RBI Unlocks Flexibility For Foreign Owned And Controlled Indian Entities

Abstract

On January 2025, the Reserve Bank of India ("RBI") published revised Master Direction on Foreign Investment in India ("Master Directions"), issued in a key move for India-bound mergers and acquisitions (M&A) transactions. This Master Direction clarifies and explicitly permits deferred consideration and indemnity payment mechanisms in mergers and acquisitions ("M&A") involving Foreign-Owned and Controlled Companies ("FOCCs"). Under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 ("NDI Rules"), this development clarifies long-standing regulatory uncertainty around FOCC deal structures. It aligns FOCCs with direct foreign investors by allowing deferred payments, escrow accounts, and indemnity holdbacks subject to specified conditions. With an eye towards compliant cross-border M&A transactions involving FOCCs especially private equity and venture capital-backed Indian subsidiaries this article explores the conceptual framework,