Foreign Exchange Management (Transfer or Issue of Any Foreign
Security) (Amendment) Regulations, 2004
Notification. No. FEMA 120/2004-RB, DT. 07/07/2004 - 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:
- Short title and Commencement :-
- These Regulations shall be called the Foreign Exchange Management
(Transfer or issue of any Foreign Security) (Third Amendment)
Regulations, 2005.
- They shall be deemed to have come into force from May 12, 2005.@
Note: @ It is clarified that no person will be
adversely affected as a result of retrospective effect being given to
such regulations.
(Above Rule 1. has been amended vide Notification. No FEMA 139/2005-RB,
Dt. 11/08/2005)
Pre-Revised
- These Regulations may be called the Foreign Exchange Management
(Transfer or Issue of Any Foreign Security) (Second Amendment)
Regulations, 2005.
- They shall come into force on the date of their publication in
the Official Gazette. ]
(Above Rule 1. has been amended vide Notification. No. FEMA
135/2005-RB, Dt. 17/05/2005)
Pre-Revised
- Short title and commencement
- These Regulations may be called the Foreign Exchange Management
(Transfer or Issue of Any Foreign Security) (Amendment) Regulations,
2005.
- They shall come into force on the dates specified hereunder. ]
(Above Rule 1. has been amended vide Notification. No FEMA 132/2005-RB,
Dt. 31/03/2005)
Pre-Revised
These Regulations may be called the Foreign Exchange Management
(Transfer or Issue of Any Foreign Security) (Amendment) Regulations,
2004.
They shall come in force from the date of their publication in the
Official Gazette. ]
- Definitions
In these Regulations, unless the context otherwise requires:
- "Act" means Foreign Exchange Management Act, 1999, (42 of 1999):
- "authorised dealer" means a person authorised as an authorised
dealer under sub section (1) of section 10 of the Act;
- "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;
- ‘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;
- "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.
- "Financial commitment" means the amount of direct investment
by way of contribution to equity and loan and 50 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;
- "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;
- "Form" means the forms annexed to these Regulations;
- "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;
- "Host country" means the country in which the foreign entity
receiving the direct investment from an Indian party is registered or
incorporated;
- "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 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"
- "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;
- "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;
- "Mutual Fund" means a Mutual Fund referred to in clause (23D) of
section 10 of the Income Tax Act, 1961;
- ‘Net worth’ means paid up capital and free reserves;
- "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;
- "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;
- "Agricultural Operations" means agricultural operations as defined
in the 'National Bank for Agriculture and Rural Development Act, 1981.
- Words and expressions used but not defined in these Regulations
shall have the meanings respectively assigned to them in the Act.
- 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.
- Purchase and sale of foreign security by a person resident in
India
A person resident in India
- 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;
- may acquire bonus shares on the foreign securities held in
accordance with the provisions of the Act or rules or regulations made
thereunder;
- when not permanently resident in India, may purchase a foreign
security from out of his foreign currency resources outside India;
- 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.
Part I
Direct Investment outside India
- 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,
- no person resident in India shall make any direct investment outside
India; and
- no Indian party shall make any direct investment in a foreign entity
engaged in real estate business or banking business.
- Permission for Direct Investment in certain cases
- 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.
-
- The total financial commitment of the Indian party in
Joint Ventures/Wholly Owned Subsidiaries shall not exceed 200% of
the net worth Pre-Revised- shall not exceed 100% of the net worth ]
of the Indian Party as on the date of the last audited balance
sheet;
Explanation : For the purpose of determining ‘total financial
commitment’ within the limit of 200% of the net worth -Pre-Revised-
limit of 100% of the net worth ], the following shall be reckoned,
namely :-
(In sub-regulation (2), clause (i) the words and figures "shall not
exceed 200% of the net worth" & in explanation "limit of 200% of the
net worth" has been substituted vide Notification. No FEMA
139/2005-RB, Dt. 11/08/2005)
(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.
(Above Explanation & sub-clause (a) has been substituted vide
Notification. No FEMA 135/2005-RB, Dt. 17/05/2005)
Pre-Revised-
Explanation: - For the purpose of the limit of 100% of the net worth
the following shall be reckoned, namely:
- cash remittance by market purchase and /or equivalent rupee
investments in case of Nepal and Bhutan]
- capitalisation of export proceeds and other dues and
entitlements as mentioned in Regulation 11;
- fifty 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.
- investment in agricultural operations through overseas offices
or directly
- External Commercial Borrowing in conformity with other
parameters of the ECB guidelines
Notwithstanding anything contained in these Regulations investment
in Pakistan shall not be permitted.
- The direct investment is made in an overseas JV or WOS engaged
in a bonafide business activity.
- 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.
- The Indian party has submitted up to date returns in form APR
in respect of all its overseas investments;
- 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.
- The Indian Party submits form ODA, duly completed, to the
designated branch of an authorised dealer.
- Investment under this Regulation may be funded out of one or
more of the following sources, namely: -
- 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;
- drawal of foreign exchange from an authorised dealer in India
not exceeding 100 % of the net worth of the Indian Party as on the
date of last audited balance sheet;
Explanation: - For the purpose of the limit of 100% of the net worth
the following shall be reckoned, namely:
- cash remittance by market purchase
- capitalisation of export proceeds and other dues and
entitlements as mentioned in Regulation 11 and 12;
- fifty 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
- utilisation of the amount raised by issue of ADRs/GDRs by the
Indian party;
- External Commercial Borrowing in conformity with other
parameters of the ECB guidelines.
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.
- 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.
- 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
- 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;
- the Indian Party files with the designated authorised dealer in
form ODA full details of the investment proposed.
-
- 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, -
- 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
- in all other cases, by a Chartered Accountant or a Certified
Public Accountant.
- 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.
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
- 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.
- 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 an individual or a listed Indian
company or a mutual fund registered in India, may invest in
- the shares of an overseas company which is listed on a recognised
stock exchange and has in its name share holding of not less than
10% in any listed Indian company as on 1st January of the year of
investment
- the rated bonds/ fixed income securities issued by companies at
(a) above:
Provided that-
- in the case of investment by a listed Indian company, the
investment shall not exceed 25% of its net worth as on the date of
its last audited balance sheet;
- in the case of investment by a Mutual Fund, the investment
shall not exceed the ceiling stipulated by Securities & Exchange
Board of India (SEBI) from time to time;
- 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.
Investment in Financial Services Sector
- Subject to the Regulations in Part I, an Indian party may make
investment in an entity outside India engaged in financial services
activities:
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.
- any additional investment by an existing JV/WOS or its step down
company in the Financial Services Sector shall be made only after
complying with the conditions stipulated in sub-clause (1).
-
Investment in a foreign security by swap or exchange of shares of
an Indian company
- An Indian Party may acquire shares of a foreign company, engaged
in 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
thereunder from time to time by the Central Government;
Provided that
- the Indian Party has already made an ADR and / or GDR issue and
that such ADRs/GDRs are currently listed on any stock exchange
outside India; such investment by the Indian Party does not exceed
amount equivalent to 10 times the export earnings of the Indian
Party during the preceding financial year as reflected in its
audited balance-sheet, inclusive of all investments made under
Regulations in Part I.
- the ADR and/or GDR issue for the purpose of acquisition is backed
by underlying fresh equity shares issued by the Indian Party;
- the total holding in the Indian Party 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;
- the valuation of the shares of the foreign company is made, -
- as per the recommendations of the Investment Banker if the shares
are not listed on any stock exchange; or
- based on the current market capitalization 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.
- Within 30 days from the date of issue of ADRs and/or GDRs in
exchange for acquisition of shares of the foreign company under
sub-regulation (1), the Indian Party shall submit a report in form
ODG to the Reserve Bank.
Approval of the Reserve Bank in certain cases
- 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.
- 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 Form ODI, or in Form ODB, as
applicable.
(2A) An application made under sub-regulation (2) in Form ODI
- 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-
- 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
- in all other cases, by a Chartered Accountant or a Certified
Public Accountant.
- 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.
- The Reserve Bank may, inter alia, take into account following
factors while considering the application made under sub-regulation
(2):
- Prima facie viability of the Joint Venture/Wholly Owned
Subsidiary 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 Indian Party
and the foreign entity;
- 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.
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.
Investment by capitalization
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: -
- payment for export of plant, machinery, equipment and other
goods/software to the foreign entity;
- 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 unrealised
beyond a period of six months from the date of export, 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. - 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.
Export of Goods towards Equity- Procedure
- 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.
- 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.
- An Indian Party capitalising 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.
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.
Acquisition of a foreign company through bidding or tender
procedure
- 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,
- On the Indian Party winning the bid,
- the authorised dealer may allow further remittances towards
acquisition of the foreign company, subject to the ceilings
specified in Regulation 6; and
- the Indian Party shall submit through the authorised dealer
concerned a report to the Reserve Bank in form ODA within 30 days of
effecting the final remittance.
- 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, 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.
- In case the Indian Party is successful in the bid but the terms
and conditions of acquisition of a company outside India are,-
- 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
to Reserve Bank for obtaining approval for the foreign direct
investment in the manner specified in Regulation 9, or
- 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.
Obligations of the Indian Party
- An Indian Party, which has acquired foreign security in terms of the
Regulations in Part- I, shall –
- 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;
- 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.
(Above proviso has been added vide Ntf.No. FEMA 135/2005-RB, Dt.
17/05/2005)
- submit to the Reserve Bank every year within 60 days from the
date of expiry of the statutory period as prescribed by the
respective laws of the host country for finalisation of the audited
accounts of the Joint Venture/Wholly Owned Subsidiary outside India
or such further period as may be allowed by Reserve Bank, an annual
performance report in form APR in respect of each Joint Venture or
Wholly Owned Subsidiary outside India set up or acquired by the
Indian Party and other reports or documents as may be stipulated by
the Reserve Bank.
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.
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
Provided that
- The sale does not result in any write-off of the investment
made;
- the sale is effected through a stock exchange where the shares
of the overseas Joint Venture or Wholly Owned Subsidiary are listed;
- 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:
- 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;
- 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;
- The Indian party is not under investigation by CBI/ED/SEBI/IRDA
or any other regulatory authority in India.
- 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.
- 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.
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, -
- 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;
- 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.
Pledge of Shares of Joint Ventures and Wholly Owned Subsidiaries
-
An Indian Party may transfer, by way of pledge, shares held in a
Joint Venture or Wholly Owned Subsidiary outside India as a security
for availing of fund based or non-fund based facilities for itself
or for the Joint Venture or Wholly Owned Subsidiary from an
authorised dealer or a public financial institution in India.
Investments abroad by Individuals in India
- Prior Permission of the Reserve Bank for Direct Investment by a
Proprietary Concern in India
A proprietary concern in India may apply to the Reserve Bank in Form
ODB 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: -
- 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,
- 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.
- Investment by Individuals
- 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.
- Reserve Bank may, after taking into account, inter alia, the
following factors, grant permission subject to such terms and
conditions as are considered necessary:
- credentials and net worth of the individual and the nature of his
profession;
- the extent of his forex earnings/balances in his EEFC and/or RFC
account;
- financial and business track record of the foreign entity;
- potential for forex inflow to the country;
- other likely benefits to the country.
Investments in Foreign Securities other than by way of Direct
Investment
Prohibition on issue of foreign security by a person resident in
India.
- Save as otherwise provided in the Act or in sub-regulation (2),
no person resident in India shall issue or transfer a foreign
security.
- A person resident in India, being an Indian Company or a Body
Corporate created by an Act of Parliament.
- may issue FCCBs not exceeding USD 500 million to a person resident
outside India in accordance with and subject to the conditions
stipulated in Schedule I.
- may issue FCCBs beyond US $ 500 million with the specific
approval of the Reserve Bank.
- The company/body corporate referred to in sub-regulation (2),
issuing the FCCBs shall, within 30 days from the date of issue,
furnish a report to the Reserve Bank giving the details and
documents as under:
- Total amount for which FCCBs have been issued,
- Names of the investors resident outside India and number of FCCBs
issued to each of them.
- The amount repatriated to India through normal banking channels
and/or the amount received by debit to NRE/FCNR accounts in India of
the investors (duly supported by bank certificate).
Permission for purchase /acquisition of foreign securities in
certain cases
- A person resident in India being an individual may acquire
foreign securities:-
- by way of gift from a person resident outside India; or
- issued by a company incorporated outside India under Cashless
Employees Stock Option Scheme:-
Provided it does not involve any remittance from India, or
- by way of inheritance from a person whether resident in or
outside India.
- A person resident in India, being an individual, who is an
employee or a director of an 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 the foreign equity holding, either directly
or indirectly, is not less than 51 per cent, may purchase the equity
shares offered by the said foreign company.
Explanation : For the purpose of this clause, 'indirectly' means
indirect foreign equity holding through a special purpose vehicle or
a step down subsidiary.
(Sub-regulation (2) has been substituted vide Ntf.No. FEMA
132/2005-RB, Dt. 31/03/2005 with effect from 09/02/2005)
Pre-Revised
- 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 is not less than 51
per cent, may purchase the equity shares offered by the said foreign
company.]
- An authorised dealer may allow the remittance by the person
eligible to purchase the shares in terms of sub-regulation (2): -
Provided that the condition specified in that sub-regulation is
fulfilled.
- A person resident in India may transfer by way of sale the
shares acquired in terms of sub-regulation (1) and (2) 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.
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.
General Permission for Acquisition of foreign securities as
qualification / rights shares
- A person resident in India being an individual may
- 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, -
- 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
- the consideration for acquisition of such shares does not exceed
the ceiling as stipulated by RBI from time to time.
- 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.
- 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 –
-
- the consideration for purchase does not exceed the ceiling
as stipulated by RBI from time to time.
- the shares so acquired do not exceed 5% of the paid-up capital
of the Joint Venture or Wholly Owned Subsidiary outside India, and
- 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.
- 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.
- 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.
(Sub-regulation (3) has been substituted vide Ntf.No. FEMA
132/2005-RB, Dt. 31/03/2005 with effect from 01/10/2004)
Pre-Revised
(3) An Indian software company may allow its resident employees
(including working directors) to purchase foreign securities under
the ADR/GDR linked stock option schemes:-
Provided that the consideration for purchase does not exceed the
ceiling as stipulated by RBI from time to time.]
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.
Investment by Mutual Funds
Mutual Funds may purchase foreign securities subject to such terms
and conditions as it may be notified by SEBI from time to time.
Sd/-
(Shyamala Gopinath)
Executive Director
Schedule I
See Regulation 21 (2)(i)
Automatic Route for Issue of Foreign Currency Convertible Bonds
(FCCBs)
- 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.
- The issue of FCCBs shall be subject to a ceiling of USD 500
million in any one financial year.
- 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.
- 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.
- Issue of FCCBs with attached warrants is not permitted.
- 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.
- 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.
- FCCBs are allowed for corporate investments in industrial
sector, especially infrastructure sector. Funds raised through the
mechanism may be parked abroad unless actually required.
- 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.
- 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.
- Banks, FIs, NBFCs shall not provide guarantee/letter of comfort
etc. for the FCCB issue.
- 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.
- 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 :
- The total amount of the FCCBs issued,
- Names of the investors resident outside India and number of FCCBs
issued to each of them, and
[DELETED-
Foot Note: The Principal Regulations were published in the Official
Gazette vide G.S.R.No.456(E) dated May 8, 2000 in Part II, Section
3, Sub-section (i) and subsequently amended vide G.S.R.Nos. as
indicated below :.
| Sr.No. |
G.S.R. No. |
Date |
| 1. |
157(E) |
2.3.2001 |
| 2. |
258(E) |
9.4.2002 |
| 3. |
259(E) |
9.4.2002 |
| 4. |
263(E) |
9.4.2002 |
| 5. |
265(E) |
9.4.2002 |
| 6. |
475(E) |
8.7.2002 |
| 7. |
34(E) |
16.1.2003 |
| 8. |
629(E) |
4.8.2003 |
| 9. |
399(E) |
14.5.2003 |
(Above Foot Note has been deleted vide Corrigendum Dt. 12/05/2005)