Liberalization Of Deferred Payments Under FEMA

1. Introduction

1.1. Deferment of payments in share purchase transactions between non-resident buyers and resident sellers till recently required prior approval of the Reserve Bank of India ("RBI") under Regulation 10 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ("FEMA Transfer Regulations").

1.2. Further, authorized dealer banks in India were allowed to open escrow accounts towards payment of share purchase consideration (subject to various terms and conditions specified by RBI), but the escrow account could only be operational for a limited period of 6 months.¹ In all other cases of opening/maintaining of escrow accounts for FDI related transactions, prior approval from the RBI was necessary.