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From Ambiguity to Clarity: India Revisits the Land Border FDI Framework

Author: Gaurav Shankar |

Article by Business Law Chamber

Back in April 2020, India introduced Press Note 3 (2020 Series) (“Press Note 3”), requiring prior Government approval for any investment where the investor (or its beneficial owner) is from a country sharing a land border with India. The intent was to protect Indian companies from exploitative acquisitions, particularly during COVID-19, and address geopolitical concerns around Chinese capital.

But Press Note 3 had a major gap, there was no defined threshold for "beneficial ownership". This left global venture capital and private equity funds in uncertainty. Even minimal, passive exposure to investors from China, Pakistan, Bangladesh or other land-bordering countries could potentially trigger the Government approval requirement, a process that often took 6–8 months or more.

In March 2026, the Government issued Press Note 2 (2026 Series) (“Press Note 2”). Here's what changed:

  • Beneficial Ownership is Now Defined: The definition of "beneficial owner" is now aligned with Section 2(1)(fa) of the Prevention of Money-laundering Act, 2002, read with Rule 9(3) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (“PML Rules”), under which any person or entity holding 10% or more of the ownership, capital, or profits of another entity is identified as its beneficial owner. This brings much-needed clarity to a term that had remained undefined under the land-border framework since 2020.
  • Indirect Control Still Covered: Crucially, the requirement of Government approval applies at the level of the investor entity registered outside a land-border country. However, Press Note 2 looks beyond just the immediate investor. If citizens or entities from a land-border country, directly or indirectly, individually or collectively, hold sufficient rights or entitlements in that investor entity to cross the threshold prescribed under the PML Rules, exercise control over it, or ultimately exercise control over the Indian company being invested in, the investment will be treated as originating from a land-border country triggering the Government approval requirement.
    In essence, routing an investment through a third country does not by itself take it outside the land-border framework, substance will prevail over structure.
  • New Reporting Requirement: Even where an investment does not require prior Government approval, it does not fall entirely outside the regulatory radar. Where an investor entity has any direct or indirect ownership from a land-border country, even below the threshold prescribed under the PML Rules, the investment will still be subject to a reporting requirement (“Reporting Requirement”) in the format prescribed under the Standard Operating Procedure laid down by Department for Promotion of Industry and Internal Trade (DPIIT).
    The intent is to ensure that the Government retains visibility over capital flows that have any connection to land-border countries, even where the quantum of such connection does not warrant prior approval. This obligation is in addition to compliance with the applicable sectoral cap, entry route, and attendant conditions.

Subsequently, on 1 May 2026, the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 (“Amendment”) were notified, giving statutory force to Press Note 2. While the Amendment retains the core of Press Note 2, particularly on the determination of beneficial ownership, there are a few notable deviations:

  • Under Press Note 2, the Reporting Requirement was to be undertaken as per the Standard Operating Procedure issued by DPIIT. The Amendment, however, prescribe that such reporting shall be in the form and manner specified by the Reserve Bank of India.
  • Further, the Amendment clarifies that a Multilateral Bank or Fund of which India is a member shall not be treated as an entity of a particular country, nor shall any country be treated as the beneficial owner of its investments in India.

Overall, the Amendment reflects a regulatory framework that is evolving, not retreating. The core intent of Press Note 3 remains firmly in place, but the tools for implementing it are now sharper and more predictable. For global investors, the message is clear: India remains open for business, but the rules of engagement are being defined with greater precision.

Disclaimer: The views in this article are author's point of view. This article is not intended to substitute legal advice. In no event the author shall be liable for any direct, indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information. For any further queries or follow up, please contact us at communication@businesslawchamber.com.