Offshore investors cannot seek legal recourse for assured return investments

Bombay High Court, in the case filed by IDBI trusteeship Services, on behalf of FMO, against Hubtown as the guarantor, while upholding the Foreign Direct Investment (FDI) in real estate can be made only by way of equity and not debt by way of any fixed return, held that, offshore investors cannot seek legal recourse for their assured return investments in India. These assured return investments typically happen through structured quasi debt instruments.

The ruling, for sure, will force many current and future transactions involving FDI into real estate to go for major restructuring. Court has observed that the structure of the deal was devised to circumvent restrictions imposed by the FDI regulations. This verdict can severely impact several foreign investors and their investments in Indian real estate projects.

This latest judgment of Bombay High Court complicates an issue that has been a cause of endless disputes in the past, with some Indian promoters trying to wriggle out of their commitments under the pretext that the foreign partners cannot claim a fixed return. However, the dust had somewhat settled with the government as well as the Reserve Bank of India endorsing such deals. Under the circumstances, it remains to be seen how regulators would view the court verdict.