Facts:

• ABC Limited is an Indian company.
• ABC Limited wants to raise funds by issuing Non-Convertible Debentures (NCDs) to Mr. Z, an NRI.
• The borrowing will be in Indian Rupees.

Legal Provisions:

As per Regulation 5 of FEMA (Borrowing and Lending in Rupees) Regulations, 2000 and RBI’s Master Direction on Borrowing and Lending in Indian Rupees by Authorised Dealers and Persons other than Authorised Dealers (Para 2.1.2), the following conditions must be satisfied:

1. Eligible Borrowers:
   • The company must not be engaged in:
     • Agricultural or plantation activities
     • Real estate business
     • Trading in transferable development rights
     • Activities as a Nidhi or Chit Fund company
2. Mode of Borrowing:
   • Borrowing must be by issuance of Non-Convertible Debentures (NCDs) only.
3. Public Offer:
   • The issuance of NCDs should be through a public offer.
4. Interest Rate:
   • The interest on such NCDs should not exceed the State Bank of India’s Prime Lending Rate + 3%, as on the date when the borrowing is approved.
5. Tenure:
   • The tenure of these NCDs must be at least three years.
6. Repatriation Basis Borrowing:
   • If borrowing is on a repatriation basis:
     • The percentage of NCDs issued to NRIs/OCIs must not exceed the FDI equity limit in the company’s sector.
     • Funds must be received by inward remittance from outside India or debit to the investor’s NRE/FCNR (B) account.
7. Non-Repatriation Basis Borrowing:
   • If borrowing is on a non-repatriation basis:
     • Funds can come via inward remittance or debit to NRE/NRO/FCNR/NRNR/NRSR accounts of the NRI.
     • Interest and principal repayment must be made only to the NRO account of the lender.

Conclusion:

• Yes, ABC Limited can borrow in INR by issuing NCDs to Mr. Z (NRI) under the FDI scheme, provided all the above conditions are met.
• This means ABC Limited can issue non-convertible debentures to Mr. Z on either a repatriation or non-repatriation basis, complying with RBI and FEMA regulations.

If you want, I can also help with the detailed procedural steps or documentation for this borrowing.