OVERSEAS DIRECT INVESTMENTS
COMPILATION OF
v Foreign Exchange
Management (Transfer Or Issue Of Any Foreign Security) (Amendment) Regulations,
2004
v Master Direction-Direct
Investment By Residents In Joint Venture/ Wholly Owned Subsidiary Abroad
v FAQs On Overseas Direct
Investment
23RD
JANUARY, 2019
GORSIA & ASSOCIATES, MUMBAI
CS ANJALI GORSIA
(Author-CS
Anjali Gorsia, an Associate Member of the Institute of Company Secretaries
of India and practicing company secretay)
Disclaimer: Appreciate your
support and so happy to have you as reader.
This article
is only knowledge sharing initiative and is not intended to be a part of any
advertising. The information contained therein is of general nature and the
entire contents of this document have been developed based on relevant
information and are purely the views of the authors. Though the authors have
made utmost efforts to provide authentic information however, the authors
expressly disclaim all or any liability to any person who has read this
document, or otherwise, in respect of anything, and of consequences of anything
done, or omitted to be done by any such person in reliance upon the contents of
this document . READER SHOULD SEEK APPROPRIATE COUNSEL FOR YOUR OWN SITUATION.
AUTHOR SHALL NOT BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR
INDIRECTLY.
INDEX
1.
Short title and commencement
2.
Definitions
3.
Prohibition on issue or transfer of foreign security
4.
Purchase and sale of foreign security by a person
resident in India
PART I
1.
Prohibition on Direct Investment outside India
2.
Permission for Direct Investment in certain cases
3.
Investment in Financial Sector
4.
Investment in a foreign security by swap or exchange of
shares of an Indian company
5. Approval of the Reserve Bank in certain cases
6. Unique Identification Number
7. Investment by capitalization
8. Export of Goods towards Equity-
Procedure
9. Post investment changes/additional investment in existing JV/WOS
10. Acquisition of a foreign company through bidding or
tender procedure
11. Obligations of the Indian Party
12. Transfer by way of sale of shares of a JV/WOS outside India
13. Transfer by way of Sale of Shares involving Write -off
14. Pledge of Shares
of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and Step down Subsidiary
(SDS)
PART
II
1. Prior Permission of the Reserve Bank for a Proprietary
Concern in India to accept shares
2. Investment by Individuals
PART
III
1.
Prohibition
on issue of foreign security by a person resident in India
2.
Permission for purchase/ acquisition of
foreign securities in certain cases
3.
Transfer
of a foreign security by a person resident in India
4.
General
Permission for Acquisitions of Foreign Securities as qualification/ Rights
Shares
5.
Prior
permission of Reserve bank in Certain Cases
6.
Investments
by Mutual Funds and Other Funds
7.
Opening
of DEMAT Accounts by Clearing Corporations of Stock Exchanges and Clearing
Members
SCHEDULE
1.
SCHEDULE I
2.
SCHEDULE II
3.
SCHEDULE III
4.
SCHEDULE IV
5.
SCHEDULE V
6.
LINKS
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2004
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Jul 07, 2004
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2005
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2006
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2007
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2008
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Oct 01, 2008
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2009
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Jan 20, 2009
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2010
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2011
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2012
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May 30, 2012
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Nov 22, 2012
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2013
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Mar 05, 2013
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2014
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Mar 24, 2014
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Jul 03, 2014
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Oct 14, 2014
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Nov 12, 2014
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Nov 12, 2014
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2015
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2016
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2017
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Nov 14, 2017
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OVERSEAS DIRECT INVESTMENTS
Notification
No. FEMA 120/ RB-2004 dated: July 7, 2004
In exercise
of the powers conferred by clause (a) of sub-section (3) of section 6 and
section 47 of the Foreign Exchange Management Act 1999, (42 of 1999) and in
supersession of Notification No FEMA19/ RB 2000 dated 3rd May 2000,
as amended from time to time the Reserve Bank of India makes the following
regulations relating to transfer or issue of any foreign security by a person
resident in India, namely:
(1)
Short title
and commencement
i.
These Regulations may be called
the Foreign Exchange
Management (Transfer or Issue of Any Foreign Security)
(Amendment) Regulations, 2004.
ii.
They shall come in force from the date of their publication in the Official
Gazette.
(2)
Definitions
In these Regulations, unless the context otherwise requires:
a)
“Act”
means Foreign Exchange Management Act, 1999, (42 of 1999):
b) “authorised dealer”
means a person authorised as an authorised dealer under sub section (1) of section 10 of the Act;
|
Important points and Question:
What is
the concept of a ‘designated Authorised Dealer’? Can there be more than one ‘designated
Authorised Dealer’ for the same JV/WOS in case the JV/WOS has more than one
Indian promoter? What if one Indian promoter has more than one JV in either
the same country or in different countries?
The Indian
party/ Resident Individual is required to route all transactions in respect
of a particular overseas JV/WOS only through one branch of an Authorized
Dealer. This branch would be the ‘designated Authorised Dealer’ in respect of
that JV/WOS and all transactions and communications relating to the
investment in that particular JV/WOS are to be reported only through this
‘designated’ branch of an Authorized Dealer.
In case
the JV/WOS is being set up abroad by two or more Indian promoters, then all
Indian promoters collectively called the Indian party and the Resident
Individual, would be required to route all transactions in respect of that
JV/WOS only through one ‘designated Authorised Dealer’. In case the Indian
Party/ Resident Individual wants to switch over to another AD, an application
by way of a letter may be made to the Reserve Bank after obtaining an NOC
from the existing Authorized Dealer.
The Indian
promoters are free to designate different branches of the same Authorised
Dealer or branches of other Authorised Dealers for their separate JVs/WOSs.
The only requirement is that regardless of the number of promoters, one
JV/WOS will have only one ‘designated Authorised Dealer’ to route all its
transactions.
Reporting
to designated branches
An
eligible Indian Party making investment (or financial commitment) in a Joint
Venture (JV) / Wholly Owned Subsidiary (WOS) outside India is required to
route all its transactions relating to the investment (or financial
commitment) through one branch of an AD Category – I bank designated by it in
terms of clause (v) of sub regulation 2 of Regulation 6 of the Notification
ibid.
All
communication from the Indian Parties, to the Reserve Bank, relating to the
investment (or financial commitment) outside India should be routed through
the same branch of the AD Category – I bank that has been designated by the
Indian investor for the investment (or financial commitment).
The
designated AD Category – I bank while forwarding the request from their
customers to the Reserve Bank, should also forward its comments /
recommendations on the request. However, the Indian Party may designate
different AD Category – I banks / branches of AD Category – I banks for
different JV / WOS outside India. For proper follow up, the AD Category – I
bank is required to maintain party-wise record in respect of each JV/ WOS.
|
(ba) Alternative Investment Fund’ means a fund as
defined under the Securities and Exchange Board of India (Alternative
Investment Funds) Regulations, 2012;”
c) “American
Depository Receipt” (ADR) means a security issued by a bank or a depository in
United States of America (USA) against underlying rupee shares of a company
incorporated in India;
d)
‘Core Activity’ means an activity
carried on by an Indian entity turnover
wherefrom constitutes not
less than 50% of its total turnover in the previous accounting year;
e) “Direct
investment outside India” means investment by way of contribution to the
capital or subscription to the Memorandum of Association of a foreign
entity or by way of purchase of existing
shares of a foreign entity either by market purchase or private placement or
through stock exchange, but does not include portfolio investment
(ea)
'Domestic Depository' shall have the same meaning as assigned to it in the
Companies (Issue of Indian Depository Receipt) Rules, 2004.
(eb)
"Eligible Company" means a Company eligible to issue Indian
Depository Receipts under Rule 4 of the Companies (Issue of Indian Depository
Receipts) Rules, 2004."
f)
"Financial
commitment" means the amount of direct investment by way of contribution to equity and loan and 100
per cent of the amount of guarantees issued by an Indian party to or on behalf
of its overseas Joint Venture
Company or Wholly
Owned Subsidiary;
|
Important points and Question:
What is ‘financial commitment’?
Financial commitment means the
amount of direct investments outside India by an Indian Party -
i.
by way of contribution to equity shares or CCPS of the JV / WOS
abroad
ii.
contribution to the JV / WOS as preference shares (for reporting
purpose to be treated as loan)
iii.
as loans to its the JV / WOS abroad
iv.
100% of the amount of corporate guarantee issued on behalf of
its overseas JV/WOS and
v.
50% of the amount of performance guarantee issued on behalf of
its overseas JV/WOS.
vi.
bank guarantee/standby letter of credit issued by a resident
bank on behalf of an overseas JV / WOS of the Indian party, which is backed
by a counter guarantee / collateral by the Indian party
vii.
amount of fund/ non fund based credit facility availed by
creation of charge (pledge / mortgage / hypothecation) on the movable /
immovable property or other financial assets of the Indian party / its group
companies
(Note: The amount and period of
the guarantee should be specified upfront).
|
g) “Foreign Currency
Convertible Bond” (FCCB) means a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency;
h)
“Form”
means the forms annexed to these Regulations;
i) “Global Depository Receipt” (GDR) means a security
issued by a bank or a depository outside India against underlying rupee shares of a company
incorporated in India;
j) “Host country”
means the country
in which the foreign entity
receiving the direct investment from an Indian party is registered or incorporated;
ja) 'Indian Depository Receipts' shall have the
same meaning as assigned to it in the Companies (Issue of Indian Depository
Receipt) Rules, 2004."
k) “Indian
party” means a company incorporated in India or a body created under an Act of
Parliament [or a partnership firm registered under the Indian Partnership Act,
1932 or a Limited Liability Partnership (LLP) as defined under clause (ma) of
Regulation 2 of this Notification making investment in a Joint Venture or Wholly Owned Subsidiary abroad,
and includes any other entity in India as may be notified by the
Reserve Bank: -
Provided that when more than one such company, body or entity make
an investment in the foreign entity, all such companies or bodies or entities
shall together constitute the “Indian party”
|
Important points and Question:
Extending
scope to LLP
On a
review, it has been decided to notify a Limited Liability Partnership (LLP),
registered under the Limited Liability Partnership Act, 2008 (6 of 2009), as
an “Indian Party” under clause (k) of Regulation 2 of the Notification ibid
Accordingly,
an LLP, may henceforth undertake financial commitment to / on behalf of a JV
/ WOS abroad in terms of the extant FEMA provisions under Regulation 6 (and
regulation 7, if applicable) of the Notification ibid.
What are the
permitted activities that partnership firms can undertake through overseas
direct investment route?
Partnership
firms registered under the Indian Partnership Act, 1932 can make overseas
direct investments subject to the same terms and conditions as applicable to
corporate entities.
Can the
partners of a partnership firm hold shares of the overseas JV / WOS for and
on behalf of the firm?
Individual
partners can hold shares for and on behalf of the partnership firm in an
overseas JV/WOS, where the entire funding for the investments has been done
by the firm and further provided that the host country regulations or
operational requirements warrant such holding
|
l) “Investment
banker” means an Investment banker registered with the Securities and Exchange
Commission in USA, or the Financial Services Authority in UK, or appropriate
regulatory authority in Germany, France, Singapore or Japan;
m) “Joint
Venture (JV)” means a foreign entity formed, registered or incorporated in
accordance with the laws and regulations of the host country in which the
Indian party makes a direct investment;
"(ma) ' Limited Liability Partnership'
(LLP) means a body corporate having perpetual succession duly formed and
incorporated under the Limited Liability Partnership Act, 2008 (No.6 of 2009).
n) “Mutual Fund” means a Mutual Fund referred to in clause (23D) of section 10 of the Income
Tax Act, 1961;
o)
‘Net
worth’ means paid up capital and free reserves;
p) “Real estate
business” means buying
and selling of real estate
or trading in Transferable
Development Rights (TDRs) but does not include development of townships,
construction of residential/commercial premises, roads or bridges;
q) “Wholly Owned Subsidiary (WOS)”
means a foreign entity formed,
registered or incorporated in accordance with the laws
and regulations of the host country, whose entire capital is held by the Indian party;
"(qa) 'Venture Capital Fund' means a fund
as defined under the Securities and Exchange Board of India (Venture Capital
Fund) Regulations, 1996".
"(qb) ‘Trust’ means a Trust registered
under the Indian Trust Act, 1882".
“(qc) ‘Society’ means a Society registered
under the Societies Registration Act,
1860”.
r)
"Agricultural
Operations" means agricultural operations as defined in the 'National Bank
for Agriculture and Rural Development Act, 1981.
s)
"Foreign
Currency Exchangeable Bond" means a bond expressed in foreign currency the
principal and interest in respect of which is payable in foreign currency,
issued by an issuing company and subscribed to by a person who is a resident
outside India in foreign currency and exchangeable into equity share of offered
company, in any manner, either wholly, or partly or on the basis of any equity
related warrants attached to debt instruments.
t)
"issuing
company" means a company registered under the Companies Act, 1956 (1 of 1956) and eligible to issue Foreign Currency
Exchangeable Bond under these regulation
u)
"Offered company" means a company registered under the Companies Act, 1956 (1 of 1956) and whose equity share/s is / are offered in
exchange of the Foreign Currency Exchangeable Bond.
v)
"promoter group" has the same
meaning as defined in the Securities and Exchange Board of India (Disclosure
and Investor Protection) Guidelines, 2000”
w)
Words
and expressions used but not defined in these Regulations shall have the
meanings respectively assigned to them in the
Act
|
Important points and Question:
Where are the guidelines pertaining to overseas direct
investments available and how to get clarifications pertaining to the guidelines
on overseas investment?
The
guidelines have been notified by the Reserve Bank of India vide Notification
No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, which
can be accessed at the Reserve Bank’s website http://www.rbi.org.in/scripts/Fema.aspx.
A Master Direction titled ‘Master Direction on Direct Investment by Residents
in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad’ has been
issued. The Master Directions consolidate instructions on rules and
regulations framed by the Reserve Bank under various Acts including banking
issues and foreign exchange transactions and is available at ‘Notification’
Section on RBI’s website https://www.rbi.org.in.
Any
further clarifications in respect of cases not specifically or generally
covered by the instructions may be obtained from the concerned Authorized
Dealer(AD) bank. If, however AD bank fails to provide satisfactory reply, a
request may be made, giving full details of the case, to the Central Office
of the Reserve Bank by routing it through AD bank at the following address:
The
Chief General Manager
Reserve
Bank of India
Foreign
Exchange Department
Overseas
Investment Division
Central
Office, Amar Building, 5th Floor
Mumbai
400 001. or by e-mail
What are Automatic Route and Approval Route?
Under
the Automatic Route, an Indian Party does not require any prior approval from
the Reserve Bank for making overseas direct investments in a JV/WOS abroad.
The Indian Party should approach an Authorized Dealer Category – I bank with
an application in Form ODI and the prescribed enclosures / documents for
effecting the remittances towards such investments. However, in case of
investment in the financial services sector, prior approval is required from
the regulatory authority concerned, both in India and abroad.
Form
ODI is available as an Annex to the Master Direction titled ‘Master Direction
on Reporting under Foreign Exchange Management Act’.
Proposals
not covered by the conditions under the automatic route require prior
approval of the Reserve Bank for which a specific application in Form ODI
with the documents prescribed therein is required to be made through the
Authorized Dealer Category – I banks
What is the procedure to be followed by an Indian party to make
overseas direct investment in a JV/WOS under the Automatic Route?
The
Indian Party intending to make overseas direct investment under the automatic
route is required to fill up form ODI duly supported by the documents listed
therein, i.e., certified copy of the Board Resolution, Statutory Auditors
certificate and Valuation report (in case of acquisition of an existing
company) as per the valuation norms listed and approach an Authorized Dealer
(designated Authorized Dealer) for making the investment/remittance.
How to forward the proposal for making Overseas Direct
Investment (ODI) under approval route?
The
applicant should approach their designated Authorized Dealer (AD) with the
proposal which shall be submitted to Reserve Bank after due scrutiny and with
the specific recommendations of the designated AD bank along with supporting
documents (as mentioned below) to the following address:
The
Chief General Manager,
Reserve
Bank of India,
Foreign
Exchange Department,
Overseas
Investment Division,
Amar
Building, 5th Floor,
Sir
P. M. Road, Fort,
Mumbai
400001.
The
designated AD before forwarding the proposal should submit the Form ODI in
the on-line OID application under approval route and the transaction number
generated by the application should be mentioned in the letter.
In
case the proposal is approved, the AD bank should effect the remittance under
advice to Reserve Bank so that the UIN is allotted.
For
approval by Reserve Bank, following documents need to be submitted along with
Section D and Section E of Form ODI - Part I by the designated Authorized
Dealer:
a) A
letter from the designated AD of the IP in a sealed cover mentioning the
following details:
•
Transaction number generated by the OID application.
•
Brief details of the Indian entity.
•
Brief details of the overseas entity.
•
Background of the proposal, if any.
•
Brief details of the transaction.
•
Reason/s for seeking approval mentioning the extant FEMA provisions.
•
Observations of the designated AD bank with respect to the following:
§ Prima
facie viability of the JV/ WOS outside India;
§ Contribution
to external trade and other benefits which will accrue to India through such
investment;
§ Financial
position and business track record of the IP and the foreign entity;
§ Expertise
and experience of the IP in the same or related line of activity of the JV/
WOS outside India.
•
Recommendations of the designated AD bank.
b) A
letter from the IP addressed to the designated AD bank.
c)
Board resolution for the proposed transaction/s.
d)
Diagrammatic representation of the organisational structure indicating all
the subsidiaries of the IP horizontally and vertically with their stake
(direct & indirect) and status (whether operating company or SPV).
e)
Incorporation certificate and the valuation certificate for the overseas
entity (if applicable).
f)
Other relevant documents properly numbered, indexed and flagged.
Is prior registration with the Reserve Bank necessary for direct
investments under the Automatic Route?
Per
se no prior registration with the Reserve Bank is necessary for making direct
investments under the automatic route. After the online report of the first
remittance / investment in Form ODI for a JV / WOS in terms of A.P. (DIR
Series) Circular No.62 dated April 13, 2016, a Unique Identification Number (UIN)
for that particular JV/WOS is generated automatically and instantaneously.
Subsequent investments in the same JV / WOS can be made only after allotment
of the UIN.
|
(3)
Prohibition
on issue or transfer of foreign security
Save as otherwise provided in the
Act or rules or regulations made or directions issued thereunder, no person
resident in India shall issue or transfer any foreign security: -
Provided that the Reserve Bank
may, on application made to it, permit any person resident in India to issue or
transfer any foreign security.
(4)
Purchase and
sale of foreign security by a person resident in India
A person resident in India
a) may purchase
a foreign security
out of funds held in Resident Foreign
Currency (RFC) account
maintained in accordance with the Foreign Exchange Management (Foreign Currency
Accounts) Regulations, 2000;
b) may acquire
bonus shares on the foreign
securities held in accordance with the provisions of the Act or rules or regulations made thereunder;
c) when not permanently resident
in India, may purchase a foreign security
from out of his
foreign currency resources outside India;
d)
may sell the foreign
security purchased or acquired under clauses (a), (b) or (c).
Explanation:
For the purpose of this clause,
‘not permanently resident’ means a person
resident in India
for employment of a specified duration (irrespective of length thereof)
or for a specific job or assignment, the duration of which does not exceed
three years.
|
Important points and Question:
What are the general permissions available
to persons (individual) resident in India for purchase / acquisition of
securities abroad?
General permission has been granted to
persons (individual) resident in India for purchase / acquisition of
securities as under:
a) Out of funds held in the RFC account;
b) As bonus shares on existing holding of
foreign currency shares;
c) When not permanently resident in India,
from the foreign currency resources outside India.
General permission is also available to
sell the shares so purchased or acquired.
A resident Indian can remit; up to the
limit prescribed by the Reserve Bank from time to time, per financial year
under the Liberalized Remittance Scheme (LRS), for permitted current and
capital account transactions including purchase of securities and also
setting up/acquisition of JV/WOS overseas with effect from August 5, 2013
(vide Notification No. 263).
|
Part I
Direct Investment outside India
5.
Prohibition on Direct
Investment outside India
Save as otherwise provided in the Act, rules or regulations made
or directions issued thereunder, or with prior approval of the Reserve Bank,
1)
no person
resident in India shall make any direct investment outside
India; and
2)
no Indian
party shall make any direct
investment in a foreign entity engaged in real estate business or banking business.
|
Important points and Question:
Is development/construction (and thereafter, sale) of
residential /commercial premises by an overseas Joint Venture (JV) or Wholly
Owned Subsidiary (WOS) treated as real estate business under ODI regulations
(FEMA Notification No. FEMA 120/RB-2004 dated July 7, 2004 as amended from
time to time)?
No. In terms of regulation 5(2) read with Regulation 2 (p) of
Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to
time, buying land (along with building/pre-existing structures) for
construction/development of residential/commercial premises (before selling)
as one integrated core activity, is not treated as real estate business
activity.
|
(6)
Permission
for Direct Investment in certain cases
1) Subject to the conditions specified in sub-regulation (2), (and Regulation 7 in case investment
in financial services sector) an Indian party may make direct investment in a
Joint Venture or Wholly Owned Subsidiary outside India.
2) (i) The total financial commitment of the Indian
Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 400% of the
net worth of the Indian Party as on the date of the last audited balance sheet;
Explanation: - ‘Explanation: For the
purpose of determining 'total financial commitment' within the limit of 400 %
of the net worth", as the case may be, the following shall be reckoned,
namely:'
a) remittance by
market purchases, namely in freely convertible currencies; in case of Bhutan,
investment made in freely convertible currencies or equivalent Indian Rupees;
in case of Nepal investment made only in Indian Rupees]
|
Important points and Question:
Are overseas investments freely allowed in all the countries and
are there any restrictions regarding the currency of investment?
Investment
in Pakistan is allowed under the approval route. Investments in Nepal can be
only in Indian Rupees. Investments in Bhutan are allowed in Indian Rupees and
in freely convertible currencies.
|
b) capitalization
of export proceeds and other dues and entitlements as mentioned in Regulation
11;
c) hundred per cent of the value of guarantees issued by the Indian
party to or on behalf
of the joint venture company or wholly owned subsidiary.
d)
investment
in agricultural operations through overseas offices or directly
e) External
Commercial Borrowing in conformity with other parameters of the ECB guidelines
Overseas direct investment by an Indian Party in Pakistan shall henceforth be
considered under the approval route under Regulation 9 of this Notification.
ii.
The direct investment is made in an overseas JV or WOS engaged in
a bonafide business activity.
iii.
The Indian
Party is not on the Reserve Bank’s
Exporters caution list /list of defaulters to the
banking system circulated by the Reserve
Bank or under investigation by any investigation /enforcement agency or
regulatory body.
iv.
The Indian
Party has submitted Annual Performance Report in respect of all its overseas
investments in the format given in Part III of the Form ODI, as prescribed by
the Reserve Bank from time to time.” .
v.
The Indian
Party routes all transactions relating to the investment in a Joint
Venture/Wholly Owned Subsidiary through
only one branch of an authorised dealer
to be designated by it.
Explanation: -
The Indian
Party may designate different branches of authorised dealers for different
Joint Ventures/Wholly Owned Subsidiaries outside India.
vi.
The Indian Party submits duly completed Part I of the Form ODI, as
prescribed by the Reserve Bank from time to time, to the designated branch of
an authorised dealer.”
vii.
Indian Party shall make no direct investment in an overseas entity
[set up or acquired abroad directly as JV/WOS or indirectly as Step Down
Subsidiary] located in the countries identified by the Financial Action Task
Force (FATF) as “non co-operative countries and territories” as per list
available on FATF website www.fatf-gafi.org or as notified by the Reserve
Bank of India from time to time.
3) Investment
under this Regulation may be funded out of one or more of the following
sources, namely: -
i.
out of balance
held in the Exchange Earners'
Foreign Currency account
of the Indian party maintained with an authorised dealer in accordance
with Regulation 4 of Foreign Exchange Management (Foreign Currency Accounts
by a person resident in India) Regulations, 2000;
ii.
drawal of foreign
exchange from an authorised dealer
in India shall not exceed 400% of the net worth of
the Indian Party as on the date of last audited balance sheet;
Explanation: - For the purpose of the limit
shall not exceed 400% of the net worth the following shall be reckoned, namely:
a.
cash
remittance by market purchase
b. capitalization of export proceeds
and other dues and entitlements as mentioned in Regulation 11 and 12;
c. Hundred per cent of the value of guarantees issued by the Indian party to or on behalf of the Joint Venture company or
Wholly Owned Subsidiary
Explanation:-
an Indian Party may offer to a person
resident outside India any form of guarantees, that is, corporate or personal
/ primary or collateral / guarantee by promoter company in India / guarantee by
group company, sister concern or associate company in India, provided that :
a) total 'financial commitment' including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party and
b) no guarantee is 'open ended'
d.
utilisation
of the amount raised by issue of ADRs/GDRs by the Indian party;
e.
External
Commercial Borrowing in conformity with other parameters of the ECB guidelines.
f.
Swap of
shares".
g.
"(g)
ADR/GDR Stock Swap subject to the valuation norms and sectoral cap".
Explanation:
for the
purpose of reckoning net worth of an Indian party, the net worth of its holding
company (which holds at least 51% stake in the Indian Party) or its subsidiary
company (in which the Indian party holds at least 51% stake) may be taken into
account to the extent not availed of by the holding company
or the subsidiary independently and has furnished a letter of disclaimer
in favour of the Indian Party;
Provided further that
the ceiling mentioned in sub-clause (2)(i) shall not apply where the investment is made out of balances
held in its EEFC account,
maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts
by a Person Resident in India) Regulations, 2000, as amended from time to time.
4) An Indian
Party may extend a loan or a guarantee to or on behalf of the Joint
Venture/Wholly Owned Subsidiary abroad, within the permissible financial
commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture.
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Important points and Question:
Can an
Indian Party extend loan or guarantee to an overseas entity without any
equity participation in that entity?
No.(i)
Loan and guarantee can be extended to an overseas entity only if there is
already an existing equity / CCPS participation by way of direct investment.
However,
based on the business requirement of the Indian Party and legal requirement
of the host country in which JV/WOS is located, proposals from the Indian
party for undertaking financial commitment without equity contribution in JV
/ WOS may be considered by the Reserve Bank under the approval route.
In case,
however, the overseas entity is a first level step down operating subsidiary of the
Indian party, guarantee may be issued by the Indian party on behalf of such
step down operating subsidiary provided such guarantee is reckoned for the
purpose of computing the total financial commitment of the Indian party.
In case,
the overseas entity is a second or subsequent level step down operating
subsidiary of the Indian party, guarantee may be issued by the Indian party
on behalf of such step down operating subsidiary with prior approval of the
Reserve Bank provided such Indian party holds indirect stake of not less 51%
in the step down operating subsidiary and guarantee is reckoned for the
purpose of computing the financial commitment of the Indian party.
ii)
Eligible Indian companies are allowed to participate in a consortium with
other international operators to construct and maintain submarine cable
systems on co-ownership basis under the automatic route.
Can
individual indirect promoters of the Indian Party issue personal guarantee to
an overseas lender on behalf of the JV/WOS under general permission?
Indian
entities may offer any form of guarantee - corporate or personal (including
the personal guarantee by the indirect resident individual promoters of the
Indian Party)/ primary or collateral / guarantee by the promoter company /
guarantee by group company, sister concern or associate company in India
provided that:
i.
All the financial commitments, including
all forms of guarantees and creation of charge are within the overall ceiling
prescribed for the Indian Party.
ii.
No guarantee should be 'open ended' i.e.
the amount and period of the guarantee should be specified upfront. In the
case of performance guarantee, time specified for the completion of the
contract shall be the validity period of the related performance guarantee.
iii.
In cases where invocation of the
performance guarantee breaches the ceiling for the financial commitment, the
Indian Party shall seek the prior approval of the Reserve Bank before
remitting funds from India, on account of such invocation.
iv.
In terms of Regulation 5 (b) of
Notification No. FEMA 8/2000-RB dated May 3, 2000, an authorised dealer in
India may also give a Bank guarantee/ issue SBLC to a joint venture company
or a wholly-owned subsidiary of a company in India in connection with its
business abroad provided that the terms and conditions stipulated in Foreign
Exchange Management (Transfer and Issue of Foreign Security) Regulations,
2000 for promoting or setting up such company or subsidiary are continued to
be complied with;
v.
As in the case of corporate guarantees, all
guarantees (including performance guarantees and Bank Guarantees / SBLC) are
required to be reported to the Reserve Bank in Form ODI-Part I through their
designated AD, at the time of issuance of such guarantees. Guarantees issued
by banks in India in favour of WOS / JV outside India would be subject to
prudential norms issued by the Reserve Bank of India (Department of Banking
Regulation) from time to time.
Whether
the rollover of guarantee, which has already been issued on behalf of the
overseas JV / WOS / step down subsidiary, may be allowed under the automatic
route wherein there is change in the end use of the facility or the overseas
lender or the coupon (interest) rate or the amount?
No, as on
date, a guarantee, which has been issued on behalf of the overseas JV / WOS /
step down subsidiary, may be allowed to be rolled over under the automatic
route without subjecting the rollover to FEMA compliance afresh, provided
only the validity period of the existing guarantee is undergoing change. Any
change in the end use of guarantee or overseas lender or rate of interest or
amount or any other terms and conditions of the guarantee shall subject the
rollover of guarantee to the extant FEMA compliance afresh.
Whether
such rollover of guarantee is to be reported to RBI afresh or existing
reporting will suffice?
No, the
rollover of existing guarantee is to be reported online afresh by the AD bank
with the revised validity date.
Rollover
of guarantees
(1) It has
been decided not to treat / reckon the renewal / rollover of an existing /
original guarantee, which is part of the total financial commitment of the
Indian Party in terms of Regulation 6 of the Notification ibid, as a fresh financial
commitment, provided that:
a) the
existing / original guarantee was issued in terms of the then extant /
prevailing FEMA guidelines;
b) there is
no change in the end use of the guarantee, i.e. the facilities availed by the
JV / WOS / Step Down Subsidiary;
c) there is
no change in any of the terms & conditions, including the amount of the
guarantee except the validity period;
d) the
reporting of the rolled over guarantee would be done in Form ODI - Part I;
and
e) if the
Indian Party is under investigation by any investigation / enforcement agency
or regulatory body, the concerned agency / body shall be kept informed about
the same.
(2) In
case, however, the above conditions are not met, the Indian Party shall
obtain prior approval of the Reserve Bank for rollover / renewal of the
existing guarantee through the designated AD bank.
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5) An Indian
Party may make direct investment without any limit in any foreign security
out of the proceeds of its
international offering of shares through the mechanism of ADR and/or GDR:
Provided that
a) the ADR/GDR
issue has been made in accordance with the Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism)
Scheme 1993 and the guidelines issued thereunder from time to time by the
Central Government;
b) The Indian
Party files with the designated authorised dealer in Parts I and II of the Form
ODI, as prescribed by the Reserve Bank from time to time, full details of the
investment proposed.
6) (a) For the
purposes of investment under this Regulation by way of remittance from India in
an existing company outside India, the valuation of shares of the company
outside India shall be made, -
i.
where the investment is more than USD 5 (Five) million, by a
Category I Merchant Banker Registered with Securities and Exchange Board of
India (SEBI), or an Investment Banker/Merchant Banker outside India registered
with the appropriate regulatory authority in the host country; and
ii.
in all other cases,
by a Chartered Accountant or a Certified
Public Accountant.
(b) For the
purposes of investment under this Regulation by acquisition of shares of an
existing company outside India where the consideration is to be paid fully or
partly by issue of the Indian party’s shares, the valuation of shares of the
company outside India shall in all cases, be carried out by a Category I
Merchant Banker registered with the Securities and Exchange Board of India
(SEBI) or an Investment Banker/Merchant Banker outside India registered with
the appropriate regulatory authority in the host country.
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Important points and Question:
An Indian Party may acquire shares of a
foreign company engaged in a bonafide business activity, in exchange of
ADRs/GDRs issued to the latter in accordance with the Scheme
for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through
Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued
there under from time to time by the Government of India, provided:
(i) ADRs/GDRs are listed on any stock
exchange outside India;
(ii) The ADR and/or GDR issued for the
purpose of acquisition is backed by underlying fresh equity shares issued by
the Indian Party;
(iii) The total holding in the Indian
entity by persons resident outside India in the expanded capital base, after
the new ADR and/or GDR issue, does not exceed the sectoral cap prescribed
under the relevant regulations for such investment under FDI;
(iv) Valuation of the shares of the foreign
company shall be
(a)
as per the recommendations of the Investment Banker if the shares are not
listed on any recognized stock exchange; or
(b)
based on the current market capitalisation of the foreign company arrived at
on the basis of monthly average price on any stock exchange abroad for the
three months preceding the month in which the acquisition is committed and
over and above, the premium, if any, as recommended by the Investment Banker
in its due diligence report in other cases.
What are the valuation norms referred
Refer: Sub Regulation (6) of regulation 6
Investment by way of share swap
In the case of investment by way of share
swap, AD Category – I banks are additionally required to submit to the
Reserve Bank the details of transactions such as number of shares received /
allotted, premium paid / received, brokerage paid / received, etc., and also
confirmation to the effect that the inward leg of transaction has been
approved by FIPB (if required) and the valuation has been done as per the
laid-down procedure and that the overseas company’s shares are issued /
transferred in the name of the Indian investing company. AD Category – I bank
may also obtain an undertaking from the applicants to the effect that future
sale / transfer of shares so acquired by Non-Residents in the Indian company
shall be in accordance with the provisions amended time to time
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6A General Permission
for Investment in Agricultural Operations Overseas Directly or through Overseas
Offices
A person
resident in India being a company incorporated in India or a partnership firm
registered under Indian Partnership Act, 1932, may undertake agricultural
operations including purchase of land incidental to such activity either
directly or through their overseas offices;
Provided that
a. the Indian
party is otherwise
eligible to make investment under
Regulation 6 and that such investment is within the overall
limits as specified in Regulation 6.
b. for the
purposes of investment under this regulation by acquisition of land overseas
the valuation of the land is certified by a certified valuer registered with
the appropriate valuation authority in the host country.
6B. General Permission for Investment in Equity of a Company Registered
Overseas
'A person
resident in India, being a listed Indian company or a mutual fund registered in
India', the words, 'A person resident in India, being an individual or a listed
Indian company, may invest in
a) the shares
of an overseas company which is listed
on a recognized stock exchange.
b)the rated bonds/ fixed income securities issued by companies at (a) above:
Provided that-
i.
in the case of investment by a listed
Indian company, the investment shall not exceed 50%
of the net worth as on the date of its last audited balance sheet;
ii.
every transaction relating to purchase and sale of shares of the
overseas company or bonds/ securities shall be routed through
the designated branch of an authorised dealer
in India.
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Important points and Question:
Can Indian
corporates invest overseas other than by way of direct investment?
yes
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6C. Investment by Mutual Funds
(1) Mutual Funds
registered with the Securities and Exchange Board of India, may invest within
specified limits, in the shares or the rated bonds / fixed income securities of
an overseas company listed on a recognised stock exchange or in Exchange Traded
Funds, or other securities as may be stipulated by the Reserve Bank of India
from time to time.
(2) Every
transaction relating to purchase and sale of foreign security by Mutual Funds
shall be routed through the designated branch of an authorised dealer in India.
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Important
points and Question:
What are the avenues available to Indian
Mutual Funds for investment abroad?
Indian Mutual Funds registered with SEBI
are permitted to invest within the overall cap of USD 7 billion in:
a.
ADRs / GDRs of the Indian and foreign companies;
b.
equity of overseas companies listed on recognized overseas stock
exchanges; initial and follow on public offerings for listing at recognized
overseas stock exchanges;
c.
foreign debt securities- short term as well as long term with
rating not below investment grade - in the countries with fully convertible
currencies;
d.
money market investments not below investment grade; repos where
the counter party is not below investment grade;
e.
government securities where countries are not rated below
investment grade;
f.
derivatives traded on recognized stock exchanges overseas only
for hedging and portfolio balancing with underlying as securities;
g.
short term deposits with banks overseas where the issuer is
rated not below investment grade; and
h.
units / securities issued
by overseas Mutual Funds or Unit Trusts registered with overseas regulators.
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(7)
Investment
in Financial Sector
(1) Subject to the
Regulations in Part I, an Indian Party engaged in financial services sector in
India may make investment in an entity outside India:
Provided that the Indian party
- has earned net profit during the preceding three financial years
from the financial services activities;
- is registered with the regulatory authority in India for conducting
the financial services activities;
- has obtained approval from the concerned regulatory authorities
both in India and abroad, for venturing into such financial sector
activity;
- has fulfilled the prudential norms relating to capital adequacy as
prescribed by the concerned regulatory authority in India
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Important points and Question:
Can any Indian company make investment in a
JV/WOS abroad in the financial services sector?
Only an Indian company engaged in financial
services sector activities can make investment in a JV/WOS abroad in the
financial services sector, provided it fulfills the following additional
conditions:
i.
has earned net profit during the preceding three
financial years from the financial services activities;
i.
is registered with the appropriate regulatory
authority in India for conducting financial services activities;
ii.
has obtained approval for undertaking such
activities from the regulatory authorities concerned both in India and abroad
before venturing into such financial activity;
iii.
has fulfilled the prudential norms relating to
capital adequacy as prescribed by the regulatory authority concerned in
India; and
Any additional investment by an existing JV / WOS
or its step down subsidiary in the financial services sector is also required
to comply with the above conditions.
Can an Indian company in the financial services
sector make investment in a JV/WOS abroad in the non-financial services
sector?
Regulated entities engaged in financial services
sector activities in India making investment in non-financial services
activities overseas are also required to comply with the additional
conditions mentioned above.
Can an Indian company set up JV / WOS for trading
in Overseas Commodities Exchanges?
Trading in Commodities Exchanges overseas and
setting up of JV / WOS for trading in Overseas Commodities Exchanges will be
reckoned as financial services activity and will require clearance from
Securities and Exchange Board of India (SEBI) on account of merger of Forward
Markets Commission with SEBI.
Reporting under Regulation 7
Investment (or financial commitment) in financial
services should also comply with the norms stipulated at Regulation 7 of
Notification FEMA No.120/RB-2004 dated July 7, 2004, as amended from time to
time. While forwarding the report of remittance in respect of investment (or
financial commitment) in financial services sector, AD Category – I banks may
certify that prior approvals from the Regulatory Authorities concerned in
India and abroad have been obtained. Before allowing the remittance (or
financial commitment), AD Category – I banks are required to ensure that the
necessary documents, as prescribed in form ODI, have been submitted and found
to be in order.
Explanation: AD banks may note that an additional
timeline of 15 days is made available to them for reporting of investments/
financial commitments by their constituents to RBI in the OID application
(other than first remittance, which requires to be reported in ODI system
before executing the transaction, to generate UIN) and is not to be availed
by the Indian parties/ Indian Residents for submission of Forms and documents
to the AD bank.
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(8)
Investment in a foreign security by swap or exchange of shares of an
Indian company
Omitted
(9)
Approval of
the Reserve Bank in certain cases
(1) An Indian Party, which does not satisfy the eligibility norms under Regulations 6 or 7 or 8, may apply to the Reserve Bank for approval.
(2) Application
for direct investment in Joint Venture / Wholly Owned Subsidiary outside India,
or by way of exchange for shares of a foreign company, shall be made in Part I
of the Form ODI, as prescribed by the Reserve Bank from time to time.
(2A) An
application made under sub-regulation (2) in Form ODI, as prescribed by the
Reserve Bank from time to time
(a) for the purpose of investment by way of
remittance from India, in an existing company outside India, shall be
accompanied, by the valuation of shares of the company outside India, made-
i.
where the investment is more than USD 5 (five)
million, by a Category I Merchant Banker registered with SEBI or an Investment
Banker / Merchant Banker registered with the appropriate regulatory authority
in the host country; and
ii.
in all other cases, by a Chartered Accountant or a
Certified Public Accountant.
(b) for the purposes of
investment by acquisition of shares of an existing company outside India where
the consideration is to be paid fully or partly by issue of the Indian party’s
shares, shall be accompanied by the valuation carried out by a Category I
Merchant Banker registered with the SEBI or an Investment Banker / Merchant
Banker registered with the appropriate regulatory authority in the host
country.
(3) The Reserve
Bank may, inter alia, take into account following factors while considering the
application made under sub-regulation (2):
(a)Prima facie viability of the Joint Venture/Wholly Owned
Subsidiary outside India;
(b) Contribution to external trade
and other benefits which will accrue to India through such investment;
(c)Financial position and business
track record of the Indian
Party and the foreign entity;
(d) Expertise
and experience of the Indian Party in the same or related line of activity of
the Joint Venture or Wholly Owned Subsidiary outside India
9A Overseas Investments by Registered Trust/Society:-
Registered
Trusts and Societies engaged in the manufacturing/educational sector and which
have set up hospital(s) in India satisfying the criteria as per schedule III of the Notification may invest in the same
sector(s) in a Joint Venture/Wholly Owned Subsidiary outside India with the
prior approval of the Reserve Bank.
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Important points and Question:
What are
the other ODI transactions that require RBI approval?
Some of
the proposals which require prior approval are:
i)
Overseas Investments in the energy and natural resources sector exceeding the
prescribed limit of the net worth of the Indian companies as on the date of
the last audited balance sheet;
ii)
Investments in Overseas Unincorporated entities in the oil sector by resident
corporates exceeding the prescribed limit of their net worth as on the date
of the last audited balance sheet, provided the proposal has been approved by
the competent authority and is duly supported by a certified copy of the
Board Resolution approving such investment. However, Navaratna Public Sector
Undertakings, ONGC Videsh Ltd and Oil India Ltd are allowed to invest in
overseas unincorporated / incorporated entities in oil sector (i.e. for
exploration and drilling for oil and natural gas, etc.), which are duly
approved by the Government of India, without any limits, under the automatic
route;
iii)
Overseas Investments by proprietorship concerns and unregistered partnership
firms satisfying certain eligibility criteria;
iv)
Investments by Registered Trusts / Societies (satisfying certain eligibility
criteria) engaged in the manufacturing / educational / hospital sector in the
same sector in a JV / WOS outside India;
v)
Corporate guarantee by the Indian Party to second and subsequent level of
Step Down Subsidiary (SDS);
vi) All
other forms of guarantee which is offered by the Indian Party to its first
and subsequent level of SDS;
vii)
Restructuring of the balance sheet of JV/WOS involving write-off of capital
and receivables in the books of listed/ unlisted Indian Company satisfying
certain eligibility criteria mentioned under Regulation 16A of notification
ibid;
viii)
Capitalization of export proceeds remaining unrealized beyond the prescribed
period of realization will require the prior approval of the Reserve Bank;
and
ix)
Proposals from the Indian party for undertaking financial commitment without
equity contribution in JV / WOS may be considered by the Reserve Bank under
the approval route based on the business requirement of the Indian Party and
legal requirement of the host country in which JV/WOS is located.
Further
With effect from July 03, 2014, it has been decided that any financial
commitment (FC) exceeding USD 1 (one) billion (or its equivalent) in a
financial year would require prior approval of the Reserve Bank even when the
total FC of the Indian Party is within the eligible limit under the automatic
route (i.e., within 400% of the net worth as per the last audited balance
sheet).
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(10)
Unique
Identification Number
Reserve bank
will allot a unique Identification Number for each Joint Venture or Wholly
Owned Subsidiary outside India and the Indian Party shall quote such number in
all its communications and reports to the Reserve Bank and the authorised
dealer.
(11)
Investment
by capitalization
(1) An Indian Party may make direct
investment outside India in accordance with the Regulations in Part I by way of
capitalisation in full or part of the amount due to the Indian Party from the
foreign entity towards: -
(i) payment for export of plant, machinery, equipment and other
goods/software to the foreign entity;
(ii) fees, royalties, commissions or other
entitlements due to the Indian
Party from the foreign
entity for the supply of technical know-how, consultancy, managerial or other services
Provided
that where the export proceeds have remained unrealized beyond the prescribed
period of realization, and fees, royalties, commissions or other entitlements
of the Indian party have remained unrealised from the date on which such
payment is due, such proceeds shall not be capitalised without the prior
permission of the Reserve Bank.
(2) An Indian Software exporter may
receive in the form of shares upto 25% of the value of exports to an overseas
software start-up company without entering into JV agreement by filing an
application with the Reserve Bank through the Authorised Dealer.
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Reporting under
regulation 11
The Indian Party is
required to submit details of the capitalisation in form ODI to the
designated branch of the AD Category – I bank. Such investments (or financial
commitment) by way of capitalisation are also to be reckoned while computing
the limit of financial commitment prescribed in terms of Regulation 6 of the
Notification ibid.
Further, in cases
where the export proceeds are being capitalised in accordance with the
provisions of Regulation 11, the AD Category – I banks are required to obtain
a custom certified copy of the invoice as required under Regulation 12(2) and
forward it to the Reserve Bank together with the revised form ODI.
Capitalisation of
export proceeds or other entitlements, which are overdue, would require prior
approval of the Reserve Bank for which the Indian Parties should make an
application in form ODI to the Reserve Bank for consideration.
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(12)
Export of Goods towards
Equity- Procedure
(1) An Indian
Party exporting goods/software/plant and machinery from India towards equity
contribution in a Joint Venture or Wholly Owned Subsidiary outside India shall
declare it on GR/SDF/SOFTEX form, as the case may be, which shall be superscribed as “Exports against equity participation in the JV/WOS abroad”,
and also quoting
Identification Number, if already
allotted by Reserve Bank.
(2) Notwithstanding anything
contained in Regulation 11 of the Foreign Exchange
Management (Export of Goods and Services)
Regulations, 2000, the Indian Party
shall, within 15 days of effecting the shipment of the goods,
submit to the Reserve Bank a custom certified copy of the invoice through the
branch of an authorised dealer designated by
it.
(3) An Indian
Party capitalizing exports under Regulation 11 shall, within six months from
the date of export, or any further time as allowed by Reserve Bank, submit to
Reserve Bank copy/ies of the share certificate/s or any document issued by the
Joint Venture or Wholly Owned Subsidiary outside India to the satisfaction of
Reserve Bank evidencing the investment from the Indian Party together with the
duplicate of GR/SDF/SOFTEX form through the branch of an authorised dealer
designated by it.
(13)
Post
investment changes/additional investment in existing JV/WOS
A JV/WOS set
up by the Indian party as per the Regulations may diversify its activities /
set up step down subsidiary/ alter the shareholding pattern in the overseas
entity Provided the Indian party reports to the Reserve Bank, the details of
such decisions taken by the JV/WOS within 30 days of the approval
of those decisions
by the competent authority concerned of such JV/WOS
in terms of local laws of the host country, and, include the same in the
Annual Performance Report required to be forwarded annually
to the Reserve Bank in terms of Regulation 15.
(14)
Acquisition
of a foreign company through bidding or tender
procedure
(1) On being
approached by an Indian Party, which is eligible under the Regulations to make
investment outside India,
an authorised dealer
may allow remittance towards earnest money deposit or issue a bid bond
guarantee on its behalf for participation in bidding or tender procedure for
acquisition of a company incorporated outside
India,
(2) On the Indian party winning the bid,
i.
the authorised dealer may allow further remittances
towards acquisition of the foreign company, subject to the ceilings specified
in Regulation 6; and
ii.
The Indian Party shall submit, through the
designated authorised dealer concerned, a report to the Reserve Bank in Parts I
and II of the Form ODI, as prescribed by the Reserve Bank from time to time,
within 30 days of effecting the final remittance.
(3) For
participation in bidding or tender procedure for acquisition of a company
incorporated outside India which does not fall within the provisions of
sub-regulation (1), the Reserve Bank may, on application in Form ODI, as
prescribed by the Reserve Bank from time to time, allow remittance of foreign
exchange towards earnest money deposit or permit the authorised dealer in India
to issue a bid bond guarantee, subject to such terms and conditions as the
Reserve Bank may stipulate.”.
(4) In case the
Indian Party is successful in the bid but the terms and conditions of
acquisition of a company outside India are,-
a)
not in conformity with the provisions of Regulations in Part I, or
different from those for which approval under sub-regulation (3) was obtained,
the Indian Party shall submit application in Form ODI, as prescribed by the
Reserve Bank from time to time, to Reserve Bank for obtaining approval for the
foreign direct investment in the manner specified in Regulation 9 or
b)
in conformity with the provisions of the Regulations in Part I or
are same as those for which approval under sub-regulation (3) was obtained, the
Indian Party shall submit a report to the Reserve Bank, giving details of the
remittances made, within 30 days of effecting the final remittance.
(15)
Obligations
of the Indian Party
An Indian Party, which has
acquired foreign security in terms of the Regulations in Part- I, shall –
i.
receive share certificates or any other document as an evidence of
investment in the foreign entity to the satisfaction of the Reserve Bank within
six months, or such further period as Reserve
Bank may permit,
from the date of effecting remittance or the date on which
the amount to be capitalised became due to the Indian Party or the date on which the amount due was allowed to be capitalised;
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Important points and Question:
The share certificates or any other document as evidence of
investment, where share certificates are not issued shall, henceforth, be retained
by the designated AD Category –I bank, who would be required to monitor the
receipt of such documents and satisfy themselves about the bonafides of the
documents so received.
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ii.
repatriate to India, all dues receivable from the foreign entity,
like dividend, royalty, technical fees etc., within 60 days of its falling
due, or such further period
as the Reserve Bank may permit;
'Provided
that in the case of investment in securities in Bhutan made in freely
convertible currency, all dues receivable thereon as are repatriable, including
those on account of disinvestment / dissolution / winding up, shall be realised
and repatriated in freely convertible currency only
iii.
submit to
the Reserve Bank, through the designated Authorised Dealer, every year on or
before a specified date, an Annual Performance Report (APR) in Part III of Form
ODI, as prescribed by the Reserve Bank from time to time, in respect of each JV
or WOS outside India, and other reports or documents as may be prescribed by
the Reserve Bank from time to time. The APR, so required to be submitted, has
to be based on the audited annual accounts of the JV / WOS for the preceding
year, unless specifically exempted by the Reserve Bank
iv.
Indian companies, which have made overseas direct investments
under the provisions of this Notification, shall submit an ‘Annual Return on
Foreign Liabilities and Assets' in the format and by a specified dates
prescribed by the Reserve Bank from time to time, to the Director, Balance of
Payment Statistics Division, Department of Statistics and Information
Management (DSIM), Reserve Bank of India, C-9, 8th Floor, Bandra Kurla Complex,
Bandra (E), Mumbai – 400 051.
Explanation
It will be in order for individual partners
to hold shares for and on behalf
of the firm in an overseas
JV/WOS in the individual name if the host country
regulations or operational requirements warrant
such holdings, subject to the condition that the entire funding for such
investment is done by the firm
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Important points and Question:
What are the obligations of the Indian party,
which has made direct investment outside India?
Regulation 15
Is it mandatory to furnish Annual Performance
Reports (APR) of the overseas JV/WOS based on its audited financial
statements?
In Indian Party (IP) / Resident Individual
(RI) which has made an Overseas Direct Investment (ODI) has to submit an
Annual Performance Report (APR) in Form ODI Part III to the Reserve Bank by
30th of June every year in respect of each Joint Venture (JV) / Wholly
Owned Subsidiary (WOS) outside India set up or acquired by the IP / RI (as
prescribed under Regulation 15 of FEMA Notification, ibid).
With effect from April 13, 2016,
the AD bank, before undertaking / facilitating any ODI related transaction on
behalf of the eligible applicant, should necessarily check with its nodal
office to confirm that all APRs in respect of all the JV / WOS of the
applicant have been submitted. Further, certification of APRs by the
Statutory Auditor or Chartered Accountant may not be insisted upon in the case
of Resident Individuals. Self-certification may be accepted.
With effect from April 13, 2016,
where multiple IPs / RIs have invested in the same overseas JV / WOS, the
obligation to submit APR shall lie with the IP / RI having maximum stake in
the JV / WOS. Alternatively, the IPs / RIs holding stake in the overseas JV /
WOS may mutually agree to assign the responsibility for APR submission to a
designated entity which may acknowledge its obligation to submit the APR in
terms of Regulation 15 (iii) of Notification, ibid, by furnishing an
appropriate undertaking to the AD bank.
Where the law of the host country does not
mandatorily require auditing of the books of accounts of JV / WOS, the Annual
Performance Report (APR) may be submitted by the Indian party based on the
un-audited annual accounts of the JV / WOS provided:
a)
The Statutory Auditors of the Indian party certify that the law of the host
country does not mandatorily require auditing of the books of accounts of
JV/WOS and the figures in the APR are as per the un-audited accounts of the
overseas JV/WOS.
b)
That the un-audited annual accounts of the JV / WOS has been adopted and
ratified by the Board of the Indian party.
(c)
The above exemption from filing the APR based on unaudited balance sheet will
not be available in respect of JV/WOS in a country/jurisdiction which is
either under the observation of the Financial Action Task Force (FATF) or in
respect of which enhanced due diligence is recommended by FATF or any other
country/jurisdiction as prescribed by Reserve Bank of India.
What are the penalties for non-submission of
Annual Performance Reports (APRs)?
Delayed submission/ non-submission of APRs
entail penal measures, as prescribed under FEMA 1999, against the defaulting
Indian Party.
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(16)
Transfer by
way of sale of shares of a JV/WOS outside India
An Indian party may transfer by
way of sale to another Indian party who complies
with the provisions of Regulation 6 above, or to a person resident outside
India], any share or security held by him in a Joint Venture or Wholly Owned
Subsidiary outside India without
prior approval of the Reserve Bank, in the under noted categories:
(i) in cases where the JV / WOS
is listed in the overseas stock exchange;
(ii) in cases where the Indian
promoter company is listed on a stock exchange in India and has a net worth of not less than
Rs.100 crore;
iii) Where the Indian promoter is
an unlisted company and the investment in overseas venture does not exceed USD
10 million
Provided that
(i) The sale does not result in any
write-off of the investment made;
(ii) the sale is effected
through a stock exchange where the shares
of the overseas Joint
Venture or Wholly Owned Subsidiary are listed;
(iii)if the shares are not listed
on the stock exchange, and the shares
are disinvested by a
private arrangement, the share price is not less than the value certified by a
Chartered Accountant /Certified Public Accountant as the fair value of the shares
based on the latest
audited financial statements of the Joint Venture or Wholly Owned Subsidiary:
(iv)The Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or
other entitlements, and/or export proceeds from the Joint Venture or Wholly
Owned Subsidiary;
(v) The overseas
concern has been in operation for at least one full year and the Annual
Performance Report together
with the audited
accounts for that year has been submitted to the Reserve Bank;
(vi)The Indian
party is not under investigation by CBI/ED/SEBI/IRDA or any other regulatory
authority in India.
(2) Sale
proceeds of shares/securities shall be repatriated to India immediately on
receipt thereof and in any case not later than 90 days from the date of sale of
the shares/securities and documentary evidence to this effect
shall be submitted to the Regional
office of the Reserve Bank through the designated authorized dealer.
(3) An Indian
party, which does not satisfy the criteria specified at sub regulation (1)
above, shall apply to the Reserve Bank for permission to transfer by way of
sale of shares of a JV/WOS outside India which may be granted subject
to such conditions as the Reserve Bank may consider appropriate.
(17) Transfer by way of Sale of Shares involving Write -off
Where the transfer by way of sale
of shares or security referred to in sub regulation (1) of Regulation 16 by any Indian party listed on any stock
exchange in India,
is for a price less than
the amount invested in the share or the security transferred, -
1. where the difference between
the said value
and the sale price does not exceed
the percentage approved by the Reserve
Bank, from time to time, of the Indian party's
actual export realisation of the previous year, the Indian party may write-off to the
extent of the difference, the capital invested in the overseas JV/WOS;
2. where such difference is more than the percentage approved by the Reserve Bank, from time to
time, of the Indian party's actual export realisation of the previous year, the
Indian party shall apply to the Reserve Bank for permission to write -off the
capital invested, which permission may be granted subject to such conditions as
the Reserve Bank considers appropriate.
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Important points and Question:
What are
the different modes of disinvestments from the JV / WOS abroad?
Disinvestment
by the Indian party from its JV / WOS abroad may be by way of transfer / sale
of equity shares to a non-resident / resident or by way of liquidation /
merger / amalgamation of the JV / WOS abroad
Can an
Indian Party disinvest from JV / WOS without write off?
Yes, the
Indian Party may disinvest without write off under the automatic route
subject to the conditions stipulated in Regulation 16 (1) provisos (i) to
(vi).
Can an
Indian Party disinvest from JV / WOS involving write off?
Yes, an
Indian Party may disinvest, under the automatic route, involving write off in
the under noted cases:
a. where
the JV / WOS is listed in the overseas stock exchange;
b. where
the Indian Party is listed on a stock exchange in India and has a net worth
of not less than Rs.100 crore;
c. where
the Indian Party is an unlisted company and the investment in the overseas JV
/ WOS does not exceed USD 10 million; and
d. where
the Indian Party is a listed company with net worth of less than Rs.100 crore
but investment in an overseas JV/WOS does not exceed USD 10 million.
Further
conditions stipulated in Regulation 16 (1) provisos (i) to (vi) and
Regulation 16 (3)
An Indian
Party, which does not satisfy the conditions laid down above for undertaking
any disinvestment in its JV/WOS abroad, shall have to apply to the Reserve
Bank for prior permission.
Reporting
of Disinvestment
The Indian
Party should report details of the disinvestment in the online OID
application through the AD Category – I bank within 30 days of disinvestment
in Part III of the Form ODI as indicated in para 3 (3) (d) above. Sale
proceeds of shares / securities shall be repatriated to India immediately on
receipt thereof and in any case not later than 90 days from the date of sale
of the shares / securities.
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(18)
Pledge of Shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS)
and Step down Subsidiary (SDS)
An Indian
Party may create charge, by way of pledge, on the shares of Joint Venture (JV)
or Wholly Owned Subsidiary (WOS) or Step Down Subsidiary (SDS) outside India
[held directly by the Indian party in JV or WOS and indirectly in SDS] as a
security in favour of an Authorized Dealer or a public financial institution in
India or an overseas lender, for availing of fund based or non-fund based
facility for itself (i.e. the Indian party) or for its JV / WOS / SDS whose
shares have been pledged, or for any other JV / WOS / SDS of the Indian party.
Provided
that
- The value of the fund based or non-fund based facility is reckoned
as financial commitment for the Indian party and the total financial
commitment of the Indian party remains within the limit stipulated by the
Reserve Bank for overseas direct investments in the JV / WOS from time to
time;
- In case of the facility from an overseas lender, it should be
regulated and supervised as a bank; and
Subject
to the additional terms and conditions prescribed by the Reserve Bank from time
to time.
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Important points and Question:
Can
the shares of a JV/WOS abroad be pledged for the purpose of financial
assistance?
The
shares of a JV/WOS can be pledged by an Indian Party as a security for
availing fund based or non-fund based facility for itself or for the JV/WOS,
from an authorised dealer/ public financial institution in India or from an
overseas lender, provided the overseas lender is regulated and supervised as
a bank and the total financial commitments of the Indian party remains within
the limit stipulated by the Reserve Bank for overseas investment from time to
time.
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18A Creation of charge on
domestic and foreign assets
(1) An
Indian party may create charge (by way of mortgage, pledge, hypothecation or
otherwise) on its assets [including the assets of its group company, sister
concern or associate company in India, promoter and / or director] in favour of
an overseas lender as security for availing of the fund based and/or non-fund
based facility for its Joint Venture (JV) or Wholly Owned Subsidiary (WOS) or
Step Down Subsidiary (SDS) outside India.
Provided
that
- The value of the facility is reckoned as financial commitment for
the Indian party and the total financial commitment of the Indian party
remains within the limit stipulated by the Reserve Bank from time to time
for overseas direct investments in the JV / WOS;
- The overseas lender is regulated and supervised as a bank as per
the law of the host country;
- A ‘No Objection’ is obtained from the domestic lender in whose
favour if charge is already created on the domestic assets; and
- Subject to the additional terms and conditions prescribed by the
Reserve Bank from time to time.”
(2) An
Indian party may create charge (by way of mortgage, pledge, hypothecation or
otherwise) on the assets of its overseas JV or WOS or SDS in favour of an AD
bank in India as security for availing of the fund based and/or non-fund based
facility for itself or its JV or WOS or SDS outside India.
Provided
that
- The value of the facility is reckoned as financial commitment for
the Indian party and the total financial commitment of the Indian party
remains within the limit stipulated by the Reserve Bank from time to time
for overseas direct investments in the JV / WOS;
- The overseas lender is regulated and supervised as a bank as per
the law of the host country;
- A ‘No Objection’ is obtained from the overseas lender or domestic
AD bank in whose favour if charge is already created on the overseas
assets;
- The facility extended by the domestic AD bank to the Indian party /
JV / WOS / SDS is governed by the prudential norms and other guidelines
issued by the Department of Banking Operations and Development, Reserve
Bank; and
Subject to the additional terms and conditions
prescribed by the Reserve Bank from time to time.”
Part II
Investments abroad by Individuals
in India
(19) Prior Permission of the Reserve Bank for a
Proprietary Concern in India to accept shares
A proprietary concern in India may apply to
the Reserve Bank through the authorised dealer in Part I of the Form ODI, as
prescribed by the Reserve Bank from time to time, for permission to accept
shares of a company outside India in lieu of fees due to it for professional
services rendered to the said company.
Provided that
a.
the value of
the shares accepted from each company outside India shall not exceed fifty per
cent of the fees receivable by the Indian concern from that company and
b.
the Indian
concern’s shareholding in any one company outside India by virtue of shares
accepted as aforesaid shall not exceed ten per cent of the paid-up capital of
the company outside India, whose shares are accepted.
19A. Overseas Direct
Investments by Proprietorship Concern / Unregistered Partnership Firm in India
A
proprietorship concern or an unregistered partnership firm in India, satisfying
the criteria for Overseas Direct Investment as prescribed by the Reserve Bank
from time to time, may set up / acquire a Joint Venture (JV) / Wholly Owned
Subsidiary (WOS) outside India with the prior approval of the Reserve Bank.
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Important points and Question:
The
following revised terms and conditions are required to be complied with for
considering the proposal of overseas direct investment (or financial
commitment), by a proprietorship concern / unregistered partnership firm in
India, by the Reserve Bank under the approval route:
a)
The
proprietorship concern / unregistered partnership firm in India is classified
as ‘Status Holder’ as per the Foreign Trade Policy issued by the Ministry of
Commerce and Industry, Govt. of India from time to time;
b)
The
proprietorship concern / unregistered partnership firm in India has a proven
track record, i.e., the export outstanding does not exceed 10% of the average
export realisation of the preceding three years and a consistently high
export performance;
c)
The
Authorised Dealer bank is satisfied that the proprietorship concern /
unregistered partnership firm in India is KYC (Know Your Customer) compliant,
engaged in the proposed business and has turnover as indicated;
d)
The
proprietorship concern / unregistered partnership firm in India has not come
under the adverse notice of any Government agency like the Directorate of
Enforcement, Central Bureau of Investigation, Income Tax Department, etc. and
does not appear in the exporters' caution list of the Reserve Bank or in the
list of defaulters to the banking system in India; and
e)
The amount
of proposed investment (or financial commitment) outside India does not
exceed 10 per cent of the average of last three years’ export realisation or
200 per cent of the net owned funds of the proprietorship concern/
unregistered partnership firm in India, whichever is lower.
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(20)
Investment
by Individuals
1)
A Resident
individual may apply to the Reserve Bank for permission to acquire shares in a
foreign entity offered as consideration for professional services
rendered to the foreign entity.
2)
Reserve Bank may, after taking into account, inter alia, the following factors,
grant permission subject to such terms and conditions as are considered necessary:
(i) credentials and net worth of the individual and the nature of his profession;
(ii) the extent of his forex
earnings/balances in his EEFC and/or RFC account;
(iii)financial and business track
record of the foreign entity;
(iv)potential for forex inflow to the country;
(v) other likely benefits to the country
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Important
points and Question:
Can
resident individuals acquire shares of a foreign entity in lieu of the
professional services rendered by them or in lieu of Director’s remuneration
under the General Permission?
Resident
individuals are allowed under General Permission to acquire shares of a
foreign entity in part / full consideration of professional services rendered
to the foreign entity or in lieu of Director’s remuneration. The limit of
acquiring such shares in terms of value shall be within the overall ceiling
prescribed for the resident individuals under the Liberalized Remittance
Scheme (LRS) in force at the time of acquisition.
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20A. Acquisition or Setting up of a JV or WOS abroad by resident
individual
A resident individual (single or in
association with another resident individual or with an ‘Indian Party’ as
defined in this Notification) satisfying the criteria as per Schedule V of this
Notification, may make overseas direct investment in the equity shares and
compulsorily convertible preference shares of a Joint Venture (JV) or Wholly
Owned Subsidiary (WOS) outside India.
Part III
Investments in Foreign Securities other than
by way of Direct Investment
(21)
Prohibition on issue of foreign security by a person
resident in India
1) Save as otherwise provided in the
Act or in sub-regulation (2), no person resident in India shall issue or
transfer a foreign security.
2) A person resident in India, being an Indian
Company or a Body Corporate created by an Act
of Parliament.
(i) May issue FCCBs not exceeding
[USD 750] million to a person resident outside India in accordance with and
subject to the conditions stipulated in Schedule I.
(ii) May issue
FCCBs beyond [US $ 750] million with the specific approval of the Reserve Bank.
Provided
that under these Regulations, the Reserve Bank may, in consultation with the
Government of India, change / prescribe for the automatic as well as the
approval route of FCCBs, any provision or proviso for issuance of FCCBs
(iii)May issue
Foreign Currency Exchangeable Bonds to a person resident outside India in
accordance with and subject to the conditions specified in Schedule IV with the
specific approval of the Reserve Bank.
Provided
that under these Regulations, the Reserve Bank may, in consultation with the
Government of India, change / prescribe any provision or proviso for issuance
of FCEBs
(22)
Permission
for purchase/ acquisition of foreign securities in certain cases
1) A person resident in India being
an individual may acquire foreign securities:-
i.
by way of
gift from a person resident outside India; or
ii.
issued by a
company incorporated outside India under Cashless Employees Stock Option Scheme:-
iii.
Provided it does not involve any remittance from India, or
iv.
by way of inheritance from a person
whether resident in or outside
India.
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Important points and Question:
Can a resident individual in
India acquire/sell foreign securities without prior approval of the Reserve
Bank?
Resident individuals can
acquire/sell foreign securities without prior approval in the following
cases: -
i. as a gift from a person
resident outside India;
ii. by way of ESOPs issued by a
company incorporated outside India under Cashless Employees Stock Option Scheme
which does not involve any remittance from India;
iii. by way of ESOPs issued to
an employee or a director of Indian office or branch of a foreign company or
of a subsidiary in India of a foreign company or of an Indian company
irrespective of the percentage of the direct or indirect equity stake in the
Indian company;
iv. as inheritance from a
person whether resident in or outside India;
v. by purchase of foreign
securities out of funds held in the Resident Foreign Currency Account
maintained in accordance with the Foreign Exchange Management (Foreign
Currency Account) Regulations, 2000; and
vi. by way of bonus/rights
shares on the foreign securities already held by them.
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2) A person resident in India, being
an individual, who is an employee or a director of Indian office or branch of a
foreign company or of a subsidiary in India of a foreign company or of an
Indian company in which foreign equity holding effectively, directly or
indirectly, is not less than 51 per cent, may accept the shares offered by such
foreign company
Provided
that
(i) the
shares under the ESOP Scheme are offered by the issuing company globally on
uniform basis, and (ii) an Annual Return is submitted by the Indian company to
the Reserve Bank through the Authorised Dealer bank giving details of
remittances / beneficiaries etc.,
Explanation: - For the purpose of
this sub-regulation, 'indirectly' means 'indirect foreign equity holding
through a trust/ special purpose vehicle or a step down subsidiary'
3) An authorised dealer bank may
allow the remittance by the person eligible to purchase the shares in terms of
sub-regulation (2) for acquiring shares under ESOP Schemes, irrespective of the
method of the operationalization of the scheme Provided that the conditions
specified in that sub-regulation are fulfilled.
4) A person resident in India may
transfer by way of sale, the shares acquired in terms of sub-regulations (2)
and (3) above
Provided that the proceeds
thereof are repatriated immediately on receipt thereof and in any case not
later than 90 days from the date of sale of such securities".]
5) A foreign company, who has issued the shares
in terms of sub-regulation (2) of this Regulation may repurchase the same
provided that
(i) the shares were issued in accordance with the Rules / Regulations framed under Foreign Exchange Management Act, 1999,
(ii) the
shares are being repurchased in terms of the initial offer document and,
(iii) An
Annual Return is submitted through the Authorised Dealer bank giving details of
remittances / beneficiaries etc.
6) An Authorised Dealer bank may allow the
remittance by the person eligible to purchase the shares in terms of
sub-regulation (2)
(23)
Transfer of a foreign
security by a person resident in India
A person resident in India, who
has acquired or holds foreign securities in accordance with the provisions of
the Act, rules or regulations made thereunder, may transfer them by way of
pledge for obtaining fund based or non-fund based facilities in India from an
authorised dealer
(24)
General Permission for
Acquisitions of Foreign Securities as qualification/ Rights Shares
1)
A person
resident in India being an individual may
a) acquire foreign securities as qualification shares
issued by a company incorporated outside India for holding the
post of a director in the company:
Provided that, -
i.
the number of shares so acquired shall be the minimum required
to be held for holding the post of director and in any case shall
not exceed 1 per cent of the paid-up capital of the
company, and
ii.
the consideration for acquisition of such shares does not exceed
the ceiling as stipulated by RBI from time to
time.
b) acquire foreign securities by way of rights shares
in a company incorporated outside
India:
Provided that the right shares are being issued by virtue of
holding shares in accordance with the provisions of the law for the time being
in force.
c) where such person is an employee
or a director of the Indian promoter company, acquire by way of purchase shares
of a Joint Venture or Wholly Owned Subsidiary outside India of the Indian
promoter company, in the field of software;
Provided that:-
1) (i)the
consideration for purchase does not exceed the ceiling as stipulated by RBI
from time to time.
(ii) The
shares so acquired do not exceed 5% of the paid-up capital of the Joint Venture
or Wholly Owned Subsidiary outside India, and
(iii)_after
allotment of such shares, the percentage of shares held by the Indian promoter
company, together with shares allotted to its employees is not less than the
percentage of shares held by the Indian promoter company
prior to such allotment.
2) A person
resident in India, being an individual holding qualification /rights shares in
terms of sub regulations (a) or (b) above may sell the shares so acquired,
without prior approval, provided the sale proceeds are repatriated to India
through banking channels and documentary evidence is submitted to the
authorized dealer.
3) An Indian company in the knowledge based
sector may allow its resident employees (including working directors) to
purchase' foreign securities under the ADR/GDR linked stock option schemes:
Provided that the issue of employees stock option
by a listed company shall be governed by SEBI (Employees Stock Option and Stock
Purchase Scheme) Guidelines, 1999 and the issue of employees stock option by an
unlisted company shall be governed by the guidelines issued by the Government
of India for issue of ADR/GDR linked stock options.
Provided further that the consideration for the
purchase does not exceed the ceiling as stipulated by the Reserve Bank from
time to time
Explanation : For the purpose of this clause
'knowledge based sector' means such sectors as have been notified by the
Government of India from time to time in terms of .its guidelines for the issue
of ADR/GDR linked Employees Stock Options by the Indian Companies dated 15th
September 2000 (Government of India vide their press note
dated 26th July 2004 have modified guidelines for issue of ADR / GDR linked
ESOP by the Indian companies necessitating amendment to the FEMA Regulations
pertaining to ADR / GDR linked ESOP. A.P. (DIR Series) Circular No.14
dated October 1, 2004 was issued to give effect to this Regulation from that
date.)
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Important points and Question:
Are
there any relaxations for individual employees/Directors of an Indian company
engaged in the field of software for acquisition of shares in their JV/WOS
abroad?
General
permission is available for the individual employees/Directors of an Indian
promoter company engaged in the field of software for acquisition of shares
of a JV/WOS abroad provided:
i.
the consideration for purchase does not exceed the ceiling as stipulated by
RBI from time to time. The shares acquired by all the employees/directors do
not exceed 5% of the paid-up capital of the Joint Venture or Wholly Owned Subsidiary
outside India; and
ii.
after allotment of such shares, the percentage of shares held by the Indian
promoter company, together with shares allotted to its employees is not less
than the percentage of shares held by the Indian promoter company prior to
such allotment.
Resident employees of Indian
companies in the knowledge based sectors including working directors may
purchase foreign securities under the ADR/GDR linked stock option scheme
provided that the consideration for purchase does not exceed the ceiling as
stipulated by RBI from time to time.
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(25)
Prior permission of
Reserve bank in Certain Cases
A person resident in India being
an individual seeking to acquire qualification shares in a company outside
India beyond the limits laid down in the proviso to clause (a) of
sub-regulation (1) of Regulation 24 shall apply to the Reserve Bank for prior
approval
(26)
Investments by Mutual
Funds and Other Funds
The purchase
of foreign
securities by Mutual Funds, Venture Capital Funds and Alternative Investment Funds
shall be subject to these regulations, and such other terms and conditions as
may be notified by the Reserve Bank and Securities and Exchange Board of India
(SEBI) from time to time.”
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Important
points and Question:
A
limited number of qualified Indian Mutual Funds, are permitted to invest
cumulatively up to USD 1 billion in overseas Exchange Traded Funds as may be
permitted by SEBI.
Domestic
Venture Capital Funds / Alternative Investment Funds registered with SEBI may
invest in equity and equity linked instruments of off-shore Venture Capital
Undertakings, subject to an overall limit of USD 500 million.
Accordingly,
Mutual Funds / Venture Capital Funds / Alternative Investment Funds desirous
of availing of this facility may approach SEBI for necessary permission.
General
permission is available to the above categories of investors for sale of
securities so acquired.
Investments made by Venture Capital Fund (VCF) / Alternate
Investment Fund (AIF), may be reported in the online application
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(27)
Opening of DEMAT
Accounts by Clearing Corporations of Stock Exchanges and Clearing Members
A Person resident in India being a Securities
and Exchange Board of India approved clearing corporation of stock exchanges
and their clearing members may, subject to the guidelines issued by the SEBI
from time to time;
i)
Open and maintain Demat accounts with foreign depositories and
acquire, hold, pledge and transfer the foreign sovereign securities, offered as
collateral by FIIs;
ii)
Remit the proceeds arising from corporate action, if any, on such
foreign sovereign securities; and
Liquidate
such foreign sovereign securities and repatriate the proceeds thereof to India
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SEBI approved clearing corporations of stock exchanges and their
clearing members may undertake the following transactions subject to the
guidelines issued from time to time by SEBI in this regard:
i) to open and maintain demat accounts with foreign depositories
and to acquire, hold, pledge and transfer the foreign sovereign securities,
offered as collateral by FIIs;
ii) to remit the proceeds arising from corporate action, if any,
on such foreign sovereign securities; and
iii) to liquidate such foreign sovereign securities if the need
arises.
Clearing Corporations shall report, on a monthly basis, the
balances of foreign sovereign securities, held by them as non-cash
collaterals of their clearing members to the Chief General Manager, Reserve
Bank of India, Foreign Exchange Department, Foreign Investment Division,
Central Office, Mumbai. The report should be submitted by the 10th of the
following month to which it relates.
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SCHEDULE I
See Regulation 21 (2)(i)
Automatic Route for Issue of
Foreign Currency Convertible Bonds (FCCBs)
(i) The FCCBs to
be issued will have to conform to the Foreign Direct Investment Policy (including Sectoral
Cap and Sectors
where FDI is permissible) of the Government of India as announced from time to time and the Reserve
Bank’s Regulations/directions issued
from time to time.
(ii) The issue of FCCBs shall be subject to a ceiling
of USD 500 million in any one financial
year.
(iii)
Public issue of FCCBs shall be only through reputed lead managers
in the international capital market. In case of private placement, the
placement shall be with banks, or with multilateral and bilateral financial
institutions, or foreign
collaborators, or foreign
equity holder having a minimum holding
of 5% of the paid up equity
capital of the issuing company.
Private placement with unrecognized sources is prohibited.
(iv)
The maturity
of the FCCB shall not be less than 5 years. The call & put option, if any, shall not be exercisable prior to 5 years.
(v) Issue of FCCBs with attached
warrants is not permitted.
(vi)
The “all in cost” will be on par with those prescribed for
External Commercial Borrowing (ECB) schemes specified
in the Schedule to Notification No: FEMA 3/2000-RB dated 3rd May 2000. The “all in cost” shall include
coupon rate, redemption premium, default payments, commitment fees, and
fronting fees, if any, but shall not include the issue related expenses such as
legal fees, lead managers fees, out of pocket
expenses.
(vii)
The FCCB proceeds
shall not be used for investment in Stock Market,
and may be used
for such purposes for which ECB proceeds are permitted to be utilized under the
ECB schemes.
(viii)
FCCBs are allowed for corporate investments in industrial sector,
especially infrastructure sector. Funds raised through
the mechanism may be parked
abroad unless actually required.
(ix)
FCCBs for meeting
rupee expenditure under automatic route
to be hedged unless there is a natural hedge in the form of
uncovered foreign exchange receivables, which will be ensured by Authorised Dealers.
(x) Financial
intermediaries (viz. a bank, DFI, or NBFC) shall not be allowed access to
FCCBs, except those Banks and financial intermediaries that have participated in the Textile or Steel Sector restructuring
package of the Government/RBI subject to the limit of their investment in the package.
(xi)
Banks, FIs, NBFCs shall not provide
guarantee/letter of comfort
etc. for the FCCB issue.
(xii)
The issue related expenses
shall not exceed
4% of issue size and in case of private placement, shall not exceed 2% of
the issue size.
(xiii)
The issuing entity
shall, within 30 days from the date of completion of the issue,
furnish a report to the
concerned Regional Office of the Reserve Bank of India through a designated
branch of an Authorized Dealer giving the details and documents as under :
a)
The total
amount of the FCCBs issued,
b)
Names of the
investors resident outside India and number of FCCBs issued to each of them,
and
SCHEDULE II
Omitted
SCHEDULE III
(See Regulation 9A)
Overseas Investments by Registered
Trust/Society
Criteria for overseas investment by
Registered Trust/Society
Trust
i)
The Trust
should be registered under the Indian Trust Act, 1882.
ii)
The Trust
deed permits the proposed investment overseas.
iii)
The proposed
investment should be approved by the trustee/s.
iv)
The
Authorised Dealer bank is satisfied that the Trust is KYC (Know Your Customer)
compliant and is engaged in a bonafide activity.
v)
The Trust
has been in existence at least for a period of three years.
vi)
The Trust
has not come under the adverse notice of any Regulatory / Enforcement agency
like the Directorate of Enforcement, CBI etc.
Society
a. The Society should be registered under the
Societies Registration Act, 1860.
b. The Memorandum of Association and rules and
regulations permit the Society to make the proposed investment which should
also be approved by the governing body / council or a managing / executive
committee.
c. The Authorised Dealer bank is satisfied that
the Society is KYC (Know YourCustomer) compliant and is engaged in a bonafide
activity.
d. The Society has been in existence at least
for a period of three years.
e. The Society has not come under the adverse
notice of any Regulatory / Enforcement agency like the Directorate of
Enforcement, CBI etc.
In addition to the registration, the
activities which require special license / permission either from the Ministry
of Home Affairs, Government of India or from the relevant local authority, as
the case may be, the Authorised Dealer Category – I bank should ensure that
such special license /permission has been obtained by the applicant.
SCHEDULE IV
[See Regulation 21(2)]
Foreign Currency Exchangeable Bonds (FCEBs)
1. Currency:
- The FCEB may be denominated in any freely convertible foreign currency
2. Eligible
Issuer: The issuing company shall be
part of the promoter group of the offered company and shall hold the equity
share/s being offered at the time of issuance of FCEB.
3. The
Offered Company: The offered company shall
be a listed company which is engaged in a sector eligible to receive Foreign
Direct Investment and eligible to issue or avail FCCB or External Commercial
Borrowings (ECB).
4. Entities
not eligible to issue FCEB: An Indian
company, which is not eligible to raise funds from the Indian securities
market, including a company which has been restrained from accessing the
securities market by the SEBI shall not be eligible to issue FCEB.
5. Eligible
Subscriber: Entities complying with the
Foreign Direct Investment policy and adhering to the sectoral caps at the time
of issue of FCEB can subscribe to FCEB.
Prior approval of Foreign Investment Promotion Board, wherever required
under the Foreign Direct Investment policy, should be obtained.
6. Entities
not eligible to subscribe to FCEB:
Entities prohibited to buy, sell or deal in securities by the SEBI will
not be eligible to subscribe to FCEB.
7. End-use
of FCEB proceeds: Issuing Company:
(i) The
proceeds of FCEB may be invested by the issuing company outside India by way of
direct investment including in Joint Ventures or Wholly Owned Subsidiaries
abroad, subject to the existing guidelines on Overseas Investment in Joint
Ventures or Wholly Owned Subsidiaries (abroad)
(ii) The
proceeds of FCEB may be invested by the issuing company in the promoter group
companies.
Promoter
Group Companies:
Promoter
Group Companies receiving investments out of the FCEB proceeds may utilise the
FCEB proceeds in accordance with end-uses prescribed under the External
Commercial Borrowings policy.
8. End-uses
not permitted: The promoter group
companies receiving such investments will not be permitted to utilise the
proceeds for investments in the capital market or in real estate in India.
9.
All-in-cost: The rate of interest payable
on FCEB and the issue expenses incurred in foreign currency shall be within the
all-in-cost ceiling as provided in the
Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000, (Notification No.FEMA
3/2000-RB, dated May 3, 2000) and the directions issued in that behalf by the
Reserve Bank of India.
10. Pricing
of FCEB: At the time of issuance of
FCEB, the exchange price of the offered listed equity shares shall not be less
than the higher of the following two:
(i) The
average of the weekly high and low of the closing prices of the shares of the
offered company quoted on the stock exchange during the six months preceding
the relevant date; and
(ii) The
average of the weekly high and low of the closing prices of the shares of the
offered company quoted on a stock exchange during the two week preceding the
relevant date.
Explanation
to clause (i) and (ii): "Relevant
date" means the date on which the Board of directors of the issuing
company passes the resolution authorizing the issue of FCEB.
11. Average
Maturity: Minimum maturity of FCEB shall
be five years. The exchange option can be exercised at any time before
redemption. While exercising the
exchange option, the holder of the FCEB shall take delivery of the offered shares. Cash (Net) settlement of FCEB shall not be
permissible.
The proceeds
of FCEB shall be retained and / or deployed overseas by the issuing / Group
Companies in accordance with the Foreign Exchange Management (Borrowing or
Lending in Foreign Exchange) Regulations, 2000,
(FEMA 3/2000-RB, dated May 3, 2000) and the directions issued in that
behalf by the Reserve Bank from time to time.
12. Parking
of FCEB proceeds abroad: The proceeds of FCEB shall be retained and / or
deployed overseas by the issuing / promoter group companies in accordance with
the policy for the ECB. It shall be the responsibility of the issuing company
to ensure that the proceeds of FCEB are used by the promoter group company only
for the permitted end-uses prescribed under the ECB policy. The issuing company
should also submit audit trail of the end-use of the proceeds by the issuing
company / promoter group companies to the Reserve Bank duly certified by the
designated Authorised Dealer bank.
13.
Operational Procedure: Issuance of FCEB
shall require prior approval of the
Reserve Bank of India as specified in the
Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000, (Notification No FEMA
3/2000-RB, dated May 3, 2000).
14. Reporting: The provisions of the Foreign
Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000, (Notification No FEMA 3/2000-RB, dated May 3, 2000) with regard to
reporting of external commercial borrowings shall apply to FCEB.
SCHEDULE V
[See Regulation 20A]
A. Overseas
Direct Investments by Resident Individuals
1. Resident
individual is prohibited from making direct investment in a JV or WOS abroad
which is engaged in the real estate business or banking business or in the
business of financial services activity.
2. The JV or
WOS abroad shall be engaged in bonafide business activity.
3. Resident
individual is prohibited from making direct investment in a JV / WOS [set up or
acquired abroad individually or in association with other resident individual
and / or with an Indian party] located in the countries identified by the
Financial Action Task Force (FATF) as "non co-operative countries and
territories" as available on FATF website www.fatf-gafi.org or as notified
by the Reserve Bank.
4. The
resident individual shall not be on the Reserve Bank’s Exporters Caution List
or List of defaulters to the banking system or under investigation by any
investigation / enforcement agency or regulatory body.
5. At the
time of investments, the permissible ceiling shall be within the overall
ceiling prescribed for the resident individual under Liberalised Remittance
Scheme as prescribed by the Reserve Bank from time to time.
[Explanation:
The investment made out of the balances held in EEFC / RFC account shall also be
restricted to the limit prescribed under LRS.]
6. The JV or
WOS, to be acquired / set up by a resident individual under this Schedule,
shall be an operating entity only and no step down subsidiary is allowed to be
acquired or set up by the JV or WOS.
7. For the
purpose of making investment under this Schedule, the valuation shall be as per
Regulation 6(6)(a) of this Notification.
8. The
financial commitment by a resident individual to / on behalf of the JV or WOS,
other than the overseas direct investments as defined under Regulation 2(e)
read with Regulation 20A of this Notification, is prohibited.
B. Post
Investment Changes
Any
alteration in shareholding pattern of the JV or WOS may be reported to the
designated AD within 30 days including reporting in the Annual Performance
Report as required to be submitted in terms of Regulation 15 of this
Notification.
C.
Disinvestment by Resident Individuals
1. A
resident individual, who has acquired / set up a JV or WOS under the provisions
of this Schedule, may disinvest (partially or fully) by way of transfer / sale
or by way of liquidation / merger of the JV or WOS.
2.
Disinvestment by a resident individual shall be allowed after one year from the
date of making first remittance for setting up or acquiring the JV or WOS
abroad.
3. The
disinvestment proceeds shall be repatriated to India immediately and in any
case not later than 60 days from the date of disinvestment and the same may be
reported to the designated AD.
4. No write
off shall be allowed in case of disinvestments by the resident individuals.
D. Reporting
Requirements
1.
The resident
individual, making overseas direct investments under the provisions of this
Schedule, submits duly completed Part I of the Form ODI, as prescribed by the
Reserve Bank from time to time, to the designated authorised dealer, within 30
days of making the remittance.
2.
The
investment, as made by a resident individual, shall be reported by the
designated authorised dealer to the Reserve Bank in Form ODI Part Iand II, as
prescribed by the Reserve Bank from time to time, within 30 days of making the
remittance.
3.
The
obligations as required in terms of Regulation 15 of this Notification shall
also apply to the resident individuals who have set up or acquired a JV or WOS
under the provisions of this Schedule.
4.
The
disinvestment by the resident individual may be reported by the designated AD
to the Reserve Bank in Part IV of Form ODI, as prescribed by the Reserve Bank
from time to time, within 30 days of receipt of disinvestment proceeds.”
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