Rule 21 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 21 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 sets the pricing guidelines. This article covers rule 21(1) and the part of rule 21(2) that deals with issue of shares by an Indian company to a person resident outside India: the minimum price for listed and unlisted companies, the rule for convertible instruments added in 2019, shares subscribed to the memorandum and share warrants. Transfers and swaps are in a companion article.
This article is based on the Rules as notified on 17 October 2019 (S.O. 3732(E)) as amended by the notifications named in this article; the latest amendment consulted is S.O. 4870(E) dated 2 September 2026. Amendments made after that date should be checked in the Gazette. There is no official consolidated text. Rule 21 is as notified except for one Explanation inserted by S.O. 4355(E) of 5 December 2019. After an issue, the report is made as the Reserve Bank specifies; see our FC-GPR reporting page.
The price of equity instruments issued to a person resident outside India shall not be less than (i) the price worked out under the SEBI guidelines for a listed company, or one going through a delisting process, or (ii) the valuation under an internationally accepted pricing methodology on an arm's length basis, certified by a Chartered Accountant, a SEBI-registered Merchant Banker or a practising Cost Accountant, for an unlisted company. For convertible equity instruments, the price or conversion formula is fixed upfront and the conversion price cannot be below the fair value at the time of issue. Pricing guidelines do not apply to investment on a non-repatriation basis.
Rule 21(1): sales on SEBI-priced routes
Rule 21(1) says the pricing guidelines in the Rules shall not be applicable to any transfer by way of sale done in accordance with the Securities and Exchange Board of India regulations where the pricing is specified by SEBI. The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, repeats it in paragraph 8.10.2 and adds that a Chartered Accountant's certificate that the SEBI regulations or guidelines were complied with must be attached to the form filed with the authorised dealer bank. That addition is the Master Direction's own statement, not part of the Rule.
Rule 21(2)(a): issue of shares to a non-resident
Rule 21(2) begins "Unless otherwise prescribed in these rules". Clause (a): the price of equity instruments of an Indian company issued by that company to a person resident outside India shall not be less than:
| Item | Company | Floor |
|---|---|---|
| (i) | Listed Indian company, or a company going through a delisting process under the SEBI (Delisting of Equity Shares) Regulations, 2009 | The price worked out in accordance with the SEBI guidelines |
| (ii) | Unlisted Indian company | The valuation of equity instruments done as per any internationally accepted pricing methodology for valuation on an arm's length basis, duly certified by a Chartered Accountant or a Merchant Banker registered with SEBI or a practising Cost Accountant |
The Rule names no valuation method and does not say how old the certificate may be. The Master Direction, in paragraph 8.11, says its own: the certificate must not be more than ninety days old as on the date of the investment, except where the price is fixed under SEBI guidelines. That is a Master Direction statement and is not printed in the Rule. The Rule names the 2009 Delisting Regulations as printed; the reader should check the SEBI regulations now in force.
The classification of "listed" depends on rule 2(ag), as substituted in 2024, discussed in our article on FDI, foreign portfolio investment and the sectoral cap. For the registered valuer regime under the Companies Act, 2013, see section 247 on registered valuers.
Convertible equity instruments: the Explanation of 2019
S.O. 4355(E), the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019 (5 December 2019) inserted an Explanation in rule 21(2), after clause (ii): in case of convertible equity instruments, the price or conversion formula of the instrument should be determined upfront at the time of issue of the instrument; the price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the Rules. The Master Direction restates this in paragraph 8.1.2, and in its paragraphs 4.6.1 and 4.7.1 for convertible debentures and preference shares. Convertible equity instruments are defined in rule 2(k); see our article on equity instruments, convertible notes and units.
Shares subscribed to the memorandum
Item (v) of rule 21(2): where shares in an Indian company are issued to a person resident outside India in compliance with the Companies Act, 2013 by way of subscription to the Memorandum of Association, such investments shall be made at face value, subject to the entry route and sectoral caps. The Master Direction repeats it in paragraph 8.5. This is the price rule for a new company with a foreign subscriber; see our article on the Indian subsidiary route for the set-up side.
Share warrants
Item (vi): in case of share warrants, their pricing and the price or conversion formula shall be determined upfront. Warrants are equity instruments under rule 2(k), with twenty-five per cent upfront and the balance within eighteen months. The Master Direction adds in paragraph 8.7.2 that the price at conversion should not be lower than the fair value worked out at the time of issuance of the warrants; that sentence is not in the Rule.
When the guidelines do not apply
The proviso under item (vi) says these pricing guidelines shall not be applicable for investment in equity instruments by a person resident outside India on a non-repatriation basis. The Master Direction repeats it in paragraph 8.10.1. The Master Direction also says the pricing of partly paid equity shares is to be determined upfront (paragraph 8.6).
The pricing rule applies together with the other conditions on an issue: the entry route and cap in Schedule I, the Companies Act procedure (see section 62 on further issue of share capital and section 42 on private placement), and the Mode of Payment and Reporting Regulations, explained in our article on payment, issue of shares and refund under regulation 3. Rights issues have their own pricing in rule 7; see our article on rights issue, bonus issue and renounced rights. Our older guide on FDI pricing guidelines remains available.
A worked example
Lakshya Components Private Limited, an unlisted Indian company, proposes to issue shares to Nordvik Holdings. It obtains a valuation of its equity instruments using an internationally accepted pricing methodology on an arm's length basis, certified by a practising Cost Accountant. The issue price cannot be lower than that valuation. If Lakshya instead issues convertible debentures, the conversion formula is fixed at issue and the price on conversion cannot be lower than the fair value worked out at the time the debentures were issued. If Nordvik is an NRI putting in money on a non-repatriation basis, the pricing guidelines do not apply.
Need help with pricing and valuation of a foreign issue?
The valuation, the pricing floor and the report that follows the allotment should line up. Our FC-GPR reporting team can check them before the money is received.
Key takeaways
- Issue price to a non-resident cannot be below the SEBI-guideline price for a listed company, or the certified arm's length valuation for an unlisted one.
- For convertible instruments the price or conversion formula is fixed upfront; the conversion price cannot be below fair value at issue (Explanation inserted 5 December 2019).
- Shares subscribed to the Memorandum of Association are issued at face value, within the route and cap.
- Pricing guidelines do not apply to investment on non-repatriation basis.
- The Rule prints no certificate validity; the Master Direction states ninety days.
Read next
- Rule 21(2)(b) and (c) of the FEM (Non-debt Instruments) Rules, 2019: pricing of share transfers and swaps
- Rules 7 and 7A of the FEM (Non-debt Instruments) Rules, 2019: rights issue, bonus issue and renounced rights
- Rule 18 of the FEM (Non-debt Instruments) Rules, 2019: convertible notes of startups
- Section 62 of the Companies Act, 2013: further issue of share capital
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.