This is an article prepared by Krishna Venkat (Partner) and Nikhil Thokal (Associate), along with inputs from Zeenia Cooper (Paralegal).


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 company’s performance and/or market conditions.


The NDI Rules permit the issuance of equity instruments to PROIs, provided that (i) such instruments are subject to a minimum lock-in period of 1 (One) year, and (ii) such instruments are issued without a right or an option to exit at an assured price.

Rule 9 of the NDI Rules sets out the conditions that a PROI has to comply with while transferring the equity instruments of an Indian company. Rule 9(5) provides the following with regards to equity instruments carrying an optionality clause:

A person resident outside India holding equity instruments of an Indian company containing an optionality clause in accordance with these rules and exercising the option or right, may exit without any assured return, subject to the pricing guidelines prescribed in these rules and a minimum lock-in period of one year or minimum lock in period as prescribed in these rules, whichever is higher.

Further, Rule 21 of the NDI Rules, which deals with the pricing guidelines, specifies the following in the Explanation to Rule 21(2)(c):

the guiding principle shall be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment or agreement and shall exit at the price prevailing at the time of exit”.

The 2020 FDI Policy also contains similar provisions.

Though the legislative framework does not provide further details as to what provisions constitute an assured return and what provisions are exempted from such categorisation, the Indian courts have dealt with this question in several landmark cases, and have laid down certain principles that provide more clarity on this subject.


  1. NTT Docomo Inc v Tata Sons Limitedi
    The High Court of Delhi’s (“Delhi HC”) ruling in the NTT Docomo v Tata Sons case resolved the prolonged dispute between the Indian conglomerate Tata Sons Limited (“Tata”) and the Japanese telecommunications company NTT Docomo (“Docomo”), regarding Docomo’s right to sell its stake in the joint venture entity Tata Teleservices Limited (“TTSL”), for at least 50% (Fifty percent) of the price at which Docomo had purchased the shares.On March 25, 2009, Docomo, Tata, and TTSL entered into a shareholder’s agreement for TTSL (“TTSL SHA”). According to the TTSL SHA, if TTSL failed to meet certain performance conditions, Tata was obligated to find a buyer for Docomo’s shares at a pre-determined sale price. If Tata failed to find a buyer, it had to purchase Docomo’s shares in TTSL. When TTSL failed to meet some of these conditions, Docomo initiated arbitration against Tata at the London Court of International Arbitration (“LCIA”) to enforce Tata’s obligations under the TTSL SHA. After hearing both parties, the LCIA issued an award in favour of Docomo (“Award”). Subsequently, Docomo sought enforcement of the Award at Delhi HC. While Tata initially contested the Award citing the circular dated October 4, 2004 issued by the Reserve Bank of India (“RBI”) which prohibited fixed assured returns on equity investments by PROIs, the parties eventually reached a settlement.However, before the Delhi HC could approve the settlement terms, the RBI intervened in the matter and became a party to the suit. The RBI alleged that the award could not be enforced as it was against public policy and the ‘no assured return rule’ under the Foreign Exchange Management Act, 1999 (“FEMA”) and the RBI’s pricing guidelines dated July 15, 2014. The Delhi HC, while rejecting the RBI’s contentions, held that “The issue of an Indian entity honouring its commitment under a contract with a foreign entity which was not entered into under any duress or coercion will have a bearing on its goodwill and reputation in the international arena. It will indubitably have an impact on the foreign direct investment inflows and the strategic relationship between the countries where the parties to a contract are located. These too are factors that have to be kept in view when examining whether the enforcement of the Award would be consistent with the public policy of India.” The Delhi HC further held that the ‘assured return’ in question could be likened to damages and thus did not contravene FEMA.The ruling further emphasized that FEMA did not impose an outright prohibition on contractual obligations. Therefore, the obligation placed on Tata was more of a protective measure against potential losses rather than a guaranteed return. This case highlighted important issues related to foreign investments, contractual obligations, and the regulatory landscape in India.
  2. IDBI Trusteeship Services Limited v Hubtown Limitedii
    In this case adjudicated by the Supreme Court of India (“SC”), while the primary emphasis of the judgment was on the conditions under which a defendant could be granted the opportunity to defend a summary judgment lawsuit, the SC’s remarks concerning the examined structure provided significant guidance on how the Indian judiciary should approach structured transactions in the future. Nederlandse Financierings- Maatschappij voor Ontwikkelingslanden N.V. (“FMO”), a foreign body corporate, invested in the Indian company Vinca Developer Private Limited (“Vinca”) through compulsorily convertible debentures (“CCDs”) and equity shares. The CCDs were intended to convert into 99% (Ninety-Nine percent) of Vinca’s voting shares. Vinca then invested the proceeds from this investment into its subsidiaries, Amazia Developers Private Limited (“Amazia”) and Rubix Trading Private Limited (“Rubix”), through optionally partially convertible debentures (“OPCDs”) with a fixed interest rate. IDBI Trusteeship Services Ltd (“IDBI”) was appointed as the debenture trustee for the OPCDs, acting in the interest of Vinca. Additionally, Hubtown Limited (“Hubtown”) which was Vinca’s holding company, provided a corporate guarantee to secure the OPCDs. When Amazia and Rubix defaulted on the OPCDs, IDBI invoked the corporate guarantee, which Hubtown failed to fulfil. Consequently, IDBI approached the Bombay High Court (“Bombay HC”) to seek the enforcement of the corporate guarantee. The Bombay HC observed that the various transactions, including the issuance of CCDs and OPCDs, should be considered as a whole, since they appeared to be a strategy to provide a guaranteed return to FMO, which it held was a violation of the guidelines set forth under FEMA. The Bombay HC determined that as Vinca would be owned by FMO upon conversion of the CCDs, the fixed return on the OPCDs indirectly provided FMO with a guaranteed return on its investment, which is not permitted by FEMA. IDBI challenged the Bombay HC’s order before the SC, as the order raised concerns about the enforceability of structured transactions.The SC analysed the entire transaction in separate stages and concluded that none of the individual stages appeared to violate FEMA. It observed that FMO’s investment in Vinca through shares and CCDs did not violate FEMA. Similarly, Vinca’s investment in Amazia and Rubix through OPCDs also complied with FEMA. Therefore, the SC directed Hubtown to deposit the principal amount claimed under the guarantee as a precondition to defending the suit, and upheld the validity of structured transactions involving PROIs.
  3. Shakti Nath v Alpha Investments Ltdiii
    In Shakti Nath and Ors. v. Alpha Tiger Cyprus Investments, the Delhi HC dealt with a dispute concerning the enforcement of put option rights in an arbitral award. Two foreign entities under the control of Alpha Tiger Cyprus Investments Ltd (“Alpha entities”) entered into a shareholders’ agreement and a share subscription and share purchase agreement (“SSPA”) with certain resident individuals (“Promoters”) to invest in IT Infrastructure Park Private Limited (“ITIPPL‟), an Indian real estate company. The shareholders’ agreement included a put option right which granted the Alpha entities the ability to require the Promoters to acquire their shares if certain conditions subsequent in the SSPA were not completed by a certain date. Upon the exercise of its put option right, the Promoters would have to purchase the shares held by the Alpha entities at a price that would result in a post-tax internal rate of return of 19% (Nineteen percent) to the Alpha entities. When the conditions subsequent were not fulfilled within the specified timeline, there arose a dispute between the parties, and the Alpha entities sent a notice to the Promoters to invoke arbitration to resolve the dispute as per the provisions of the shareholders’ agreement. An arbitral tribunal was appointed and the tribunal awarded damages to the Alpha entities after determining that the Promoters had violated their obligations in the shareholders’ agreement. The Promoters appealed the matter before the Delhi HC stating that granting damages to Alpha entities in this case would be considered as enforcing the put option right, which would grant the Alpha entities a predetermined exit price and thereby contravene the circular dated July 15, 2014 issued by the RBI which prohibited fixed assured returns on equity investments by PROIs. The Alpha entities however claimed that they were enforcing their right of claiming damages under Section 73 of the Indian Contract Act, 1872 and hence, there was no violation of the RBI’s circular or any foreign exchange laws of India.The Delhi HC agreed with the Alpha entities’ view and distinguished between put option clauses guaranteeing fixed returns and damages clauses under the shareholders’ agreement and concluded that the assured return in the particular case should be considered as a form of compensation in the nature of damages and did not contradict India’s foreign exchange laws.
  4. Cruz City 1 Maruti Holdings v Unitech Limitediv
    In this case, the Delhi HC dismissed objections raised against the enforcement of a USD 300 million award granted by the London Court of International Arbitration (“LCIA”) to Cruz City 1 Mauritius Holdings (“Cruz“). Cruz had entered into a shareholders’ agreement with Arsanovia Limited (“Arsanovia”) (an entity in Cyprus which was jointly owned by two Indian entities, Unitech Limited and Shivalik Partners) to record their rights in Kerrush Investments Limited (“Kerrush”), an entity in Mauritius in which both Cruz and Arsanovia each held a 50% stake. According to the terms of the shareholders’ agreement, Cruz had the right to exercise a put option, thereby requiring Arsanovia and Unitech to purchase Cruz’s stake in Kerrush, if the construction of a certain project exceeded the specified timeframe. The put option would be exercised at a price that would result in a post-tax internal rate of return of 15% on the capital invested by Cruz. Consequently, due to the project’s delay, Cruz issued a notice to Arsanovia to exercise the put option. This resulted in a dispute, which was resolved through arbitration, and the arbitral tribunal ruled in favour of Cruz. The validity of the arbitral award was challenged by Unitech Limited in the Delhi HC on the grounds that it violated the public policy and contradicted the foreign exchange laws of India.The Delhi HC dismissed Unitech Limited’s arguments, and held the arbitral award valid. It stated that the ‘public policy’ defence is to be construed narrowly, and foreign awards will only be held unenforceable if they contravene the basic rationale, values and principles which underpin Indian laws. A contravention of specific provisions of FEMA, even if established, is not sufficient to invoke the defence of public policy against enforcement of the award. Such an alleged contravention is not synonymous with contravention of the fundamental policy of India.The Delhi HC further held that the contention that enforcement of the award must be refused on the ground that it violates any provision of FEMA cannot be accepted. However, any remittance of the money recovered by Cruz in enforcement of the award would necessarily require compliance of regulatory provisions and/or permissions.The Delhi HC also held that it was an erroneous assumption that the shareholders’ agreement provides for an assured return in violation of FEMA, since the put option was relevant only if the construction of the project was not commenced within the specified period. Cruz had no assurance of exit at a pre-determined return under the shareholders’ agreement in the event the execution of the project was on schedule. Further, if Cruz had been induced to make an investment on a false assurance of the agreement being legal and valid, Unitech Limited must bear the consequences of violating the provisions of law, but cannot be permitted to escape its liability under the award.
  5. Vijay Karia v Prysmian Cavi e Sistemi S.r.l.v
    In this case, certain foreign arbitration awards were challenged on the ground that they were contravening the ‘public policy of India’ as they violated the NDI Rules by directing the transfer of shares from Indian residents to PROIs at a discounted price.Vijay Karia (“Appellant”) brought a case under Section 48 of the Arbitration and Conciliation Act, 1996, where he sought to avoid the enforcement in India of four foreign awards passed in arbitration proceedings conducted by LCIA. Among other things, the said foreign awards directed the transfer of securities held by the Appellant, an Indian resident, to Prysmian Cavi e Sistemi S.r.l. (“Respondent”), a PROI, at a discount of 10% to the prevailing fair market value. As foreign exchange regulations under FEMA require that such transfer be made at the prevailing fair market value, and no lesser, the Appellant, resisting enforcement of the awards, contended that the awards were in contravention of FEMA and as such, against the public policy of India, and thus were unenforceable in India.While examining this question, the SC, relying heavily on the Delhi HC’s judgment in Cruz City 1 Maruti Holdings v Unitech Limited, explained the distinction between the current legal regime under FEMA when compared with the legal regime that existed under its predecessor the Foreign Exchange Regulation Act, 1973 (“FERA”). The Court emphasised that “FEMA –  unlike FERA – refers to the nation’s policy of managing foreign exchange instead of policing foreign exchange, the policeman being the Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of the Reserve Bank of India may be obtained post-facto if such violation can be condoned. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian law. Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value, the Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach. Further, even if the Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign award on the ground of violation of a FEMA Regulation or Rule would not arise as the award does not become void on that count. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground.”Thus, even though the SC upheld the arbitration awards which were in contravention of FEMA, the judgment came with the rider that the RBI’s permission needs to be sought for the condonation of such contravention. Further, the SC did not delve into the procedural details of how the RBI’s permission may be sought in such cases.
  6. Edelweiss Financial Services vs Percept Finserve Pvt Ltd and Anrvi
    Edelweiss Financial Services Limited (“Edelweiss”) and Percept Finserve Private Limited (“Percept”) entered into a share purchase agreement (“SPA”) pursuant to which Edelweiss purchased the shares of a subsidiary of Percept. The SPA included a provision that allowed Edelweiss to exercise a put option if certain conditions were breached by Percept. The put option gave Edelweiss the choice to either sell the shares back to Percept at a price that would result in a 10% internal rate of return or continue holding the shares with specific undertakings from Percept. Edelweiss alleged that Percept did not fulfil its obligations as stipulated in the SPA. Consequently, Edelweiss invoked the put option and requested Percept to repurchase its shares. However, Percept refused to comply with the put option. As a result, the parties opted for arbitration. The arbitral tribunal held that Percept had breached its obligations in the SPA, but however concluded that the put option cannot be enforced as it was illegal in law, on the grounds that (i) the put option constituted a forward contract which was prohibited under Section 16 of the Securities Contracts (Regulation) Act, 1956 (“SCRA”); and (ii) the put option, being a contract in derivatives, was not being traded on recognised stock exchange as required by Section 18A of the SCRA. Edelweiss, unhappy with the decision of the tribunal, challenged the order before the Bombay HC.The Bombay HC set aside the arbitral award based on ’patent illegality’ and determined that the put option could be enforced since the contract of sale would only come into effect upon the exercise of the option. Thus, the Bombay HC affirmed that put option related provisions of the SPA cannot be considered a derivative contract prohibited by Section 18A of the SCRA.


Based on the landmark cases discussed above, it is clear that while the letter of the foreign exchange legislation prohibits assured returns to foreign investors on the equity investments made by them, the courts in India have upheld such provisions in the following three scenarios:

  • Where such provisions are in the form of downside protection to the extent of the principal amount invested (as held by the Delhi HC in NTT Docomo Inc v Tata Sons Limited), or
  • Where such provisions are structured as put options which are triggered only on the non-fulfilment of any specific conditions that are set out in the shareholders’ agreement or any similar investment agreement, as the courts have held that the put option then takes the form of unliquidated damages (as held by the Delhi HC in Shakti Nath v Alpha Investments Ltd); or
  • In structured transactions in which none of the limbs of the structures individually fall afoul of the exchange control laws of India (as held by the SC in IDBI Trusteeship Services Limited v Hubtown Limited).

It must however be noted that the courts have cautioned that the actual repatriation of the proceeds pursuant to such exits shall be subject to the RBI’s approval.

i. OMP (EFA) (Comm.) No. 7 of 2016

ii. Civil Appeal No.10860 of 2016

iii. OMP (Comm) 154/2016

iv. EX.P.132/2014 & EA(OS) Nos.316/2015, 1058/2015 & 151/2016 & 670/2016

v.Civil Appeal No. 1545 of 2020

vi. Arbitration Petition No. 220 of 2014

Disclaimer: This article is intended to provide general information and should not be substituted for context-specific professional legal advice. Neither the author nor Anoma Legal shall be responsible for any loss whatsoever sustained by any person relying on this article.


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