1) What is the constitutional basis for the creation and operation of IFSCs in India? Give background on the IFSC and the activities presently being carried out there.
The legal foundation for IFSCs was laid under Section 18 of the Special Economic Zones (SEZ) Act, 2005, which allowed the Central Government to approve the setting up of an IFSC within an SEZ. In order to appreciate the regulatory regime in IFSCs, it is relevant to understand the brief background and history of SEZs.
The establishment of Special Economic Zones in India was a direct response to the need for a more efficient and attractive environment for foreign direct investment and economic growth. The first export processing zone was set up in Kandla in 1965, which laid the foundation for subsequent establishment of SEZs. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.
To instill confidence in investors and signal the Government’s commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime the Special Economic Zones Act, 2005 came into existence. The main objectives of the SEZ Act are: generation of additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities, development of infrastructure facilities. The creation of an IFSC is established through Parliamentary legislation under Article 246, which empowers the Union and State to make laws on matters in the Lists (such as Banking, Insurance, and Stock Exchanges). The primary legal foundation is Section 18 of the Special Economic Zones Act, 2005. It empowers the Central Government to approve the setting up of an IFSC in a Special Economic Zone and prescribe the requirements for its operation thereto.
IFSCA Act eliminates the multi regulator hurdle (i.e. RBI, SEBI, IRDAI, and PFRDA). A unified statutory regulator (IFSCA) with the powers of all four domestic regulators combined was created for the IFSC zone for the development and regulations of financial products, financial services and financial institutions.
Under Article 253 of the Constitution, the government utilizes its powers to implement international treaties and align with global standards.
Activities that fall under the category of Permitted activities or the activities that are carried out in the IFSC are:-
1.) Core Financial Activities
Core activities are the primary financial services permitted within the IFSC, as defined under Section 3(1)(e) of the IFSCA Act, 2019. These include:
a. Banking: Services such as offshore lending, borrowing, trade finance, external commercial borrowings (ECB), and treasury activities conducted through IFSC Banking Units (IBUs).
b. Capital Markets: Issuance and listing of securities, broking services, proprietary trading, and operating international stock exchanges.
c. Fund Management: Establishing and operating investment schemes, including Alternative Investment Funds (AIFs), Retail Funds, and Portfolio Management Services.
d. Insurance: International insurance and re-insurance business, as well as the activities of insurance intermediaries.
e. Finance Companies: Specialized activities such as aircraft leasing and financing, ship leasing, and global treasury operations.
f. Bullion: Trading and clearing of physical gold and silver through the India International Bullion Exchange (IIBX).
2. Non-Core / Financial Services Activities
These activities are allowed under the IFSC framework, subject to regulatory approvals:
a. Corporate and Advisory Services includes Merchant banking, Investment advisory and portfolio management, Role as registrar or share transfer agent, Trusteeship services.
b. Structured and Trade: Finance Structured finance transactions, International trade financing services platforms.
c. Leasing- Aircraft leasing and ship leasing companies can establish operations.
3. Ancillary and Supporting Services
These activities are allowed under the IFSC framework i.e. Legal services, Compliance, secretarial services, Accounting, auditing, bookkeeping, Taxation services, Professional and management consulting, Asset management support, Trusteeship and administrative services, Financial crime compliance services.
4. Global In-House Centres (GICs)
Non-financial companies can also set up Global In-House Centres (GICs) to provide support services for their group worldwide, provided the services are related to financial products or services.
5. Foreign Universities and Education
Recognized foreign universities (top global rankings) and institutions can operate education and research programs in areas like financial management, fintech, STEM subjects, etc.
6. Fintech and Innovation
The IFSC also supports fintech entities, including participation in regulatory sandboxes for innovation.
Another important aspect of the establishment of IFSC that cannot be ignored is the full capital account convertibility. India’s domestic economy is characterized by a “closed” capital regime where; despite achieving full current account convertibility in 1994, the nation maintains only partial capital account convertibility. This means that while funds for trade in goods and services flow relatively freely, the movement of capital (investments, loans, and asset purchases) is strictly regulated by the Reserve Bank of India (RBI) to manage exchange rate volatility and prevent sudden capital flight.
This closed capital convertibility is partially bypassed through deemed foreign status. Under the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, any financial institution or branch established within the IFSC is legally treated as a “person resident outside India”. Geographically, GIFT City is in Gujarat, but for the purposes of the Foreign Exchange Management Act (FEMA), it is functionally offshore. This status is reinforced by Section 20 of the IFSCA Act, 2019, which mandates that all transactions within the zone be conducted in specified foreign currencies (such as USD, Euro, or GBP) rather than the Indian Rupee (INR).
This “ring-fencing” attempts to ensure that global capital can flow into and out of the IFSC without impacting India’s domestic monetary stability or domestic foreign exchange reserves.
Furthermore, the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, overrides other standard FEMA regulations that would otherwise restrict capital movement. This allows the IFSC to facilitate complex “onshore-offshore” activities—such as aircraft leasing, ship finance, and global treasury operations—in a currency-neutral environment that mimics the operational efficiency of the Dubai International Financial Centre (DIFC). By treating the IFSC as a foreign jurisdiction for exchange control, India has aims to “onshore” foreign currency in financial transactions that were previously lost to external offshore jurisdictions.
IFSC aims to compete with global hubs like Dubai or Singapore, the IFSC is governed by a being of “outside India” for foreign exchange purposes.
2) Are there ambiguities or overlaps between central legislation governing IFSCs and existing domestic financial laws?
The regulation of International Financial Services Centres (IFSCs) in India has evolved from a fragmented, multi-regulator model to a unified, streamlined framework. This shift was primarily driven by the need to resolve persistent regulatory overlaps and the “clash of objectives” between domestic financial laws and the global requirements of a free trade zone. The regulatory authority for the International Financial Services center zone in India was initially shared between the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (PFRDA) until the establishment of the International Financial Services Center (IFSCA) in April 2020.
SEBI and RBI are key regulatory authorities in India with distinct responsibilities. SEBI focuses on regulating the securities market, ensuring investor protection and promoting fair practices in financial markets while RBI is responsible for monetary policy, banking regulation and maintaining the stability of Indian currency. However, there was a constant clash in their aims and objectives as a domestic regulator and the aim of growth of IFSC as free trade zone. This conflict hindered the development of IFSC and created challenges for businesses and investors.
To overcome these shortcomings, IFSCA was established on April 27,2020. IFSCA was established to provide a unified regulatory framework for the IFSC, streamlining the regulatory process and ensuring a consistent approach to the development and regulation of financial services and products within these centers.
Section 13 of the IFSCA Act empowers the IFSCA to exercise all powers that were previously vested in domestic regulators (RBI, SEBI, etc.) regarding financial products, services, and institutions within the IFSC. All financial entities in the IFSC are governed under the IFSCA. The IFSCA has the power to frame its own regulations (e.g., IFSCA Banking Regulations 2020, Fund Management Regulations 2022) which are tailored for international markets and are distinct from domestic Indian law. Foreign Currency Operations as laid in Section 20 of the IFSCA Act mandates that all transactions in the IFSC be carried out in specified foreign currencies, Unlike the domestic market which is INR-centric.
While financial regulations are unified, general laws like the Companies Act, 2013 and Insolvency and Bankruptcy Code (IBC) still apply. Similarly, even though an entity in IFSC is treated as a “person resident outside India” under the Foreign Exchange Management Act (FEMA), certain RBI circulars still require cross-referencing.
3) Please briefly describe the current investment climate in the International Financial Services Centre (IFSC) and the average volume of transactions in IFSC (by value in US dollars and by deal number) over the last three years.
The investment climate in India’s International Financial Services Centre (IFSC) at GIFT City is experiencing rapid and robust growth, driven by a favorable regulatory environment, significant tax incentives, and increasing global interest. Growth in Registered entities across sectors, increased capital flow with culmination of Attractive tax and Regulatory environment is driving the growth and making it a global financial Hub.
Based on the IFSCA Bulletin (Jan-Mar 2025) and current data from the International Financial Services Centres Authority (IFSCA), the investment climate in the GIFT IFSC (Gujarat International Finance Tec-City) is characterized by rapid institutional growth and a shift towards becoming a major global gateway for capital.
Current Investment Climate in IFSC
The climate is currently defined by aggressive regulatory liberalization and specialization. The IFSCA has transitioned from a setup phase to a growth phase, marked by several key factors: Regulatory Maturity- The introduction of the IFSCA (Fund Management) Regulations, 2025 has lowered entry barriers (e.g., reducing the minimum corpus for non-retail schemes from $5M to $3M) and simplified the “fit and proper” criteria.
Sector Diversification: While banking and capital markets remain the core, there is a surge in “niche” sectors like Aircraft Leasing) and Ship Leasing. As of September 30, 2025, a total of 303 aviation assets has been leased including 134 aircrafts, 84 engines, and 85 Auxiliary Power Units (APUs). Further, 28 ships have also been leased through GIFT IFSC as of September 30, 2025.
Investment Volume
1. FDI Transaction Value (USD)
Total Banking Assets: Reached 100.14 billion as on September 30, 2025.
Fund Management: Total commitments raised reached $ 26.30 Billion by September 2025.
GIFT IFSC is home to ESG-labelled bonds worth USD 15.73 billion, aligning with India’s Net Zero 2070 vision. A framework for transition bonds was issued in Q2 FY25–26.
Gross FDI inflows reached USD 37.7 billion during Apr–Jul 2025, while net inflows rose to USD 10.8 billion. The major contributors were Singapore, USA, Mauritius, UAE, and Netherlands, which together accounted for around 76% of total FDI.
In the domestic capital markets, a total of 186 IPOs (Mainboard and SME) were issued, raising ₹71,085 crore during FY 2025–26 as on September 30, 2025. Overall, equity issuances mobilised ₹2,02,478 crore, while the debt-market mobilizations stood at ₹5,04,486 crore.
2. Transaction Volume
As of March 31, 2025, Total Investments by Fund Management Schemes is USD 6563,06 Million.
Valuation of Transactions financed by ITFS Platforms is USD 73.91 Million as on September 30, 2025.
Overall, the investment climate in IFSC remains positive and steadily expanding driven primarily by regulatory stability, tax incentives, liberalised foreign ownership policies and the growing presence of financial services entities, fund managers, aircraft and ship leasing companies and international banking units operating from GIFT IFSC.
4) What are the typical forms of entities that operate within IFSC?
All entities seeking to operate within IFSC are required to seek registration with the IFSC Authority under the extant guidelines. Broadly speaking presently, the following investment categories may be considered:
– IFSC Banking Units (“IBUs”)
An offshore banking unit, established by an existing resident (both private and public banks authorised to deal in foreign exchange) or a foreign bank, within the IFSC is an IBU. These units set up by domestic banks are treated as overseas branches of Indian banks. IBUs are regulated by the IFSC Authority and the RBI under the extant RBI and IFSC Authority guidelines, including FEMA (IFSC) Regulations, and the IFSCA Banking Regulations.
– Fund Management Entities (“FMEs”)
A Fund Management Entity (FME) is an entity registered with IFSCA in GIFT City to conduct the business of fund management. FMEs are entities acting as pooling vehicles and are permitted to operate fund management schemes under different categories specified under the regulations. The concept of FME is equivalent to an Alternative Investment Fund (AIF) under the SEBI Regulations. An FME is required to register itself with the IFSCA under any one of the 3 categories – Authorized FME, Registered FME (Non-retail) and Registered FME (Retail). A risk-based classification forms the basis for these categories, and it is the category that decides the schemes that an FME may launch, and other applicable requirements. Inbound investment refers to capital flowing into a country from foreign sources. For India, this means capital from overseas investors, such as foreign institutions, non-resident Indians (NRIs), and global family offices, being invested in Indian assets. Traditionally, inbound capital has entered India through routes like Foreign Direct Investment (FDI) for strategic stakes, Foreign Portfolio Investment (FPI) for listed securities, and Alternative Investment Funds (AIFs) domiciled onshore.
Foreign investors can invest in a GIFT City, which then can invest in India. This structure provides unparalleled tax clarity, a familiar USD-denominated environment, and simplified compliance, making India a more attractive destination for global capital.
Outbound investment is the opposite flow capital from Indian entities and individuals being invested outside India into overseas assets and markets. This allows Indian investors to diversify their portfolios and access global growth opportunities. Historically, Indian entities used the Overseas Direct Investment (ODI) route regulated by the RBI. Individuals often rely on the Liberalized Remittance Scheme (LRS). For pooled investments, many have turned to offshore funds in jurisdictions like Mauritius or Singapore.
GIFT City offers a powerful “onshore-offshore” solution. An AIF set up in GIFT City can pool capital from Indian investors (in foreign currency) and deploy it globally. This structure avoids the complexities of foreign jurisdictions while providing greater flexibility in global asset allocation, currency management, and compliance.
In the domestic landscape, in accordance with Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 under Schedule II 1(a)(iii) there is a cap for FPIs to hold 10% of a company’s total paid-up equity capital as a part of a portfolio investment. If FPI’s stakes cross the threshold of 10%, it will trigger a mandatory reclassification from FPI to FDI. This rule has been set to prevent FPIs from gaining any significant control or any influence over Indian firms while still allowing substantial participation from foreigners in the stock market.
– REITS
-Real Estate Investment Funds (REITS) is an entity registered in IFSCA to conduct the business of investing in real estate assets on a freehold or leasehold basis whether directly through a holding company or a special purpose vehicle. REITS concept is similar to that of a mutual fund whereby REITs invest in properties. This allows individuals to participate in the real estate market without having to purchase or manage physical property themselves. Real Estate Investment Trust is an investment vehicle that collects money from multiple investors and deploys it into income generating real estate assets. An application for grant of certificate of registration as REIT should be made, by the sponsor on behalf of the trust in the format specified by the stock exchange(s) to IFSCA.
– InVits
InvITs are a type of investment vehicle that allows investors to invest in infrastructure projects. InvITs are similar to mutual funds, but they invest in infrastructure assets. InvITs are created by sponsors, who are typically infrastructure companies or private equity firms. The sponsor sets up the InvIT and transfers ownership of the underlying infrastructure assets to the trust. The trust then issues units to investors, which represent an ownership stake in the trust and thus the underlying assets. Any person/entity from India (IFSC or outside IFSC) or a foreign jurisdiction desirous to operate as an InvIT in the IFSCs are required to obtain registration with IFSCA. An InvIT is permitted to raise funds through; (i) Public issue with units listed on a recognised stock exchange in IFSC; or (ii) Private placement with units listed on a recognised stock exchange in IFSC; or (iii). Private placement whose units are not proposed to be listed on any recognised stock exchange.
– Finance Companies (“FCs”)
Finance companies are equivalent to the concept of non-banking financial companies (NBFCs’) in the domestic tariff area. Finance companies/units are governed by the IFSCA (Finance Companies) Regulations, 2021 (“FC Regulations”). Finance companies cannot accept public deposits from residents and nonresidents as defined in the regulations and it is not registered with the Authority as a Banking Unit. Finance Company must maintain minimum owned fund, depending on the category of activity(ies) or a combination of activities classified under different categories under these regulations. 2025, Regulations have added a new category of intermediary called ‘Research Entity’ and eliminated the ‘Account Aggregator’ category.
– A Finance Company undertakes the following permitted core and non-core activities, as may be specified by the Authority: Permitted Core activities are as follows:- (a) Lend in the form of loans, commitments and guarantees, credit enhancement, securitisation, financial lease, and sale and purchase of portfolios; (b) Factoring and forfaiting of receivables; (c) Undertake investments, including subscribing, acquiring, holding, or transferring securities or such other instruments, as may be permitted by the Authority; (d) Buy or Sell derivatives; (e) Global/Regional Corporate Treasury Centres; and (f) Any other core activity as may be permitted by the Authority. Permitted Non-core Activities are as follows:- (a) Merchant Banking;(b) Authorised person; (c) Registrar and Share Transfer Agent; (d) Trusteeship Services; (e) Investment Advisory Services; (f) Portfolio Management Services; (g) Distribution of mutual fund units; (h) Distribution of insurance products; (i) Function as trading and clearing members or professional clearing member of exchanges and clearing corporations set up in IFSC; (j) Transactions permitted under the Framework for Aircraft Operating Lease, as specified by the Authority; (k) Transactions permitted under the Framework for Ship Operating Lease, as may be specified by the Authority;” (l) Asset Management support services permitted under the Framework for Enabling Ancillary Services as specified by the Authority, (m) Any other non-core activity, as may be permitted with prior approval of the Authority.
– Intermediaries
Under IFSCA (International Financial Services Centres Authority), intermediaries are entities facilitating capital and financial markets in an IFSC, acting as bridges between capital providers and seekers, including Broker Dealers, Investment Advisers, Custodians, Clearing Members, Credit Rating Agencies, Depository Participants, and more, all governed by specific regulations like the IFSCA (Capital Market Intermediaries) Regulations, 2025 to ensure market integrity and investor confidence.
– Ancillary
Ancillary services are activities that directly support aid help, assist or are connected to activities in relation to financial products, financial services and financial institutions in GIFT City IFSC. These include Legal, Compliance and Secretarial, Auditing Services, Professional and Management Consulting Services, Administration, Assets Management Support Services and Trusteeship Services.
5) Are foreign investors allowed to own 100% of an IFSC entity? If not, what is the maximum percentage that a foreign investor can own?
What is perhaps unique to IFSC is that the Foreign Exchange Management Act (“FEMA”) and the rules regulations thereunder do not apply for investments in IFSC. Units/businesses in IFSC operate as if they were outside India for the purposes of the FEMA and the rules, regulations thereunder.
Therefore, Foreign investors can own up to 100% equity in IFSC entities, subject to compliance with IFSCA regulations and applicable sector-specific guidelines or licensing requirements.
6) Are foreign investors allowed to invest and hold the same class of stock or other equity securities as domestic shareholders? Is it true for both public and private companies?
Foreign investors are permitted to hold the same classes of shares or other equity securities as domestic shareholders in both public and private companies incorporated in the IFSC. There are no class-based restrictions that differentiate between foreign and domestic shareholders under Indian Law or IFSC regulations.
7) Are IFSC businesses organized and managed through domestic companies or primarily offshore companies?
Businesses operating within the IFSC are required to be registered, managed and operated within the IFSC. Briefly, the management requirements of IBU and AIFs are detailed hereunder.
Management requirements for an IBUs are as follows: –
1) Senior management and Ceo/Head IBU
The Chief Executive Officer (CEO) /Head-IBU of an IBU is responsible for the day-to-day management, supervision and control of all parts of IBU’s activities. The CEO/Head-IBU of IBU is required to operate out of IFSC.
The senior management of IBU will mean and include the employee/s responsible (singly or jointly) for managing and supervising a part or parts of the IBU’s business related to its activities in IFSC. The employees who are part of the senior management are required to operate out of IFSC. Senior management should ensure that the approved frameworks/plans are effectively implemented and maintained throughout the IBU’s operations.
The Banking company should ensure that the people appointed to the governing body, senior management and as the CEO /Head-IBU should have an appropriate mix of knowledge, skills and expertise to ensure effective management of the IBU commensurate with the nature, scale and complexity of its business. The composition of the governing body of an IBU must reflect a sufficiently broad range of experience in line with the types of operations proposed to be carried out by the IBU.
2) Governing Body Appointment and Composition
Banking company before the commencement of IBU’s operations at the IFSC appoint a governing body of the IBU and inform the authority about the same in writing. Governing Body must have at least 3 members. The Governing Body of the IBU should meet at least once each quarter during a financial year with the flexibility to convene additional meetings as and when necessary.
The Banking company must make the following appointments with respect to an IBU and ensure that they are held by an Approved Individual at all times: (i) CEO/Head – IBU (ii) Compliance Officer (iii) such other role or function as the Authority may direct from time to time. For a Representative Office the mandatory appointments may be made by its Principal Representative. The CEO/Head-IBU should be responsible for the day-to-day management, supervision and control of all parts of IBU’s activities. The Compliance officer’s function must be responsible for all compliance matters pertaining to IBU’s activities.
In addition to and without prejudice to the above, the following functions cannot be outsourced: –
i. Overall Management and Control of the IBU
Strategic decision-making, governance, and oversight of IBU operations and the responsibility of the CEO / Head of IBU as an approved individual cannot be outsourced.
ii. Responsibility for compliance
An IBU which outsources any of its functions or activities directly related to its activities in IFSC to a service should not be relieved of its regulatory obligations and must continue to remain responsible for compliance with the directions and regulations of the Authority and any directions issued.
FMEs
It is mandatory for an FME to employ personnel who are experienced with relevant expertise in fund management. FMEs are required to have at least one principal officer who is responsible for overall activities of the FME including but not limited to fund management, risk management and compliance. In addition to the principal officer, (1) additional KMP who is to be designated as ‘Compliance and Risk Manager’ is responsible for compliance with these regulations and ensures that suitable risk management policies and practices are deployed by the FME. Any FME that manages an AUM of at least USD 1 billion, excluding the AUM of fund of funds schemes, as at the close of a financial year should, in addition to the principal officer and compliance officer, appoint an additional KMP, who must be assigned with the responsibility of fund management. The appointment of the additional KMP should be made within 6 months from the end of such financial year. The continuation of the additional KMP should be optional, if the AUM remains below USD 1 billion for any 2 subsequent consecutive financial years and there is a reasonable expectation that the AUM should not exceed USD 1 billion in the near term. The Principal Officer and the Compliance Officer are required to have appropriate qualifications and experience in fund management. Typically, in addition to being suitably qualified, the principal officer is required to have experience of at least five (5) years in related activities in the securities market or financial products including in a portfolio manager, fund manager, investment advisor, broker dealer, investment banker, wealth manager, research analyst, credit rating agency, market infrastructure institution, financial sector regulator or consultancy experience in areas related to fund management, such as deal due diligence, transaction advisory or similar activities. While consultancy experience in areas related to fund management, such as deal due diligence, transaction advisory, etc. can be considered for upto 2 years, experience in other areas as mentioned aboveis mandatory for at least 3 years.
The proposal on the portfolio composition of a fund must be initiated by a person who is based in the office of the FME in the IFSC. The FME should appoint other personnel commensurate with the size of its operations and activities The appointment of and changes to KMPs is subject to prior approval of IFSCA.
In order to obtain a license from IFSCA to operate in IFSC, it is mandatory to have office premises in IFSC with adequate office space, equipment, communication facilities and manpower to effectively discharge its activities under these regulations and circulars issued thereunder. The infrastructure requirements should be commensurate to the size of its operations in IFSC. Office space should be dedicated, secured and must be accessible only by authorised person of FME.
In this way, the IFSC Authority requires that the substance of the business of the financial entities operating within the IFSC remains within the IFSC.
8) What are the forms of companies in IFSC? Briefly describe the differences.
o Which form is preferred by domestic shareholders?
o Which form is preferred by foreign investors/shareholders?
-What are the reasons for foreign shareholders preferring one form over the other?
The most common forms of business organisation in IFSC are:
- Private Limited Companies,
- Public Limited Companies,
- Limited Liability Partnerships and
- Branch or unit establishments (particularly for banks or financial institutions).
Given that all activities in IFSC are regulated activities and in light of certain exemptions available to existing SEBI registered entities, branch structures have been preferred as a starting point. The branch structure is permitted only for a FME which is already registered or regulated by a financial sector regulator in India or a foreign jurisdiction for conducting similar activities. However, it is recommended to migrate to the private limited structure due to restrictions on the activities that are permissible to a branch. For instance, Registered FME (Retail) is not permitted in the form of an LLP or branch. Furthermore, the regulators in India prefer an independent entity structure in order to ringfence the risks on consolidation of accounts.
FMEs operate largely through trust structures where the limited partners are contributors to the trust and the FME provides management services through contractual arrangements at an agreed fee. Banks of course operate through branch structures as is common in all jurisdictions. Financial Companies continue to operate as private limited companies.
IFSC companies benefit from several regulatory relaxations including an exemption from CSR obligations for the first five years. IFSC public companies are not required to constitute the Audit Committee, Nomination and Remuneration Committee, or Stakeholders’ Relationship Committee. Further, IFSC companies may undertake successive private placements without waiting for the closure of earlier offers and are permitted to align their financial year with that of their foreign parent without obtaining NCLT approval.
9) Are the domestic laws governing the constitution and set up of various corporate entities same within IFSC and India domestically? If so, are there any exemptions or benefits available to the entities incorporated in IFSC from the operation of these laws?
In substance, there is no separate corporate law system for entities set up in an International Financial Services Centre (IFSC). In IFSC, the same domestic laws that govern the creation and legal existence of corporate entities in India apply equally within an IFSC. Companies, LLPs and other recognised entities established in IFSC derive their legal personality from familiar statutes such as the Companies Act, 2013 and the Limited Liability Partnership Act, 2008, and are incorporated through the same statutory processes applicable across the country. Core matters such as share capital, management and control, shareholder rights, audits, insolvency and winding up continue to be governed by Indian law in the ordinary course.
The International Financial Services Centres Authority Act, 2019 empowers the Central Government and the IFSCA to relax, modify or adapt the operation of existing Indian laws within IFSCs. Acting under this authority, several targeted exemptions and regulatory adjustments have been introduced such as foreign exchange controls, taxation, compliance requirements and sectoral financial regulation.
Specified IFSC private companies enjoy several relaxations under the Companies Act, 2013:
- Board Meetings: Flexibility in holding board meetings, with a requirement of at least one meeting in each half of a calendar year.
- Secretarial Standards: Exemption from complying with Secretarial Standards 1 and 2 for general and board meetings.
- Investment Layers: Exemption from the restriction of making investments through only two layers of investment companies.
- CSR Provisions: Corporate Social Responsibility (CSR) provisions are applicable only after five years from the commencement of business.
1) Public Limited Companies
- Specified IFSC public companies receive similar exemptions to private companies, in addition to public company regulations:
- Directors: Exemption from mandatory appointment of a woman director and independent directors.
- Director Rotation: Provisions related to the retirement of directors by rotation do not apply.
- Share Capital and Voting Rights: Sections related to kinds of share capital and voting rights do not apply if the company’s Articles of Association provide otherwise.
- Right Issues: The offer period for a rights issue can be less than the standard time frame, provided 90% of members consent.
2) Limited Liability Partnerships (LLPs)
LLPs are recognized structures for establishing an entity in the IFSC (e.g., as a Fund Management Entity or Family Investment Fund). They benefit from the overarching tax exemptions and regulatory flexibility of the IFSCA framework. As body corporates, they are eligible to apply for registration as a Merchant Banker with SEBI.
3) Branch or Unit Establishments (Banks/Financial Institutions)
Banking Units (BUs) operating in the IFSC are granted specific regulatory and tax exemptions:
- Reserve Requirements: Liabilities of a Banking Unit (other than deposits from individuals) are exempt from Cash Reserve Ratio (CRR) or other similar reserve requirements.
- Tax Exemptions: Income of an Offshore Banking Unit from a securitization trust is exempt from income tax.
- SEBI Regulations: Stock exchanges and clearing corporations operating in the IFSC are exempt from crediting 25% of their profits annually to an investor protection fund.
10) What are the requirements for forming a company in the IFSC?
o Which governmental entities have to give approvals?
The International Financial Services Centres Authority (IFSCA) acts as the single integrated regulator for financial activities undertaken within the IFSC.
Incorporation requires compliance with the Companies Act, 2013 and submission of filings with the Ministry of Corporate Affairs and the Registrar of Companies.
In addition, SEZ and IFSC approval must be obtained simultaneously from the GIFT SEZ Developer and Office of Administrator IFSCA prior to commencement of operations.
The Gazette Notification S.O. 940(E), issued on February 28, 2024, by the Ministry of Finance (Department of Economic Affairs), is the landmark legal instrument that centralizes regulatory and administrative powers within the International Financial Services Centres Authority (IFSCA). Issued under Section 31(1) of the International Financial Services Centres Authority Act, 2019, this notification modifies the application of the Special Economic Zones (SEZ) Act, 2005, and the SEZ Rules, 2006, for all entities requiring recognition or licensing by the IFSCA.
Historically, for units requiring IFSCA recognition, registration, authorisation or licensing, it was mandatory for the said proposal to be approved by the Development Commissioner under the SEZ Act. However, pursuant to the said amendments, these powers are now to be discharged by an officer nominated by the International Financial Services Authority overseen by the Authority through its designated Administrator. Any person now intending to set up an IFSC unit must now submit their proposal directly to the “Administrator (IFSCA)” instead of the local Development Commissioner. The Administrator (IFSCA) is now responsible for granting the Letter of Approval (LOA) to setting up the unit.
In yet another attempt to make it a single window clearance, applications for setting up an IFSC unit must be made using the newly introduced Form FA. This is a Consolidated Application Form designed for a “Single Window” experience. It covers:
- Setting up of units in the SEZ.
- Allotment of Importer Exporter Code (IEC) Number.
- Allotment of land/office space/Industrial sheds in the GIFT-SEZ.
- Registration-cum-Membership Certificate (RCMC).
- GST/Sales Tax registration.
Currently, this power is operationalized through the Single Window IT System (SWIT) portal, where all new Form FA applications are processed by the Office of the Administrator.
Depending on the specific sector involved, additional licenses or registrations may be required from IFSCA, including banking, finance, insurance or leasing approvals.
o What is the process for forming/incorporating a company in IFSC?
Establishing operations in GIFT City involves incorporating the entity under the Ministry of Corporate Affairs portal – IFSC companies are incorporated under the Companies Act and must follow MCA filings. Securing office space within the GIFT SEZ by getting provisional letter of Allotment from the Developer. Once provisional space allotment is obtained, applications for SEZ unit approval and, where relevant, IFSCA authorisation are filed through the single-window SWIT portal.
The proposal is reviewed by the competent authorities, following which in-principal approval is granted. The entity then completes lease documentation, statutory registrations, and compliance undertakings. For regulated activities, operations may commence only after receipt of the IFSCA Certificate of Registration and intimation to the SEZ authorities.
To incorporate a company in the IFSC,
A company needs to be formed/incorporated on the Ministry of Corporate Affairs portal – IFSC companies are incorporated under the Companies Act and must follow MCA filings. The entity must choose it’s structuring, i.e. incorporation as a private company, public company, LLP or a Branch Office. The entity must identify office and obtain the Provisional Letter of Allotment (PLOA). “. Entity must then file Forms SPICe+ (Parts A and B), The entities must file SPICe+ (INC-32) with), INC – 33 (e-MoA), INC- 34 (e-AoA). Upon successful submission of application, the entities will receive certificate of Registration (CoR), and they can start their business operations. The entities must file Form INC-20A for Commencement of Business within 180 days of incorporation. Form INC-22 is used to notify the registered office within 60 days of incorporation for IFSC companies.
IFSCA has launched the SWIT portal through which the applicants can submit their application to obtain IFSCA Regulatory approval. In the SWIT portal, the applicant units are required to file a Common Application Form (CAF) for obtaining. IFSCA Regulatory approval. All entities except Market Infrastructure Institutions, Foreign Universities, Payment Service Providers would have to fill Common Application Form (CAF). Section-D of the CAF pertains to the application for obtaining the SEZ LOA. Once the CAF is submitted and signed using Digital Signature, the application for SEZ LOA is submitted automatically on the SEZ Online portal. Further processing of the application for LOA approval is done in the SEZ Online portal only and not in the SWIT portal.
As per Rule 22 of SEZ Rules, the BLUT is required to be executed by a SEZ unit with regard to its obligations and compliances under the SEZ Act/Rules. Once executed, the BLUT is required to be approved jointly by the Specified Officer of Customs and the Administrator (IFSCA). The BLUT is required to be executed in Form-H which is provided in SEZ Rules.
FME should fill Fund Management Entity Annexure, IBU and Banking Company should fill Banking Annexure. Finance Company Aircraft Leasing and Ship Leasing should fill FCFC or FU_Annexure or FU Annexure.
o What is the required capitalization for forming/incorporating a company in the IFSC?
Generally, there are no prescribed minimum capital requirements for companies incorporated in IFSC. Sectors that are subject to capitalisation mandates include finance, banking, insurance and fund vehicles; in these cases, the registered capital must meet minimum capital requirements, as specified.
Authorised FME is required to maintain the net worth requirement of USD 75,000 as specified in the regulations or any such other amount as may be specified by the Authority. FME RETAIL is required to maintain the net worth requirement of USD 1,000,000 as specified in the regulations or any such other amount as may be specified by the Authority. FME NON-RETAIL is required to maintain the net worth requirement of USD 5,00,000 as specified in the regulations or any such other amount as may be specified by the Authority.
According to FME Regulation 2025/2022, To function under IFSCA, FMEs should meet specific criteria’s that are: the entity must be present in an IFSC by forming a company or LLP or branch thereof, provided that a Registered FME (Retail) should not be permitted though LLP mode or its branch, and provided further that the branch structure is permitted only for a FME which is already registered and/or regulated by a financial sector regulator in India or a foreign jurisdiction for conducting similar activities. The entity should adequately ring and fence the operations of the branch in IFSC.
In case of Registered FME (Retail), FME or its holding company should not have less than five (5) years of experience in managing Assets under Management (AUM) of at least USD 200 million with more than twenty-five thousand (25,000) investors or at least one (1) person in control of the FME holding more than twenty-five percent (25%) shareholding in the FME be carrying on activities related to fund management, including portfolio management, wealth management, distribution of financial products, investment advisory for a period of not less than five (5) years collectively for at least 1000 investors on assets of at least USD 50 Million and such FME has a net worth of at least USD 2 Million or any amount as may be specified. Registered FME with Retail business is not permitted in the form of an LLP or branch. Key Managerial Persons should be appointed in which a principal officer should be designated for overall activities of the FME including but not limited to fund management, risk management and compliance. (1) additional KMP should be designated as Compliance and Risk Manager and should be responsible for compliance with these regulations and ensure suitable risk management policies and practices at the FME. In addition to that, the FME should appoint an additional KMP who will be designated with the responsibility of fund management. Personnel having experience of at least five (5) years in related activities in the securities market or financial products including in a portfolio manager, broker dealer, investment advisor, wealth manager, research analyst or fund management will be appointed.
In case of FME (Non-Retail), it should have minimum net worth of USD 500,000. Personnel must be experienced and should possess relevant expertise for retail fund management. Key Managerial Persons should be appointed in which a principal officer must be designated for overall activities of the FME including but not limited to fund management, risk management and compliance. One additional KMP to be designated as Compliance and Risk Manager and will be responsible for compliance with these regulations and ensure suitable risk management policies and practices at the FME. Personnel having experience of at least five (5) years in related activities in the securities market or financial products including in a portfolio manager, broker dealer, investment advisor, wealth manager, research analyst or fund management should be appointed.
For the establishment of IBU, the Parent Company has to provide necessary capital for the IBU subject to a minimum of USD 20 Million, or any other level of capital that may be specified from time to time by the IFSCA. Such capital should be maintained at the Parent Bank in the manner as specified by the Authority. The parent company is required to obtain a No objection Letter from its home regulator recording setting up of the Banking Unit in the IFSC as branch of the parent Bank. Also, the parent company should submit an undertaking that it will provide liquidity to its IBU whenever needed for the operations of the IBUs. Such capital will be maintained at the Parent Bank in the manner as specified by the Authority.
For the establishment of the IFSC Banking Company, the Parent company is required to provide necessary capital for the IBC subject to a minimum of USD 50 Million, or any other level of capital as may be specified from time to time by the IFSCA. Such capital should be calculated and should be maintained as specified by the Authority. The Parent company is also required to obtain a No Objection Letter from its Home Regulator regarding setting up of the Banking Unit in the IFSC as a subsidiary/ branch of the Parent Company.
The applicant seeking registration as a ‘Finance Company’ will have and maintain minimum owned fund, depending on the category of activity(ies) or a combination of activities classified under different categories under the regulations, and should maintain the higher of the minimum capital or owned funds or net worth prescribed for each activity or category of activities specified in Schedule under these regulations or under any of the relevant regulatory framework issued by the Authority, as applicable. In case the applicant, being an incorporated entity in its home jurisdiction, is seeking to set up and register a ‘Finance Unit’, it should provide and maintain minimum owned fund on unimpaired basis at all times, depending on the category of activity(ies) or a combination of activities classified under different categories under these regulations, and should maintain the higher of the minimum capital or owned funds or net worth prescribed for each activity or category of activities specified in Schedule under these regulations or under any of the relevant regulatory framework issued by the Authority, as applicable. The applicant entity and/or its promoters should be from a FATF compliant jurisdiction and comply with international standards set by the Financial Action Task Force to combat money laundering and terrorist financing. Grant of registration will be provided to the applicant upon being satisfied and can be withdrawn if conditions are not met. Authority will communicate the deficiencies by giving thirty days time to rectify. If rectification fails to the satisfaction of the Authority, Authority may refuse the grant certificate of registration. Finance company will have to maintain a minimum Capital Ratio at eight per cent of its regulatory capital to its risk- weighted assets or at such per centage as may be specified by the Authority. Finance Company will have to maintain Liquidity Coverage Ratio (LCR) on stand- alone basis, at all times, as may be determined by the Authority. The LCR may be allowed to be maintained by the parent entity, with specific approval of the Authority. The sum of all the exposures of a Finance Company or a Finance Unit, as the case may be, to a single counterparty or group of connected counterparties should not exceed twenty-five per cent. of its available eligible capital base without the approval of the Authority.
1) FC Undertaking one or more core activities with or without noncore activities, except for Global/Regional Corporate Treasury Centres. Minimum owned requirement for core activities is USD 3 million or higher, as specified by the Authority or any higher amount as may be specified by the authority.
2) FC Undertaking one or more of the non-core activities only, minimum owned requirement is USD 0.2 million or higher amount as may be specified by the Authority.
An entity operating as a branch is required at all times to comply with the minimum net worth requirements specified in these regulations for its activities in IFSC which may be maintained at the level of the parent entity, and the parent entity has to ensure that adequate funds are available for the day-to-day operations of the branch.
In addition to the networth of the FME, the fund itself is required to meet certain requirements with respect to its assets under management and corpus as under:
- In case of Venture Capital schemes, the minimum size of the corpus has to be USD 3 Million, and the total corpus cannot exceed USD 200 Million.
- Venture Capital scheme may invest in its associate, subject to the prior approval of seventy-five percent. (75%) investors in the scheme by value.
- Venture Capital schemes have to invest at least 80 per cent. (80%) of the corpus in Investee Companies where not more than ten (10) years have elapsed since incorporation of such companies, or other schemes which meet such requirements.
- Venture Capital schemes cannot buy or sell securities from associates, other schemes of the FME or its associates, or an investor who has committed to invest at least fifty per cent. (50%) of the corpus of the scheme, unless prior approval has been obtained from seventy-five per cent (75%) investors in the scheme by value: Provided that the voting process will have to exclude such investor (s) who have committed to invest at least fifty percent. (50%) of the corpus of the scheme and is buying or selling the securities, from or to the scheme: Provided further that such approval from investors may not be required for a fund of funds scheme which has disclosed in its placement memorandum the details of the underlying scheme(s) wherein the investments are intended to be made and the nature of association, if any, that the FME has with the manager(s) of such underlying schemes. If a FME fails to achieve the minimum size of corpus, as specified under sub-regulation (2) of regulation 35, within the specified time period, it should have the one-time option to extend the validity of the placement memorandum for a further period of 6 months by paying 50 per cent (50%) of the fee as applicable for filing of a fresh scheme.
The minimum size of the retail schemes should be USD 3 Million, provided that an open-ended scheme may commence its investment activities upon receiving at least USD 1 Million from investors and it should receive at least USD 3 Million from investors within 12 months from the date of communication from the Authority that the offer document has been taken on record.
Provided further that if an FME fails to achieve the minimum investment within the specified time, it should have a one-time option to extend the validity of the offer document for a further period of 6 months by paying 50 percent. (50%) of the fee as applicable for filing of a fresh scheme.
Eligible Investors
Restricted schemes should not have more than one thousand (1000) investors or such number as may be specified by the Authority. Investors investing at least USD 150,000 and Accredited Investors may invest in such schemes: Provided that in case of investors who are employees or directors or designated partners of the FME, the minimum value of investment has to be USD 40,000. FME may accept investments in a Restricted scheme from multiple investors acting together as joint investors, wherein each such investor should invest at least the minimum applicable investment amount:
Provided also that the following individuals, not more than two, when act as joint investors, the total investment by such individuals should be at least USD 150,000:
i. An investor and his/her spouse;
ii. An investor and his/her parent;
iii. An investor and his/her daughter/son.
Provided also that the minimum investment threshold should not apply to an accredited investor.
Sponsor
The following are the eligibility conditions for a sponsor of an Investment Trust:
(a) Each sponsor should hold or propose to hold not less than five per cent. (5%) of the number of units of the Investment Trust on post-initial offer basis:
Provided that in case the holding goes below five per cent. (5%), the sponsor should comply with the requirement within a time period of one year from the date of such decline;
(b) Each sponsor should maintain net worth not less than USD 15 million if it is a body corporate or a company, or net tangible assets of value not less than USD 15 million in case it is a limited liability partnership:
Provided that in case of REIT, each sponsor should maintain a net worth of not less than USD 3 million and the sponsor(s), on a collective basis, should maintain a net worth of not less than USD 15 million;
(c) The sponsor(s) or its associate(s) should have a soundtrack record in development of real estate or infrastructure or fund management in the infrastructure / real estate sector.
Explanation. – For the purpose of this sub-regulation, sound track record’ means relevant experience of at least five (5) years, and where the sponsor is a developer, at least two projects of the sponsor have been completed.
o How long does it take to form a company in the IFSC?
Generally, 45 days from the date of submission. {After the Application is made to iFSCA they strive to take a final decision on all applications within 45 days. The Standard Company corporation of the company can take upto 1-3 weeks, Provisional Letter of Appointment can take upto 1-2 weeks, Sez unit Approval may take upto 2-4 weeks and then the IFSCA Registration.
o How many shareholders is the company required to have?
The shareholder requirements are given in the Companies Act, 2013. For a private company incorporated in IFSC, minimum 2 members are required. For a public company, a minimum of 7 members is required.
o Is the list of shareholders publicly available?
The list of shareholders of the company is disclosed every year on the company’s annual return and is therefore available in the public domain (i.e., on the MCA portal). Thus, list of shareholders of a company is publicly available.
11) What are the requirements and necessary governmental approvals for a foreign investor acquiring shares in a private company in IFSC? What about for an acquisition of assets?
Acquisition of Securities in IFSC: IFSC is a deemed foreign territory for foreign-exchange purposes, and a company incorporated in the IFSC is treated as “deemed non-resident”. Therefore, no prior government approvals of RBI/ SEBI are required for acquiring shares of an IFSC company or shares listed in IFSC, except in a few cases.
a) In case of a direct listing by an Indian company on an IFSC stock exchange, the Indian company is required to comply with the foreign exchange norms applicable under the NDI Rules.
b) IFSCA Prior Approval for Change in Control: any “change in control” requires prior approval from the IFSCA for regulated entities (such as Finance Companies or Market Infrastructure Institutions). For Finance Companies, this is explicitly triggered by an acquisition of 20% or more of the voting power or paid-up share capital. Any change in the shareholding pattern is classified as a “reorganization.” The IFSCA oversees the regulatory compliance under the IFSC Act, 2019, and must duly intimate the change to the SEZ Unit Approval Committee (UAC) for record-keeping and continuity of the unit’s Letter of Approval (LOA).
Acquisition of Immoveable Property- Any financial institution or branch of a financial institution set up in the IFSC and permitted/recognized as such by the IFSCA is treated as a person resident outside India for the purposes of the FEMA Act. Accordingly, such entity may acquire immoveable property in India which is necessary for or incidental to carrying on its business in India. Presently, in IFSC only acquisition of business premises in the form of leased units are permissible.
12) Does a foreign investor need approval to acquire shares in a public company on an IFSC stock market? What about acquiring shares of a public listed company on IFSC in a direct (private) transaction from another shareholder?
The International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021 prescribe the regulatory framework and operational process for trading on IFSC platforms.
1. Trading Process on IFSC Exchanges
Trading in IFSC is conducted via recognised IFSC stock exchanges such as India International Exchange (India INX) or NSE IFSC, which operate under the IFSCA (Market Infrastructure Institutions) Regulations, 2021 and exchange‑specific rules.
Exchanges offer trading in multiple products including but not limited to equity derivatives, currency derivatives, debt securities, commodity derivatives, index products, single stock futures/options and more.
Trading hours for all product categories can be decided by the stock exchanges based on cost benefit analysis.
2. Clearing and Settlement
Mandatory Clearing Mechanism
All trades executed on IFSC exchanges must be cleared and settled through a recognised clearing corporation (e.g., India ICC for India INX) under IFSCA/Risk Management frameworks.
3. Settlement Cycle
Settlement is conducted on a netted multilateral basis through clearing members. Regulatory norm requires settlement at least once a day.
4. Margins and Risk Management
Margins
Margin collection is compulsory for derivatives and leveraged positions to mitigate risk. Exchanges and clearing corporations set initial margin, intraday margins, mark‑to‑market margins, and extreme loss margins as part of the risk framework, typically consistent with global standards such as the PFMI (Principles for Financial Market Infrastructures). Clearing members are responsible for holding adequate funds toward margin and settlement obligations.
The risk management framework should adhere to with the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions’ (IOSCO) Principles for Financial Market Infrastructures. Clearing corporations will have to evolve a margining framework based on the best practices. Clearing corporation should on an ongoing basis maintain capital including retained earnings and reserves, to adequately cover counterparty credit risk, business risk, legal and operational risk. Clearing corporations should conduct stress tests, reverse stress tests, back testing, liquidity stress testing, etc. to ensure the robustness of risk management framework. Clearing corporation will accept cash and cash equivalents (including major foreign currencies, term deposit receipts and bank guarantees issued by an IFSC banking unit), Indian securities held with foreign depositories, foreign securities or gold, as eligible collateral for trades in all product categories. The cash and cash equivalents as collateral will have to form at least 50% of the total liquid assets at all times.
Clearing corporation should be ring fenced from its holding company and must hold additional capital to cover costs required for orderly wind-down or recovery of operations.
5. Settlement and Taxes
Stamp Duty and STT
No Securities Transaction Tax (STT) is levied on trades executed on IFSC exchanges. No Stamp Duty is charged on transactions in IFSC markets.
Payment and settlement of transactions executed on a stock exchange and cleared through a clearing corporation should be carried out in accordance with the netting or gross settlement procedures specified in the bye-laws of such institutions, subject to the prior approval of the Authority. Such payment and settlement will be final, irrevocable, and binding on the parties to the transaction. Upon a settlement attaining finality and irrevocability, the right of the stock exchange or clearing corporation to appropriate collaterals, deposits, or margins contributed by a broker-dealer, clearing member, or client towards settlement or other obligations should take precedence over any other claims or liabilities against such parties. A settlement whether on a gross or net basis should be deemed final and irrevocable once the settlement obligations are determined, irrespective of whether the actual transfer of money, securities, or other assets has occurred.
6. Participation
Trading Members may have the following categories as clients
a) Person resident outside India;
b) Non-resident Indians;
c) Individual resident in India who is eligible under FEMA to invest funds offshore, to the extent allowed in the Liberalized Remittance Scheme of Reserve Bank of India.
Other Market Participants
Under IFSCA regulations and exchange rules, trading members, clearing members, custodial participants and eligible institutional investors may participate, subject to exchange membership and clearance eligibility.
Remote Trading Participant (RTP) Framework
In IFSCA, Remote Trading Participant regime allows foreign entities to trade proprietary cash‑settled derivatives via an IFSC clearing member tie‑up enhancing global participation.
7. Clearing Houses:
Clearing houses (or clearing corporations) are mandatory for settlement. Entities like the India International Clearing Corporation (IFSC) Limited and NSE IFSC Clearing Corporation Limited act as central counterparties, guaranteeing the financial settlement of trades and mitigating counterparty risk.
8. Restrictions:
Investments by resident Indians fall under the overall LRS limit of USD 250,000 per financial year prescribed by the RBI. There are also restrictions on the types of products available (e.g., cryptocurrencies are not an approved investment product). Entities must also comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) guidelines set by the IFSCA.
9. Migration to IFSC:
SEBI/HO/FPI&C/P/CIR/2021/0569 circular dated June 01, 2021, states that a FPI (original fund or its wholly owned special purpose vehicle) may approach its DDP for approval of a one-time ‘off-market’ transfer of its securities to the ‘resultant fund’. The DDP, after appropriate due diligence, may accord its approval for a one-time ‘off-market’ transfer of securities for such relocation. Relocation request will imply that the FPI has deemed to have applied for surrender of its registration and the DDP may be guided by the guidelines pertaining to surrender of FPI registration. The ‘off-market’ transfer should be allowed without prejudice to any provisions of tax laws and FEMA.
10. Direct Listing:
Indian public unlisted companies have also been permitted to opt for Direct Listing on the stock exchanges in IFSC in accordance with the IFSCA (Listing) Regulations, 2024. Similarly, Indian companies have also been permitted to direct list overseas under the Non Debt Investment Rules 2024.
11. Trading by Indian residents:
Indian residents are not allowed to purchase or sell shares of an Indian company listed on the IFSC Stock Exchanges. Further, the restrictions applicable to foreign investors under Press Note 3 dated 17 April 2020 issued by the Ministry of Commerce and Industry, will also apply to foreign investment in Indian companies listed on the IFSC Stock Exchanges. Accordingly, any investor/ beneficial owner which is a citizen of/ is incorporated in a country sharing a land border with India, can hold shares of an Indian company which is listed on the IFSC Stock Exchanges, only with the approval of the Government of India. Further, in terms of the NDI Rules Amendment, a foreign investor can hold equity shares of an Indian Company listed on the IFSC Stock Exchanges subject to the limits specified for foreign portfolio investment under the NDI Rules.
12. Applicability of SAST:
The Securities and Exchange Board of India (SEBI) Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 do not directly apply to the dealing of shares on stock exchanges within the International Financial Services Centre (IFSC). However, SAST becomes indirectly applicable through following scenarios: –
i. Primary offer by an India Company on IFSC
As per Section 18 in case of listing of equity shares by a public Indian company, the issuer must also comply with the requirements prescribed under schedule XI of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
As per Section 20 of International Financial Services Centres Authority (Listing) Regulations, 2024, Company must comply with the minimum offer and allotment to public and minimum public shareholding norms prescribed under the Securities Contracts (Regulation) Rules, 1957.
ii. Secondary Listing in IFSC
Section 41 permits a company having its specified securities listed in a jurisdiction outside IFSC, to list on exchange without a public offer subjected to the listing requirements of the recognised stock exchange(s) and such other conditions as may be specified by the IFSC Authority.
iii. Dual Listing in India and IFSC
As per Section 42 (3), a public Indian company, with dual listing in IFSC and in India, must comply with the additional regulatory requirements as may be specified by the Authority.
13) Is there a requirement for a mandatory tender offer if an investor acquired a certain percentage of shares of a public company?
There are no provisions for mandatory tender offer in acquiring a certain percentage of shares of a public company (other than an Indian company). However, every listed company must maintain a minimum public shareholding of 10%.
As regards, Indian companies that have opted to list using the Direct Listing option, the NDI Rules Amendment require Indian listed companies to comply with the regulations to be notified by SEBI. Therefore, the requirements under the SEBI (Substantial Acquisition and Takeover) Regulations, 2011 (as amended from time to time) should apply in case of purchase of shares of such company as it would for an Indian company listed on BSE and/or NSE.
14) What is the approval process for building a new facility in the IFSC?
Under the current legal and regulatory framework governing the International Financial Services Centre (IFSC) at GIFT City, entities permitted to register and carry on business within the IFSC must be engaged in financial products, financial services or financial institutions as defined and regulated by the International Financial Services Centres Authority (IFSCA). Accordingly, non-financial entities that are not engaged in permitted financial or associated technology activities (such as regulated fintech/TechFin and ancillary services) do not qualify for registration and are not authorised to conduct business operations within the IFSC unless expressly permitted by IFSCA regulations or circulars. Therefore, we recommend the deletion of the subject question on the basis that it falls outside the scope of permissible IFSC activities.
15) Can an investor do a transaction in the IFSC country in any currency or only in domestic currency?
o Is there an approval requirement (e.g. through Central Bank or another governmental agency) to use foreign currency in IFSC to pay:
in an acquisition, or
to pay to contractors, or
to pay salaries of employees?
As per the International Financial Services Centres Authority Act, 2019 (IFSCA Act), all transactions in IFSCs must be in “specified foreign currencies” (not INR), unless specifically permitted. The specified foreign currencies are USD, EUR, JPY, GBP, CAD, AUD, CHF, HKD, SGD, AED, RUB.
However, IFSC units can carry out administrative and statutory expenses in INR.
o Is there a limit on the amount of foreign currency in any transaction or series of related transactions?
– Is there an approval requirement and a limit on how much foreign currency a foreign investor can transfer into the country?
As stated above, IFSC is treated as outside India for the purposes of FEMA and therefore has full capital convertibility and no restrictions as such on then transactions being done in IFSC. Restrictions only apply where there is any inbound investment into India or monies coming from India to IFSC.
There are no specific limits imposed on the amount of foreign currency that may be used in IFSC transactions.
16) Are there approval requirements for a foreign investor for transferring domestic currency or foreign currency out of IFSC?
o Whose approval is required? (if applicable)
o How long does it take to get the approval?
o Are there limitations on the amount of foreign or domestic currency that can be transferred out of IFSC?
o Is the approval required for each transfer or can it be granted for all future transfers?
No approval is generally required for outward remittance of foreign currency or INR from IFSC, provided transfers are
– Made through Authorised Dealer Banks in IFSC; and
– In compliance with FEMA and IFSCA regulations.
Routine remittances only require processing by authorised IFSC banking units. No direct approval from RBI/ IFSCA is required.
As no prior approval is required, transfers are typically processed within normal banking timelines.
There are no specific monetary caps on remittances from IFSC, subject to AML/KYC compliance checks by the authorised bank.
Transfers within the IFSC between entities are generally simplified, and foreign investors do not need additional approval for regular transactions, provided the transaction is in line with the investment guidelines and does not violate sectoral caps or limits.
17) Is there a tax or duty on foreign currency conversion?
There is no tax or duty on foreign currency conversion within IFSC. Conversions are executed through IFSCA regulated authorised dealer banks and are treated as permitted financial services under FEMA and IFSCA regulations. Bank charges are not standard across the Board, but it depends on Bank to Bank and may also depend on the transaction value.
18) Is there a tax or duty on bringing foreign or domestic currency into the IFSC?
All transactions in IFSC must be in a specified foreign currency. Thus, there’s generally no tax or duty for bringing foreign or domestic currency into the IFSC. All inflows must be routed through banking channels and comply with standard AML/KYC requirements, but there is no fiscal charge for the act of bringing funds into IFSC.
19) Is there a difference in tax treatment between acquisition of assets or shares (e.g. a stamp duty)?
In order to provide impetus to the business being carried on in IFSC, the Government of India has provided several concessions and waivers for the transactions being carried out in IFSC.
No Stamp Duty is payable in respect of the transactions being carried out within IFSC for the business of the unit.
In terms of Section 21 of the Gujarat Special Economic Zone Act, 2004 provides an exemption from all taxes, cess, duties, fees or any other levies under any State law for all sales and transactions within the IFSC or between the units in the IFSC. In particular, there is an exemption for the following:
(a) payment of Stamp duty and registration fees on transfer of land meant for approved Units in the IFSC.
(b) Stamp duty and registration fees on loan agreements, credit deeds and mortgages executed by the Unit, industry or establishment set up in the IFSC.
(c) Exemption from value added tax, luxury tax and entertainment tax except in certain cases.
Similarly, by an amendment to the Indian Stamp Act, 1899 vide Section 57 of the SEZ Act 2005, the Government of India has exempted stamp duty in respect of instruments governed under the Union List (i.e., bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of shares and issue of debenture, etc.) when such instrument is executed by or on behalf of or in favour of the Unit in IFSC.
Similarly, the transactions being carried out on the IFSC stock exchanges have concessional stamp duty rates for transfers. Concessional Stamp Duty rates are as follows: – (a) Issue of security other than debenture – 0.005% (b) transfer of security other than debenture on delivery basis; 0.015% (c) transfer of security other than debenture on non-delivery basis; 0.003%.
On the other hand, the acquisition of land and carrying out other activities (other than the permitted activities) are not permitted to be carried out within the designated special economic zone of the IFSC and therefore does not attract any beneficial treatment as such.
20) When is a stamp duty required to be paid?
Transactions in the IFSC are generally exempt from stamp duty as detailed above.
21) Are shares in private IFSC companies easily transferable?
o Can the shares be held outside of the home jurisdiction?
o What approval does a foreign investor need to transfer shares to another foreign or domestic shareholder?
o Are changes in shareholding publicly reported or publicly available?
Shares in private IFSC companies are transferable, but subject to the transfer restrictions mandated for private companies under the Indian Companies Act, 2013 and usually embedded in shareholder agreements and the said company’s Articles of Association.
Shares of an IFSC company may be held outside India pursuant to the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, which treat IFSC units as persons resident outside India and permit capital raising from non-residents.
A foreign investor may transfer shares of an IFSC company to another foreign investor or to an Indian resident without prior regulatory approval, provided the transfer complies with the automatic route under FEMA, sectoral caps, pricing guidelines, and the company’s Articles of Association. Prior government approval is required only where the underlying activity is subject to the government route or sector-specific restrictions.
Changes in shareholding of a private company incorporated in an IFSC are not publicly announced as in no provision which directs the private company to disclose the change. However, such changes become publicly accessible through statutory filing filed under Section 92 of the Companies Act, 2013 with the Registrar of Companies. Regulatory filings under FEMA and disclosures to IFSCA are confidential and not available in the public domain.
An IFSC Listed Entity as mandated under Section 95 of International Financial Services Centres Authority (Listing) Regulations, 2024 submits its shareholding pattern to the recognized stock exchange in such form and manner as may be specified by the Authority or the recognized stock exchange on a quarterly basis, within fifteen working days from the end of each quarter.
22) What are typical exit transactions for IFSC companies?
Foreign investors and sponsors investing in IFSC entities typically exit through the following routes:
a. Most funds are in the form of trusts; therefore, the limited partners derive returns on the basis of the Net Asset Value of the Assets under Management of the fund in the form of redemption proceeds. In addition to the above, General Partners earn management fees and carry interest as per the placement documents.
b. Listing on IFSC Exchanges
IFSC permits listing of securities on recognized stock exchanges such as NSE IFSC and India INX. Permitted instruments include equity shares, depository receipts, debt security and SPAC structures. IPO or secondary listings are legally permitted although equity listings remain relatively limited in practice.
c. Off market Transfers of Securities
Transfer of securities through off-market transactions (private negotiated sales) is permitted in accordance with NDI Rules/ FEMA regulations and IFSCA regulations. SEBI and IFSCA have issued guidance enabling transfer of securities between FPI/ non-residents and IFSC entities without exchange trading.
Since IFSC only permits companies which are carrying out financial or fintech related services/ businesses, there are no other businesses that are presently registered within the Special Economic Zone of IFSC.
23) Do private companies prefer to pursue an IPO?
o on IFSC stock market,
o on domestic India stock market; or
o on a foreign stock market?
-If foreign, which one?
There is no established market preference yet for IFSC based private companies to pursue IPOs, and while several efforts are being made to attract companies to list their securities on the IFSC directly and they remain at various stages of approval for final listing, there is no IFSC IPO that has yet been completed. IFSC equity IPO activity remains at a nascent stage and is presently limited. Most companies still favor domestic Indian or foreign exchanges based on liquidity and valuation considerations.
24) Do M&A/Investment/JV agreements typically provide for dispute resolution in domestic courts or through international arbitration?
M&A/ Investment/ JV Agreements by funds established in IFSC and made into companies in India (i.e., outside of the IFSC) are treated as a foreign direct investment into India and regulated by the extant foreign exchange laws. IFSC has not mandated any specific requirements for the governing laws to be adopted by the entities regulated in IFSC and the parties have autonomy to decide submission to the jurisdiction of courts and /or arbitration, as the case maybe. To that extent, the investors and fund managers continue to prefer international arbitrations as a faster and efficient mechanism of dispute resolution. This is permitted under the Arbitration and Conciliation Act, 1996, which recognizes international commercial arbitration and allows flexibility in the selection of arbitral seats and institutions. Arbitration is preferred for its neutrality, confidentiality, time efficiency and enforceability in cross border transactions.
The IFSC is in the process of setting up an internal financial center Alternative Dispute Resolution Center within the GIFT City IFSC for swift, cost-effective dispute resolution, based on an expert committee’s report with global best practices, aiming to offer arbitration, mediation, and ODR to boost confidence in India’s financial hub. However, while efforts are ongoing, the same is not yet in force.
As regards the agreements being executed with the investors in IFSC, the trend is to adopt international arbitration centers as the chosen method for dispute resolution. English laws are widely recognised in India as governing law since India is also a common law country. While parties continue to choose New York and other laws in certain cases, it is pertinent to note that United States of America is not a reciprocating territory recognised under the laws of India.
Further, in case of government / state backed IBUs operating from IFSC, we have seen a rising trend to submit to jurisdiction of Indian courts when lending to companies (even if outside India) where the promoters are based in India or the parent/ hold co is based in India.
25) How long does a typical contract dispute case take in domestic courts in India for a final resolution?
In India, contract disputes litigation under the Indian domestic court system typically takes several years to reach final resolution, commonly ranging from 3 to 7 years or more. While the Commercial Courts Act, 2015 prescribes timelines for faster disposal of commercial disputes and appellate remedies continue to affect overall timelines. DRT offers IBUs a speedier debt recovery mechanism targeting 180 days case disposal with recovery officers enforcing orders swiftly bypassing lengthy appeals. Debt recovery tribunal as per prescribed framework seeks to dispose of the application in 60 days from the date of such application being made.
Statutory framework envisages: completion of pleadings within six months and rendering of the arbitral award within twelve months thereafter, resulting in an indicative timeline of 18 months from constitution of the tribunal. Mumbai Center for International Arbitration in its 2024 Annual Report claims that 91% of awards were delivered within 18 months, with none being set aside by a court of law.
Timelines are often extended well beyond the statutory expectations depending on the complexity of the dispute, court workload and availability of remedies. Although legislative measures such as the Commercial Courts framework were introduced to expedite commercial litigation, procedural delays, adjournments, and appeals continue to affect overall timelines.
26) Are domestic courts reliable in enforcing foreign investors’ rights under agreements and under the law?
Yes, Indian domestic courts are generally reliable in enforcing foreign investors’ contractual rights. Courts are obligated to enforce contractual rights without distinction between domestic and foreign parties. Courts regularly enforce commercial contracts and arbitral awards under statutory frameworks.
NTT Docomo Inc. v. Tata Sons Limited , The Court held that the RBI could not step in and impose conditions in an outbound payment of damages. while upholding the arbitral award, ruled that the mere fact that the SHA had a clause that mandated Tata to offer Docomo an exit at the sale price cannot by itself be a ground to conclude that the clause violates FEMA Rules.
Cruz City 1 Mauritius Holdings v. Unitech Limited the Delhi High Court enforced a foreign arbitral award ordering transfer of securities and related consideration pursuant to a put option agreement. While characterizing the payment as damage for breach, the Court held that remittance would be subject to regulatory compliance and RBI permissions.
GPE (India) Ltd. v. Twarit Consultancy Services Private Limited Twarit Consultancy Services challenged the SPAs as violating Sections 23 and 24 of the Indian Contract Act and Section 67(2) of the Companies Act, 2013, claiming they indirectly financed share purchases with guaranteed returns, against public policy.They further argued the arbitral tribunal exceeded scope by assuming exercise of put options from prior Share Subscription and Holders’ Agreements (SSHAs), without actual exercise by petitioners.The Madras High Court recognized the foreign award as enforceable, subject to RBI approval under FEMA for payments, rejecting challenges on public policy and scope grounds.The Supreme Court later clarified in that no RBI approval is needed for such compensatory damages from arbitral awards.
Edelweiss v. Percept : This case was crucial in validating the enforceability of put options. The court ruled that: Put options are not inherently speculative and are not prohibited forward contracts under the SCRA. The law does not prohibit the option itself, only the trading of it as a security on an exchange unless regulated.
The 2013 notification clarified the legal position and could be applied even to agreements made before the notification was issued, provided they met the general scheme of the SCRA.
While the above cases do not specifically relate to the IFSC, it is evident that contractual rights are upheld by the courts in India, and it is expected that the same approach ought to be adopted by the authorities in IFSC. Although procedural delays can occur, enforceability of lawful contractual rights is well recognized and reliable.
27) Are there instances of abuse of foreign investors in IFSC? How cases of investor abuse handled?
There are no reported instances of systemic abuse of foreign investors in IFSC. The IFSC operates under a centralized regulatory structure administered by the IFSCA under the IFSCA Act, 2019, which has a statutory mandate to ensure investor protection and orderly market conduct. Further, every financial service providers in the IFSC must have an efficient and effective mechanism for handling complaints and redress of grievances of their consumers. As further described in circular with ref no. F. No. IFSCA-LPRA/3/2024-Legal and Regulatory Affairs dated 2nd December 2024, every regulated entity must appoint a Complaint Redressal Officer (CRO) and publish a grievance-redressal policy. The policy must clearly define what counts as ‘complaint’.
On receiving the complaint, the CRO must acknowledge the same within 3 working days, or reject, with reasons within 5 days of receipt of the complaint. The CRO must resolve the complaint within 15-30 days of its receipt.
If the complainant is not satisfied, they can file an appeal to the CRAO within 21 days of the decision of the CRO, and, if still unsatisfied, escalate to IFSCA within 21 days of the receipt of decision form the regulated entity.
However, this mechanism is not applicable to Foreign University, Foreign Educational Institution, Ancillary Service Provider, BATF Service Provider, a Finance Company / Finance Unit engaged in aircraft leasing or ship leasing and global/regional corporate treasury centre in the IFSC.
28) Are international arbitral awards recognized and enforced in IFSC?
Yes, international arbitral awards recognized and enforceable in IFSC under Part II of the Arbitration and Conciliation Act, 1996 which implements India’s commitments under the New York Convention and Geneva Convention. Awards from notified convention countries may be directly enforced before competent Indian courts, subject only to limited statutory challenge grounds. Reciprocating Territories means a New York Convention Signatory that the Government of India has officially notified in the official gazette as reciprocating for the purpose of award enforcement. Courts may refuse enforcement on following grounds: –
- Incapacity/Invalid Agreement: A party was under incapacity, or the arbitration agreement was invalid under the law applicable to it.
- Lack of Notice/Presentation: The party against whom the award is invoked wasn’t given proper notice or couldn’t present their case.
- Award Beyond Scope: The award deals with matters not within the arbitration agreement’s scope or contemplation.
- Improper Tribunal/Procedure: The tribunal’s composition or procedure wasn’t as agreed or as per the law of the arbitration seat.
- Award Not Binding: The award hasn’t become final or has been set aside/suspended by a competent authority where it was made.
- Non-Arbitrability: The subject matter isn’t capable of settlement by arbitration under Indian law.
- Public Policy Violation: Enforcement would be contrary to India’s public policy, including fraud, corruption, or contravention of India’s fundamental policy or basic notions of justice/morality
- Judgement of the Court which did not have competent jurisdiction.
- If the judgement is not given on the merits of the case
- Judgement is based on an incorrect view of international law or refusal to recognize Indian law where applicable.
- Judgement violates principles of natural justice.
- Judgement is obtained by fraud or misrepresentation.
The following jurisdictions are notified as reciprocating territories under Section 44A of the Civil Procedure Code, 1908: United Kingdom, Singapore, Malaysia, New Zealand, Hong Kong, Fiji Islands, Trinidad and Tobago, Bangladesh, United Arab Emirates (UAE), Cook Islands (including Niue), Trust Territories of Western Samoa, Papua New Guinea, Aden.
29) Are there foreign investment protection treaties in place between IFSC and major other countries?
India has signed 88 bilateral investment treaties (BITs) with a majority of jurisdictions. Further, 14 treaties with investment provisions between India and many significant jurisdictions including the European Union, Association of South-East Asian Nations, Singapore, Japan, United Arab Emirates, etc., are in force as of date which grants substantive investment protections including fair and equitable treatment and safeguards against unlawful expropriation. India is also a signatory to several investment related instruments including the New York Convention and Trade Related Investment Measures, 1994. However, there is no separate bilateral investment treaty specifically for IFSC.
30) Are IFSC entities adequately protected from extraterritorial application of domestic Indian laws?
IFSC entities operate within a special regulatory framework that provides significant exemptions from many domestic Indian laws, but their protection from extraterritorial application is not absolute, as certain domestic laws still apply unless specifically exempted. A key principle is that unless specifically exempted, all domestic laws apply to IFSC. While the IFSC is designed as a regulatory zone its entities remain subject to a complex blend of exemptions and mandatory domestic frameworks:
“Deemed Foreign” status under (FEMA)
The most robust protection exists under the Foreign Exchange Management Act (FEMA). For exchange control purposes, IFSC units are treated as “persons resident outside India” (non-residents). This status provides a high degree of protection from standard domestic foreign exchange regulations, allowing for free capital movement and transactions in specified foreign currencies. The status is provided through Regulation 3 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 states that: “Any financial institution or branch of a financial institution set up in the IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority should be treated as a person resident outside India.” These Regulations are issued under Section 47 of the Foreign Exchange Management Act, 1999 (FEMA), which empowers the Reserve Bank of India to make regulations to carry out the purposes of FEMA.
Regulatory Consolidation (Section 13 of IFSCA Act)
Under Section 13 of the IFSCA Act, 2019, the IFSCA exercises all powers previously held by domestic regulators like the RBI, SEBI, and IRDAI within the zone. This consolidation protects entities from the multi-regulator interference by ensuring they only follow the rules/regulations/Act/guidelines issued by IFSCA.
Banking Regulation Act, 1949 ,Reserve Bank of India Act, 1934 , FEMA, 1999, SEBI Act, 1992, SCRA, 1956, Depositories Act, 1996, Companies Act, 2013, LLP Act, 2008, Insurance Act, 1938,IRDAI Act, 1999, Prevention of Money Laundering Act, 2002, Rules framed under PMLA are all applicable through IFSCA (Banking) Regulations, 2020, IFSCA (Capital Market Intermediaries) Regulations, 2021, IFSCA (Fund Management) Regulations, 2022, IFSCA (Insurance) Regulations, 2021, IFSCA (Anti-Money Laundering, CFT and KYC) Guidelines, 2022 with FEMA IFSC Regulations, 2015.
IFSC entities are shielded from restrictive domestic capital controls and standard financial oversight, they remain firmly within the reach of India’s criminal, corporate, and competitive legal frameworks to maintain global standards of transparency and security.
31) How effective is IFSC’s dispute resolution ecosystem (courts, arbitration centres, mediation mechanisms)?
The International Financial Services Centres Authority (IFSCA) is building a comprehensive and globally aligned dispute resolution ecosystem centered around Alternative Dispute Resolution (ADR) methods, particularly international arbitration and mediation. This ecosystem aims to provide a fast, efficient, and predictable framework to attract global financial business to India’s IFSCs, primarily GIFT City.
32) Are arbitration awards rendered in IFSC readily enforceable in India and internationally?
Arbitration awards rendered in an International Financial Services Centre (IFSC), such as GIFT City in India, are generally readily enforceable in India as a deemed domestic award and are also highly likely to be enforceable internationally due to India’s adherence to the New York Convention.
33) How does the insolvency framework applicable to IFSC entities interact with the Insolvency and Bankruptcy Code, 2016?
The provisions with regard to cross border insolvency under IBC have limited effect. Section 234 of IBC enables the Central Government to enter into agreements with other nations, while Section 235 of IBC allows Indian courts or tribunals to communicate with foreign courts in order to manage assets lying outside India. This approach suffers from inconsistency, as treaties vary in scope and often fail to provide mutual recognition of insolvency proceedings. In the case of Jet Airways Ltd. v. State Bank of India & Anr, the NCLAT had to coordinate with Dutch insolvency authorities to set up an ad-hoc cross border insolvency protocol to manage parallel proceedings, showing the need for a comprehensive and structured legal framework.
34) Are creditor hierarchies, security interests, and enforcement rights clearly defined for IFSC participants?
Creditor hierarchy is as per the waterfall mechanism laid down under Insolvency and Bankruptcy Code, Security interests (pledges, hypothecation, mortgages) are governed by the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and the Recovery of Debts and Bankruptcy Act. The legal basis for settlement protection, margining, collateral enforcement, stress testing and netting in IFSC is firmly rooted in the IFSCA Act, 2019, and operationalised through the IFSCA (Market Infrastructure Institutions) Regulations, 2021, particularly Regulations 30–32 and 41.
35) Do current laws provide adequate protection to secured creditors and financial counterparties?
Current laws in the IFSC provide a robust, multi-layered protection framework for secured creditors and financial counterparties, specifically designed to meet international standards while integrating with domestic Indian statutes.
1. Protection for Secured Creditors:
Secured creditors benefit from priority status and expedited enforcement mechanisms through:
- Enforcement Choice (IBC Section 52): Under the Insolvency and Bankruptcy Code (IBC), 2016, secured creditors in a liquidation scenario can choose to “stand outside” the liquidation estate to realize their security interest independently or relinquish it to receive priority in the Section 53 waterfall mechanism.
- SARFAESI Act Rights: The SARFAESI Act, 2002 allows secured creditors to enforce their security interests without court intervention, provided the asset is not subject to a moratorium.
IBC ensures that dissenting financial creditors (those who vote against a resolution plan) receive at least the amount they would have obtained in a notional liquidation, protecting their economic interest from being overridden by a majority.
2. Protection for Financial Counterparties:
Financial counterparties in the IFSC are protected by specific legislation that safeguards their contracts from typical insolvency delays:
- Bilateral Netting Act, 2020: The Bilateral Netting of Qualified Financial Contracts Act, 2020 ensures that in cases of default or insolvency, counterparties can “net” their mutual obligations into a single payment. This allows non-defaulting parties to close out and settle contracts immediately, even if the other party is under an insolvency moratorium or liquidation.
The International Financial Services Centres Authority (IFSCA) provides continuous oversight and has established frameworks like the Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Guidelines to maintain market integrity and protect participants from systemic risks. The IFSCA (Fund Management) Regulations, 2025 rules provide for private placement and minimum corpus requirements to increase transparency and protect fund investors.
36) Are parties free to choose governing law and jurisdiction for contracts executed within IFSC, and are such choices consistently upheld by Indian courts?
Yes, parties are free to choose the governing law and jurisdiction for contracts executed within an IFSC, and choices are consistently respected by Indian courts. Indian law strongly supports party autonomy in commercial contracting, and courts will ordinarily uphold foreign governing law and foreign jurisdiction or arbitration clauses, subject only to narrow exceptions relating to public policy.
In case of PASL Wind Solutions v. GE Power Conversion (2021) , the Supreme Court of India clarified that two Indian parties are free to choose a foreign seat of arbitration (e.g., Singapore, London). The Court held that such a choice does not violate the Indian Contract Act or public policy. The Court held that party autonomy is the cornerstone of arbitration law.
Consequently, an award rendered at a foreign seat is enforceable in India as a “foreign award,” and parties can even seek interim relief from Indian courts
37) How enforceable are complex financial contracts (derivatives, structured products, netting agreements) under IFSC law?
IFSCA has notified through a press release dated February 5,2021 a wide and inclusive definition of “qualified financial contract” under the Bilateral Netting of Qualified Financial Contracts Act, 2020. Moreover, since many of the OTC derivatives contracts and other financial transactions are entered into on the basis of standard documentation like International Swaps and Derivatives Association (ISDA) master agreement, such agreements too have been included in the definition of the term “qualified financial contract”. The term “qualified financial market participant”, as defined in the Act, already includes all financial institutions established at IFSCs.
Complex financial contracts, including derivatives, structured products, and netting agreements, are highly enforceable under IFSC law, through the Bilateral Netting of Qualified Financial Contracts Act, 2020 (BNQFC Act). This legislation provides legal certainty and ring-fences these agreements from challenges during insolvency or bankruptcy proceedings, aligning the IFSC legal framework with international best practices.
38) Does IFSC provide adequate legal recognition to standard global documentation (ISDA, GMRA, GMSLA)?
Yes, IFSC provides adequate and internationally credible legal recognition to standard global documentation such as ISDA, GMRA and GMSLA. Their enforceability rests on valid contract law, explicit regulatory acceptance of the underlying financial activities, statutory protection for netting and settlement finality under the IFSCA (Market Infrastructure Institutions) Regulations, 2021, and strong judicial support for party autonomy. Together, these elements provide counterparties with a level of legal certainty comparable to established global financial centres.
39) Are close-out netting and collateral enforcement mechanisms clearly protected from insolvency challenges?
Yes, close-out netting and collateral enforcement mechanisms in IFSC are clearly protected from insolvency challenges. Regulation 41 of the IFSCA (Market Infrastructure Institutions) Regulations, 2021 provides statutory finality to netting and settlement, grants priority to collateral enforcement by clearing corporations, and insulates completed transactions from reversal under the Insolvency and Bankruptcy Code. This creates a legally robust, insolvency-remote framework consistent with global financial market standards.