Question 1

Bonus shares will allow foreign investors to gain majority control in sensitive sectors.

Accepted Answer

The amendment strictly mandates that the overall shareholding pattern must not change.

Question 2

FDI is strictly zero in prohibited sectors like tobacco and gambling.

Accepted Answer

Legacy foreign investors who invested before the sectoral prohibitions were enacted are legally allowed to hold their shares.

Question 3

Consider the following statements regarding the 2025 amendment to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019:
1. It permits companies in FDI-prohibited sectors to issue both bonus shares and rights issues to non-resident shareholders.
2. The relaxation applies retrospectively, validating past bonus issuances to foreign investors in restricted sectors.
3. The issuance of bonus shares requires prior approval from the DPIIT even if the shareholding pattern remains unchanged.
How many of the above statements are correct?

Accepted Answer

(a) Only one — Only statement 2 is correct. The rules explicitly grant retrospective effect. Statement 1 is incorrect because it does NOT permit rights issues (which involve fresh capital inflows), only bonus shares. Statement 3 is incorrect because no prior government approval is needed if the shareholding pattern remains exactly the same.

Question 4

Match the policy tool/document with its relevant provision regarding FDI in India:
List I
A. Press Note 2 (2010 Series)
B. Press Note 2 (2025 Series)
C. Rule 7(2) of FEMA NDI Rules, 2019
D. Section 63 of Companies Act, 2013

List II
1. Statutory backing for bonus shares to non-residents in prohibited sectors
2. Prohibited FDI in the manufacturing of tobacco and cigarettes
3. Clarified FDI policy to permit bonus shares without statutory FEMA backing
4. Governs the corporate procedure for issuing fully paid-up bonus shares

Select the correct answer code:

Accepted Answer

(a) A-2, B-3, C-1, D-4 — A is 2 (2010 ban on tobacco FDI). B is 3 (DPIIT's April 2025 policy clarification). C is 1 (June 2025 statutory amendment providing legal backing). D is 4 (Company law governing bonus issues).

Question 5

Assertion (A): The issuance of bonus shares to existing non-resident shareholders in FDI-prohibited sectors does not violate the fundamental restriction on foreign capital inflows.
Reason (R): Bonus shares represent a capitalization of the company's free reserves and do not involve any fresh inflow of foreign exchange into the country.
Select the correct answer:

Accepted Answer

(a) Both A and R are true and R is the correct explanation of A — Because bonus shares do not bring in new money (unlike rights issues), they only restructure existing capital without bringing fresh FDI. This is the exact economic rationale why regulators permitted it in prohibited sectors.

FDI Rules on Bonus Shares Relaxed

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