The Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024 notified on March 14, 2024, modified the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘NDI Rules’), enabling issuance of partly paid units through investment vehicles to persons resident outside India. With an aim to regularize the issuance of partly paid units by alternative investment funds (‘AIFs’) prior to March 14, 2024, the RBI has issued a Circular on May 21, 2024, pursuant to which non-compliance (of issue of partly paid units through investment vehicles to persons resident outside India prior to March 14, 2024) will be regularised via compounding under the Foreign Exchange Management Act, 1999 (‘FEMA’).

However, the Circular specifies that prior to approaching the RBI for the purposes of compounding, the AD Banks are required to ensure that all necessary administrative action, including the reporting of such issuances by AIFs to the RBI, through the Foreign Investment Reporting and Management System (‘FIRMS’) portal and the issuance of conditional acknowledgements for such reporting have been duly completed.