Stay abreast with the latest developments in the professional domain along with in-depth analysis through the monthly BCA Journal. Get access to an engaging library of researched publications from the BCAS stable.
Learn MoreExplore past issues of BCA Journal & indulge in a treasure trove of high-quality professional content across format of print, videos & learning events from the BCAS stable.
Learn More
Under India’s FEMA and NDI Rules 2019, foreign direct investment (FDI) strictly prohibits "assured returns," such as pre-determined internal rates of return or guaranteed exit prices. While investors can utilize optionality clauses like put options, these require a minimum one-year lock-in and must base the exit price on fair market value determined at the time of exit. Common compliance pitfalls include embedding minimum floor prices or using downstream entities to bypass these rules. Although Indian courts may enforce arbitral damages for a promoter's breach of exit obligations, the actual cross-border remittance of those damages remains subject to strict RBI banking scrutiny.
INTRODUCTION
This article provides a detailed, legally grounded examination of the prohibition on assured returns in foreign direct investment (FDI) under India’s Foreign Exchange Management Act, 1999 (FEMA) framework. It draws attention to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, applicable Reserve Bank of India (RBI) Master Directions and circulars, and leading judicial decisions.
1. UNDERSTANDING THE CONCEPT OF "ASSURED RETURNS" & “OPTIONALITY CLAUSE” IN FOREIGN DIRECT INVESTMENT
Assured Return
In
