recommend enhancements to uphold transparency, accountability, and ethical conduct.
• Strengthening governance in Market Infrastructure Institutions: SEBI approved several reforms to reinforce governance standards in market infrastructure institutions (MII), as under.
  
  
  1. Public Interest Directors: The appointment process for Public Interest Directors (PID), which requires SEBI’s approval but not shareholder approval will continue. However, if a PID is not reappointed, the board of the MII must record and communicate its reasons to SEBI.
  2. Cooling-off periods: MIIs may independently prescribe cooling-off periods for directors and key managerial personnel (KMP) before transitioning to a competing MII. SEBI will no longer mandate a cooling-off period for PIDs moving between MIIs.
  3. Appointment of KMP: The appointment or removal of certain KMPs—Compliance Officer, Chief Risk Officer, Chief Technology Officer, and Chief Information Security Officer—will now require approval from the full Governing Board (including the Managing Director, Non-Independent Directors and PIDs), rather than just the Nomination and Remuneration Committee.

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