Permissibility Of Assured Returns Under India's Exchange Control Regime

BACKGROUND

The concept of 'assured returns' refers to a scenario where an investee company provides a guarantee of a fixed rate of return to an investor on its investment at the time of exit. This guarantee entails a predetermined return over a specific period of time. The Indian exchange control regime, since 2014, has explicitly prohibited persons resident outside India ("PROI") from receiving assured returns on the investments made by them in the equity instruments of Indian companies.

This principle also finds a place in the current regulatory framework for foreign investments in India, viz. the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 ("NDI Rules") and the Consolidated FDI Policy dated October 15, 2020 issued by the Department of Promotion of Industry and Internal Trade ("2020 FDI Policy"). Assured returns are viewed as inconsistent with the principles of genuine commercial investment since they provide a fixed return regardless of the