Master Direction 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.
These paragraphs of the Reserve Bank's Master Direction on overseas investment deal with events after or around the first investment: taking up rights or bonus shares, bidding for a foreign entity, ODI in startups, pricing, transfer of the investment, and restructuring of the foreign entity's balance sheet. Several of them refer to rules 7, 16, 17, 18 and 19 of the Overseas Investment Rules, 2022, which are not in the sources consulted; the article states what the Master Direction itself prints.
As per the Master Direction, updated as on April 01, 2026, rights issue acquisitions are reported in Form FC while renouncement and bonus shares need no reporting, ODI in startups must not be made out of funds borrowed from others, banks must have a board approved pricing policy, and a restructuring certificate must show the accumulated losses, the Indian investor's proportionate share and the diminution in dues, which must not exceed that share.
The text and its footing
The Master Direction - Overseas Investment is FED Master Direction No.15/2024-25, July 24, 2024, "Updated as on April 01, 2026", addressed to Authorised Dealer Category - I banks, issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999. See our articles on section 10 and section 11 and 12. It is the Reserve Bank's direction to authorised dealers and is read with the Overseas Investment Rules, 2022 and Regulations, 2022. Rules 7, 16, 17, 18 and 19 are not in the sources consulted; the Master Direction's own words are given here. Later amendments and circulars should be checked on the Reserve Bank site. For help with any of these events, our ODI reporting team can advise. The first six paragraphs are in the article on approval routes and the NOC.
Paragraph 7: rights issue and bonus shares
A person resident in India who has acquired and continues to hold equity capital in a foreign entity in accordance with the OI Rules and Regulations may acquire equity capital through exercise of rights or by way of bonus shares, in accordance with rule 7 of the OI Rules. The acquisition through exercise of rights is reported in Form FC. If the person renounces the rights in favour of a person resident in India or outside India, the renouncement does not require reporting. Acquisition of bonus shares is not fresh financial commitment and requires no reporting.
Paragraph 8: bidding or tender for a foreign entity
AD banks, on being approached by an eligible person resident in India, may allow remittance towards earnest money deposit after obtaining Form A2 duly filled in, or issue a bid bond guarantee on the bidder's behalf under regulation 9(5) of the OI Regulations. On winning the bid, they may facilitate further remittances after obtaining Form FC and report the commitment. The bank advises the investor that if the bid fails the remitted amount must be repatriated under Notification No. FEMA 9(R)/2015-RB, and if the winner decides not to go ahead, the bank ensures the bona fides before allowing invocation of the bid bond guarantee or forfeiture of EMD. See the article on regulation 9.
Paragraph 9: ODI in startups
Any ODI in startups in accordance with rule 19(2) of the OI Rules shall not be made out of funds borrowed from others. Before facilitating the transaction, the AD bank obtains a certificate in this regard from the statutory auditors or chartered accountant of the Indian entity or investor.
Paragraph 12: pricing guidelines
12(1). Before facilitating an overseas investment related transaction, the AD bank ensures compliance with rule 16 of the OI Rules. For the documents to be taken, the bank is guided by its board approved policy, which may provide for taking into consideration the valuation as per any internationally accepted pricing methodology. The bank puts in place a board approved policy within two months from the date of the directions.
12(2). The policy may also provide for scenarios where valuation may not be insisted upon, such as (i) transfer on account of merger, amalgamation, demerger or liquidation, where the price has been approved by the competent Court or Tribunal as per the laws in India or the host jurisdiction, or (ii) where the price is readily available on a recognised stock exchange, and shall clearly provide for additional documents, such as audited financial statements of the foreign entity, for ascertaining bona fides in cases involving write-off of the investment.
Paragraph 13: transfer or liquidation
A person resident in India holding equity capital in accordance with the OI Rules may transfer the investment in accordance with rule 17 of the OI Rules. Where the transferor is required to repatriate all dues before disinvestment, the requirement does not apply to dues that do not arise on account of investment in equity or debt, such as export receivables.
Paragraph 14: restructuring
- 14(1). A person with ODI in a foreign entity may permit restructuring of the balance sheet by that entity under rule 18 of the OI Rules. The aggregate investment in both equity and debt of the foreign entity is taken into account for computing the proportionate amount of accumulated losses. If the restructuring involves only equity, investment only in equity may be taken into account.
- 14(2). The certificate required under rule 18 shall mention: the amount of accumulated losses as per the audited balance sheet of the foreign entity; the proportionate amount of accumulated losses based on the Indian entity or investor's share; the amount of diminution in the value of outstanding dues towards the Indian entity or investor after restructuring; and that the diminution does not exceed the proportionate amount of accumulated losses.
- 14(3). These provisions shall not be used where assets are simply revalued in the books of the Indian entity without any restructuring of the balance sheet of the foreign entity.
Reporting of restructuring within thirty days is under regulation 10(2)(c); see the article on regulation 10(1) to (3).
| Paragraph | Event | The bank's or investor's step as printed |
|---|---|---|
| 7 | Rights issue / bonus shares | Rights: report in Form FC. Renouncement and bonus: no reporting |
| 8 | Bid for a foreign entity | EMD after Form A2, or bid bond guarantee; Form FC on winning; repatriate if the bid fails |
| 9 | ODI in startups | Not out of borrowed funds; certificate from auditor or chartered accountant |
| 12 | Pricing | Board approved policy within two months; valuation by internationally accepted methodology; scenarios without valuation |
| 13 | Transfer | Per rule 17; export-receivable-type dues not covered by the repatriate-first requirement |
| 14 | Restructuring | Certificate with accumulated losses, proportionate share, diminution not above that share |
Example
Sundarbans Tech Pvt Ltd holds equity in a foreign entity and receives a rights offer. It exercises the rights for a fresh subscription, which it reports in Form FC. If it renounced the offer to a non-resident, no reporting is needed. Later the foreign entity restructures its balance sheet because of accumulated losses of USD 10 million, of which Sundarbans' share is 30 per cent, so USD 3 million. The certificate must show the USD 10 million, the USD 3 million, and a diminution in the value of dues owed to Sundarbans that does not exceed USD 3 million. If Sundarbans merely revalued assets in its own books, paragraph 14(3) says these provisions do not apply.
Common mistakes
- Reporting a bonus issue as fresh financial commitment; paragraph 7(2) says it is not.
- Making startup ODI out of borrowed funds; paragraph 9 bars it.
- Using the restructuring route to book a revaluation; paragraph 14(3).
- Expecting the Master Direction to specify the documents for pricing; paragraph 12 leaves it to the bank's board approved policy.
Need help with a post-investment event?
Rights, restructuring and transfers each bring a certificate, a form or a bank policy into play, and the rules that define them sit in the OI Rules. Our ODI reporting team can prepare the certificate and the filing.
Key takeaways
- Rights are reported in Form FC; renouncement and bonus shares need no reporting.
- Startup ODI is not funded by borrowed funds, with an auditor's or chartered accountant's certificate.
- Banks need a board approved pricing policy within two months of the directions.
- Repatriation before disinvestment does not cover dues like export receivables.
- Restructuring needs a certificate where diminution does not exceed the proportionate accumulated losses.
Read next
- Automatic route, approval route and NOC: paragraphs 1 to 6
- Financial commitment by an Indian entity: paragraph 21
- Overseas direct investment under the 2022 Rules
- Round tripping structures under rule 19
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.