RESIDENT INDIVIDUALS NOT PERMITTED TO INVEST IN BULLION DEPOSITORY RECEIPTS ON IIBX IN IFSC UNDER LRS ROUTE | NON-COMPLIANCE WITH THE NATIONAL FINANCIAL REPORTING AUTHORITY RULES, 2018 TO ATTRACT SPECIFIC PUNISHMENT
A. Resident individuals not permitted to invest in Bullion Depository Receipts (BDRs) on India International Bullion Exchange (IFSC) Limited (IIBX) through the Liberalized Remittance Scheme (LRS) route:
IFSCA has clarified that resident individuals are not permitted to transact/invest in BDRs on IIBX through the liberalized remittance scheme route.
B. Non-compliance with National Financial Reporting Authority Rules, 2018 to attract specific punishment:
MCA has amended the National Financial Reporting Authority Rules, 2018 (NFRA Rules) to provide for a specific punishment for non-compliance with the NFRA Rules. Such contravention will now be punishable with a fine not exceeding INR 5,000. Also, where the contravention is a continuing one, there is a further fine not exceeding INR 500 for every day after the first during which the contravention continues.
The above changes have been analyzed in detail below:
A. Resident individuals not permitted to investment in Bullion Depository Receipts (BDRs) on India International Bullion Exchange (IFSC) Limited (IIBX) through LRS route
For the purposes of foreign exchange laws, any unit set-up in International Financial Services Centre (IFSC) is treated as being outside the domestic jurisdiction, thereby requiring investment in IFSC to comply with the provision of Foreign Exchange Management Act, 1999 read with the relevant regulations.
In this regard, vide circular dated February 16, 2021 (available here) (LRS Circular), the Reserve Bank of India had permitted resident individuals to make remittances under the liberalized remittance scheme (LRS) route in International Financial Services Centres (IFSC) in India only for making investments in IFSCs in securities, other than those issued by entities/companies resident (outside IFSC) in India.
Earlier, vide notification dated August 31, 2020 (available here), the Ministry of Finance had notified the bullion spot delivery contract and BDR with underlying bullion as a financial product and related services as financial services. Further, bullion spot delivery contract and BDR with underlying bullion have also been included in the definition of 'securities' under the Securities Contract Regulations Act, 1956 vide notification dated December 24, 2021 (available here).
IFSCA has now clarified that resident individuals, as referred to in the LRS Circular, are not permitted to transact/invest in BDR on IIBX through the LRS route.
However, it has been stated that the aforesaid clarification is without prejudice to the participation of Qualified Jewellers notified by the IFSCA, in terms of DGFT notification no.49/2015-2020 dated January 05, 2022 for purchase of BDRs for the sole purpose of import of gold through IIBX.
This clarification was issued by the IFSCA vide circular dated June 17, 2022 (available here).
B. Non-compliance with NFRA Rules to attract specific punishment
The Ministry of Corporate Affairs has amended the National Financial Reporting Authority Rules, 2018 (NFRA Rules) to provide for a specific punishment for non-compliance. Contraventions of any of the provisions of the NFRA Rules, shall be punishable with a fine not exceeding INR 5,000. If the contravention is a continuing one, there is a further fine not exceeding INR 500 for every day after the first during which the contravention continues.
The above amendment has been introduced vide the National Financial Reporting Authority Amendment Rules, 2022 dated June 17, 2022 (available here).
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