CS Executive · Economic, Commercial and Intellectual Property Laws · Foreign Direct Investments - Regulations and Policy
Meridian Textiles Pvt Ltd, an Indian company, wants to receive equity investment from a Singapore investor. Under the FEMA, 1999 framework, which authority prescribes the permissible classes of capital account transactions NOT involving debt instruments (such as equity investment), along with their limits and conditions?
The Central Government, in consultation with the Reserve Bank, prescribes permissible capital account transactions not involving debt instruments, such as equity investment, together with their limits and conditions. The Reserve Bank's specification power under section 6(2) covers debt instruments instead, so equity-type FDI rules flow from the Central Government.
- AThe Central Government, in consultation with the Reserve BankCorrect
- BThe Reserve Bank alone, without consulting anyone
- CThe authorised dealer bank handling the remittance
- DThe Securities and Exchange Board of India alone
Explanation
Under section 6(2A), the Central Government, in consultation with the Reserve Bank, prescribes permissible classes of capital account transactions not involving debt instruments, their limits and conditions. Equity investment is not a debt instrument. The Reserve Bank's own power under section 6(2) relates to transactions involving debt instruments, so the option giving the Reserve Bank sole power is wrong.
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