RBI/2014-15/234
A.P. (DIR Series) Circular No.31
September 17, 2014
To
All Category - I Authorised Dealer Banks
Madam / Sir,
Foreign Direct Investment (FDI) in India - Issue of equity shares under
the FDI Scheme against legitimate dues
Attention of Authorised Dealers Category – I (AD Category - I) banks is
invited to the Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations, 2000, notified vide Notification No.
FEMA 20/2000-RB dated May 3, 2000, as amended from time to time,
A.P. (DIR
Series) Circular No. 15 dated October 1, 2004, and
Notification No. FEMA
242/2012- RB Dated October 19, 2012.
- In terms of paragraph 2(4) of the Schedule 1 of the Notification, ibid, an
Indian company under the automatic route may issue shares/convertible debentures
to a person resident outside India against lump-sum technical know-how fee,
royalty External Commercial Borrowings (ECBs) (other than import dues deemed as
ECB or Trade Credit as per RBI guidelines) and import payables of capital goods
by units in Special Economic Zones subject to certain conditions like entry
route, sectoral cap, pricing guidelines and compliance with the applicable tax
laws.
- The extant guidelines for issue of shares/convertible debentures under the
automatic route have been reviewed in consultation with the Government of India
and, accordingly, it has been decided to permit issue of equity shares against
any other funds payable by the investee company, remittance of which does not
require prior permission of the Government of India or Reserve Bank of India
under FEMA, 1999 or any rules/ regulations framed or directions issued thereunder, provided that:
The equity shares shall be issued in accordance with the extant FDI guidelines
on sectoral caps, pricing guidelines etc. as amended by Reserve bank of India,
from time to time;
Explanation: Issue of shares/convertible debentures that require Government
approval in terms of paragraph 3 of Schedule 1 of FEMA 20 or import dues deemed
as ECB or trade credit or payable against import of second hand machinery shall
continue to be dealt in accordance with extant guidelines;
The issue of equity shares under this provision shall be subject to tax laws as
applicable to the funds payable and the conversion to equity should be net of
applicable taxes.
- All the other conditions for issuance of equity shares under the automatic
route (c.f. paragraph 2(4) (i) (ii) (iii) of schedule 1 to
Notification No. FEMA
20/2000-RB dated May 3, 2000) and Government approval route [c.f. paragraph 3 of
schedule 1 of
Notification No. FEMA 20/2000-RB dated May 3, 2000] shall remain
unchanged.
- AD Category – I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- Reserve Bank has since amended the subject Regulations accordingly through
the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Twelfth Amendment) Regulations, 2014 which have been
notified vide
Notification No. FEMA.315/2014-RB dated July 10, 2014, vide G.S.R.
No.632 dated September 2, 2014.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully
(B.P.Kanungo)
Principal Chief General Manager