Clarifications by IFSCA Amendments by NFRA - ELP Law

1. 6/24/22, 4:46 PM Clarifications by IFSCA | Amendments by NFRA | ELPLAW (https://elplaw.in/) Home (https://elplaw.in/) Clari?cations by IFSCA | Amendments by NFRA Clarifications by IFSCA | Amendments by NFRA Jun 22, 2022 Author(s) : Manendra Singh (https://elplaw.in/people/manendra-singh) Tanvi Goyal, Aditi Ladha RESIDENT INDIVIDUALS NOT PERMITTED TO INVEST IN BULLION DEPOSITORY RECEIPTS ON IIBX IN IFSC UNDER LRS ROUTE | NON-COMPLIANCE WITH THE NATIONAL FINANCIAL REPORTING AUTHORITY RULES, 2018 TO ATTRACT SPECIFIC PUNISHMENT A. Resident individuals not permitted to invest in Bullion Depository Receipts (BDRs) on India International Bullion Exchange (IFSC) Limited (IIBX) through the Liberalized Remittance Scheme (LRS) route: IFSCA has clari?ed that resident individuals are not permitted to transact/invest in BDRs on IIBX through the liberalized remittance scheme route. B. Non-compliance with National Financial Reporting Authority Rules, 2018 to attract speci?c punishment: MCA has amended the National Financial Reporting Authority Rules, 2018 (NFRA Rules) to provide for a speci?c punishment for non-compliance with the NFRA Rules.  Such contravention will now be punishable with a ?ne not exceeding INR 5,000. Also, where the contravention is a continuing one, there is a further ?ne not exceeding INR 500 for every day after the ?rst during which the contravention continues. The above changes have been analyzed in detail below: A. Resident individuals not permitted to investment in Bullion Depository Receipts (BDRs) on India International Bullion Exchange (IFSC) Limited (IIBX) through LRS route For the purposes of foreign exchange laws, any unit set-up in International Financial Services Centre (IFSC) is treated as being outside the domestic jurisdiction, thereby requiring investment in IFSC to comply with the provision of Foreign Exchange Management Act, 1999 read with the relevant regulations. https://elplaw.in/clarifications-by-ifsca-amendments-by-nfra/ 1/3

2. 6/24/22, 4:46 PM Clarifications by IFSCA | Amendments by NFRA | ELPLAW In (https://rbidocs.rbi.org.in/rdocs/noti?cation/PDFs/NT9952781DE54AA141D3B89703E895DDA10C.PDF)) (LRS Circular), the Reserve Bank of India had permitted resident individuals to make remittances under the liberalized remittance scheme (LRS) route in International Financial Services Centres (IFSC) in India only for making investments in IFSCs in securities, other than those issued by entities/companies resident (outside IFSC) in India. this regard, vide circular dated February 16, 2021 (available here Earlier, vide noti?cation dated August 31, 2020 (available here (https://ifsca.gov.in/Viewer/Index/92)), the Ministry of Finance had noti?ed the bullion spot delivery contract and BDR with underlying bullion as a ?nancial product and related services as ?nancial services. Further, bullion spot delivery contract and BDR with underlying bullion have also been included in the de?nition of ‘securities’ under the Securities Contract Regulations Act, 1956 vide noti?cation dated (https://ifsca.gov.in/Viewer/Index/298)). December 24, 2021 (available here IFSCA has now clari?ed that resident individuals, as referred to in the LRS Circular, are not permitted to transact/invest in BDR on IIBX through the LRS route. However, it has been stated that the aforesaid clari?cation is without prejudice to the participation of Quali?ed Jewellers noti?ed by the IFSCA, in terms of DGFT noti?cation no.49/2015-2020 dated January 05, 2022 for purchase of BDRs for the sole purpose of import of gold through IIBX. This clari?cation was issued by the IFSCA vide circular dated June 17, 2022 (available here (https://ifsca.gov.in/Viewer/Index/313)). B. Non-compliance with NFRA Rules to attract speci?c punishment The Ministry of Corporate Affairs has amended the National Financial Reporting Authority Rules, 2018 (NFRA Rules) to provide for a speci?c punishment for non-compliance.  Contraventions of any of the provisions of the NFRA Rules, shall be punishable with a ?ne not exceeding INR 5,000.  If  the contravention is a continuing one, there is a further ?ne not exceeding INR 500 for every day after the ?rst during which the contravention continues. The above amendment has been introduced vide the National Financial Reporting Authority Amendment Rules, 2022 dated June (https://egazette.nic.in/WriteReadData/2022/236669.pdf)). 17, 2022 (available here Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein. https://elplaw.in/clarifications-by-ifsca-amendments-by-nfra/ 2/3

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