Vide circular dated 9th Jan 2014, the RBI has permitted Indian companies to issue equity shares and compulsorily and mandatorily convertible preference shares/debentures to persons resident outside India with optionality clauses for buy back of securities from the non-resident investor at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return.:

The provision of optionality clause shall be subject to the following conditions:

(a) There should be a minimum lock-in period of one year or a minimum lock-in period as prescribed under FDI Regulations, whichever is higher

(b) The lock-in period shall be effective from the date of allotment of such shares or convertible debentures or as prescribed for defence and construction development sectors, etc. in Annex B to Schedule 1 of Notification No. FEMA. 20 as amended from time to time;

(c) After the lock-in period, the non-resident investor exercising option/right shall be eligible to exit without any assured return, as under: 

1. In case of a listed company, the non-resident investor shall be eligible to exit at the market price prevailing at the recognised stock exchanges;

2.  In case of unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares of the investee company at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet. Any agreement permitting return linked to equity as above shall not be treated as violation of FDI policy/FEMA Regulations.

3.  Investments in CCDs and CCPs of an investee company may be transferred at a price worked out as per any internationally accepted pricing methodology at the time of exit duly certified by a Chartered Accountant or a SEBI registered Merchant Banker. The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit, subject to lock-in period requirement, as applicable.