Rule 9A 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 9A of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 was inserted on 16 August 2024. It says a transfer of equity instruments of an Indian company between a person resident in India and a person resident outside India may be made by a swap: either a swap of equity instruments, or a swap of the equity capital of a foreign company. Schedule I paragraph 1(d) allows the matching issue of shares against a swap, and rule 21 sets the valuation for a swap of equity instruments.
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; each provision was read from the 2019 notification with the amendments applied. If you are weighing a share-swap deal that touches an overseas entity, see our overseas investment reporting service page.
Rule 9A (inserted by S.O. 3492(E) of 16 August 2024) lets a transfer of equity instruments between a resident and a non-resident be by swap of equity instruments or by swap of the equity capital of a foreign company, in compliance with the rules of the Central Government, including the Overseas Investment Rules, 2022, and the regulations of the Reserve Bank. Prior Government approval is required wherever it is applicable. Under rule 21, the valuation of a swap of equity instruments must be made by a Merchant Banker registered with SEBI or a registered investment banker outside India, whatever the amount.
What rule 9A says
Rule 9A, headed "Swap of equity instruments and equity capital", was inserted after rule 9 by S.O. 3492(E), the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024 (16 August 2024). It was not in the 2019 notification. As inserted, it reads: the transfer of equity instruments of an Indian company between a person resident in India and a person resident outside India may be by way of:
- (i) swap of equity instruments, in compliance with the rules prescribed by the Central Government and the regulations specified by the Reserve Bank from time to time;
- (ii) swap of equity capital of a foreign company in compliance with the rules prescribed by the Central Government including the Foreign Exchange Management (Overseas Investment) Rules, 2022, and the regulations specified by the Reserve Bank from time to time.
The proviso that follows says prior Government approval shall be obtained for transfer in all cases wherever Government approval is applicable. The Explanation says that "equity capital" has the same meaning as in the Foreign Exchange Management (Overseas Investment) Rules, 2022, as amended from time to time. (The Explanation says "this clause"; it is printed after the whole rule.)
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, repeats rule 9A word for word in paragraph 7.14. No other amending notification touches rule 9A.
What "equity capital" means
The Overseas Investment Rules, 2022 (notified on 22 August 2022, G.S.R. 646(E); no amendment is in the texts consulted) define "equity capital" in rule 2(1)(e) as equity shares or perpetual capital or instruments that are irredeemable, or contribution to non-debt capital of a foreign entity in the nature of fully and compulsorily convertible instruments. So a swap under clause (ii) involves, on the other side of the Indian shares, one of those instruments of a foreign company. Later amendments of the Overseas Investment Rules should be checked.
The matching issue: Schedule I paragraph 1(d)
An Indian company that receives foreign shares in exchange for its own new shares is making an issue, not a transfer. That is dealt with in paragraph 1(d) of Schedule I, which S.O. 3492(E) substituted in full. As substituted, an Indian company may issue, subject to compliance with the rules prescribed by the Central Government and the regulations specified by the Reserve Bank from time to time, equity instruments to a person resident outside India against:
- swap of equity instruments;
- import of capital goods or machinery or equipment (excluding second hand machinery);
- pre-operative or pre-incorporation expenses (including payments of rent, etc.); or
- swap of equity capital of a foreign company, in compliance with the Central Government's rules including the Overseas Investment Rules, 2022, and the Reserve Bank's regulations.
An Explanation again ties "equity capital" to the Overseas Investment Rules. The proviso says Government approval shall be obtained in all cases wherever Government approval is applicable and applications shall be made in the manner prescribed by the Central Government from time to time. Items 2 and 3 are explained in our article on shares against capital goods and pre-incorporation expenses.
What changed? As notified, paragraph 1(d) allowed the issue against a swap of equity instruments, import of capital goods or pre-operative expenses only "if the Indian investee company is engaged in an automatic route sector", with a proviso requiring Government approval if the company was in a Government route sector. The substituted text drops the automatic-route condition, adds item 4 and replaces the proviso with the "wherever Government approval is applicable" wording. For the two routes, see our article on the automatic route and the Government route.
Valuation of a swap: rule 21
Rule 21(2) sets minimum or maximum prices for issues and transfers. For a swap, the item reads: in case of swap of equity instruments, subject to the condition that irrespective of the amount, valuation involved in the swap arrangement shall have to be made by a Merchant Banker registered with the Securities and Exchange Board of India or an investment banker outside India registered with the appropriate regulatory authority in the host country. The item is as notified and no amendment changes it. The Master Direction repeats it in paragraph 8.4. Note that this item speaks of a swap of equity instruments; it does not say who values a swap of foreign equity capital, and the Rules and the Master Direction do not either. Other pricing rules are in our articles on pricing of shares issued to non-residents and pricing of share transfers and swaps.
| Feature | Provision | Source |
|---|---|---|
| Transfer by swap of equity instruments | Rule 9A(i) | S.O. 3492(E), 16 August 2024 |
| Transfer by swap of foreign company's equity capital | Rule 9A(ii) | S.O. 3492(E), 16 August 2024 |
| Issue of shares against a swap | Schedule I paragraph 1(d)(i) and (iv) | S.O. 3492(E), 16 August 2024 |
| Valuation of a swap of equity instruments | Rule 21(2) swap item | As notified |
| Prior Government approval | Proviso to rule 9A; proviso to paragraph 1(d) | Wherever applicable |
What the texts do not say
The Rules do not set a cap on a swap, do not describe the approval procedure and do not prescribe a form; the "manner prescribed by the Central Government" and the "regulations specified by the Reserve Bank" are cross-references to material not in the texts consulted. Reporting is dealt with in the Mode of Payment and Reporting Regulations; see our article on Form FC-GPR, Form ESOP, Form DRR and the LLP returns. For overseas-side questions, see our articles on the Overseas Investment Rules, 2022 in this series.
A worked example
Lakshya Components Private Limited, an Indian company, and Nordvik Holdings, a foreign company, agree that Nordvik will issue its own equity shares to Mr. Rao, a resident shareholder of Lakshya, in exchange for his Lakshya shares. That is a transfer of Lakshya equity instruments between a resident and a non-resident by swap of the equity capital of a foreign company, within rule 9A(ii), and subject to the Overseas Investment Rules, 2022 on Mr. Rao's side. Alternatively, if Lakshya itself allots new shares to Nordvik against Nordvik's shares in a third company, Schedule I paragraph 1(d) governs the issue. In either case, if the sector needs Government approval, it comes first.
Need help with a cross-border share swap?
A swap sits on both sides of the border: the inbound rule here and the outbound rule for the foreign shares. Our overseas investment reporting team can review the structure and the reports needed on the outbound leg.
Key takeaways
- Rule 9A was inserted on 16 August 2024 and allows a transfer by swap of equity instruments or of a foreign company's equity capital.
- "Equity capital" takes its meaning from the Overseas Investment Rules, 2022.
- Prior Government approval is required wherever it is applicable.
- Schedule I paragraph 1(d) was substituted at the same time to allow the matching issue of shares against a swap.
- Rule 21 requires a Merchant Banker or registered foreign investment banker to value a swap of equity instruments, irrespective of the amount.
Read next
- Schedule I paragraph 1(c) and (d) of the FEM (Non-debt Instruments) Rules, 2019: shares against capital goods and pre-incorporation expenses
- Rule 21(2)(b) and (c) of the FEM (Non-debt Instruments) Rules, 2019: pricing of share transfers and swaps
- Rule 9(1) to (3) of the FEM (Non-debt Instruments) Rules, 2019: sale of shares between residents and non-residents
- Section 6 of the FEMA, 1999: capital account transactions, debt and non-debt instruments
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.