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FEMA, Transfer or Issue of any Foreign Security, Regulations 2000.


Short title and commencement
Definitions
Prohibition on issue or transfer of foreign security
Purchase and sale of foreign security by a person resident in India
Part I Direct Investment outside India
Prohibition on Direct Investment outside India
Permission for Direct Investment in certain cases
Permission for Direct Investment in Equity of Companies Registered Overseas
Investment in Financial Services Sector
Investment in a foreign security by swap or exchange of shares of an Indian company
Approval of Reserve Bank in certain cases
Block allocation by Reserve Bank
Unique Identification Number
Method of Investment by capitalisation
Export of Goods towards Equity
Submission of Information to Reserve Bank
Acquisition of a foreign company through bidding or tender procedure
Obligations of the Indian Party
Transfer by way of sale of shares of a JV/WOS
Pledge of Shares of Joint Ventures and Wholly Owned Subsidiaries.
Part IA Investments abroad by a firm in India
Investments abroad by a firm in India
Investments by partnership firm without prior approval of Reserve Bank
Prohibition on issue of foreign security by a person resident in India
Permission for purchase/acquisition of foreign securities in certain cases
Transfer of a foreign security by a person resident in India
Prior Permission from Reserve Bank in certain cases
Investment by Mutual Funds

Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000

Notification No. 19/2000-RB, (Part-II), and (Part-III) - 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), 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
    1. These Reglations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Second Amendment) Regulations, 2003.
    2. They shall come into force from the date of their publication in the Official Gazette.

      (Above sub-regulation (a) & (b) has been amended vide Notification .No. FEMA 88/2003-RB, Dt. 01/04/2003)

    "Pre-Revised
    1. These Regulations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2003.
    2. They shall come into force on their publication in the Official Gazette.

    (Above sub-regulations (i) & (ii) has been amended vide Notification No. FEMA 79/2002-RB, Dt. 15/01/2003)

    1. These Regulations shall be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Fifth Amendment) Regulations, 2002.
    2. They shall come into force from the date of their publication in the Official Gazette.

    (Above sub-regulations (a) & (b) has been amended vide Fema Notification No. 59/2002-RB, Dt. 24/04/2002)

    1.
    1. These Regulations may be called the "Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Fourth Amendment) Regulations, 2002."
    2. They shall come into force with effect from the date of their publication in the Official Gazette.

    (Above sub-regulations (i) & (ii) has been amended vide Fema Notification No. 55/2002-RB, Dt. 07/03/2002)

    1. These Regulations shall be called the Foreign Exchange Management (Transfer or Issue of any foreign security) (Third Amendment) Regulations, 2002.
    2. They shall come into force from the date of their publication in the Official Gazette.

    (Above sub-regulations (a) & (b) has been amended vide Fema Notification No. 53/2002-RB, Dt. 01/03/2002)

    1. These Regulations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Second Amendment) Regulations, 2002.
    2. They shall come into force from the date of their publication in the Official Gazette.

    (Above sub-regulations (a) & (b) has been amended vide Fema Notification No. 49/2002-RB, Dt. 19/01/2002)

    1. These Regulations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2002.
    2. They shall come into force from the date of their publication in the Official Gazette.

    (Above sub-regulations (a) & (b) has been amended vide Fema Notification No. 48/2002-RB, Dt. 01/01/2002)
    1.
    1. These Regulations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2001.
    2. They shall come into force with immediate effect.
      (Above sub-regulations (a) & (b) has been amended vide Fema Notification No. 40/2001-RB, dated 02/03/2001)
      "Pre-Revised i) These Regulations may be called the Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2000.
      ii) They shall come in force on the 1st day of June , 2000. "
    2. In the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000,
  2. Definitions
    In these Regulations, unless the context otherwise requires:
    1. “Act” means Foreign Exchange Management Act, 1999, (42 of 1999);
    2. “authorised dealer” means a person authorised as an authorised dealer under sub section (1) of section 10 of the Act;
    3. “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;
    4. `Core Activity’ means activity carried on by an Indian entity which constitutes at least 50% of its average turnover in the previous accounting year;
    5. “Direct investment outside India" means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity, but does not include portfolio investment or investment through stock exchange or by private placement in that entity;
    6. “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;
    7. “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;
    8. “Form” means the form annexed to these Regulations;
    9. “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;
    10. “Host country” means the country in which the foreign entity receiving the direct investment from an Indian party is registered or incorporated;
    11. “Indian party” means a company incorporated in India or body created under an Act of Parliament, making investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes any other entity in India as may be notified by Reserve Bank:-

      Provided that when more than one such company incorporated or bodies under an Act of Parliament, makes a direct investment in the foreign entity, all such companies or bodies together shall constitute the “Indian party”;
    12. 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.;
    13. “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;
    14. “Mutual Fund” means a Mutual Fund referred to in clause (23D) of section 10 of the Income tax Act, 1961;
    15. `Net worth’ means paid up capital and free reserves;
    16. “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;
    17. “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;
    18. Words and expressions used but not defined in these Regulations shall have the meanings respectively assigned to them in the Act.
  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
    1. 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;
    2. may acquire bonus shares on the foreign securities held in accordance with the provisions of the Act or rules or regulations made thereunder;
    3. when not permanently resident in India, may purchase a foreign security from out of his foreign currency resources outside India;
    4. 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
  5. Prohibition on Direct Investment outside India
    Save otherwise provided in the Act, rules or regulations made or directions issued thereunder, or with prior approval of 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.
  6. Permission for Direct Investment in certain cases
    1. Subject to the conditions specified in sub-regulation (2), an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India.
      1.  The total financial commitment of the Indian Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed US $ 100 (one hundred) million or its equivalent in any one financial year, except investment in Nepal, Bhutan and Pakistan;
        (Pl. see Circular. No. 27/2002, Dt. 2/3/2002)

        (In above clause (i) bold words has been amended vide Notification No. 53/2002-RB, Dt. 1/3/2002)

        Provided that in respect of commitment in Joint Ventures/Wholly Owned Subsidiaries in Myanmar and SAARC countries (other than Nepal, Bhutan and Pakistan) the total commitment shall not exceed US $ 150 million or equivalent in any one financial year.

        "Pre-Revised - Provided that in respect of commitment in Joint Ventures/Wholly Owned Subsidiaries in Myanmar and SAARC countries (other than Nepal, Bhutan and Pakistan), the ceiling shall be increased by US$25 million or its equivalent in any one financial year, in respect of such commitment; "

        (In clause (i) proviso has been substituted vide Notification No.FEMA 79/2002-RB, Dt. 15/01/2003)

        (In above sub-regulation 2, clause (i) has been substituted vide Notification No. 40/2001-RB, dated 02/03/2001)

        Provided further that the ceiling of US $ 50 million shall not apply to financial commitment by a unit located in a Special Economic Zone 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.

        (Above second proviso of sub-regulations (2), clause (1) has been added vide Fema Notification No. 49/2002-RB, Dt. 19/01/2002)
        "Pre-Revised
        (i) The total financial commitment of the Indian party shall not exceed US$ 50 million or its equivalent in a block of three financial years including the year in which the investment is made, except investment in a Joint Venture/Wholly Owned Subsidiary in Nepal and Bhutan."
      2. In respect of direct investment in Nepal or Bhutan, in Indian rupees the total financial commitment shall not exceed Indian Rupees 700 crores "previous - Rupees 350 crores " in any one financial year;
        (In Clause (ii) bold words has been substituted vide Notification No.FEMA 79/2002-RB, Dt. 15/01/2003)

        (In above sub-regulation (2), clause (ii) has been substituted vide Notification No. 40/2001-RB, dated 02/03/2001)

        "Pre-Revised (ii) In respect of direct investment in Nepal or Bhutan, in Indian rupees the total financial commitment shall not exceed Indian Rupees 120 crores in a block of three financial years including the year in which the investment is made;"
      3. The direct investment is made in a foreign entity engaged in the same core activity carried on by the Indian party;
      4. Deleted
        (Above clause (iv) has been deleted vide Notification No. 40/2001-RB, dated 02/03/2001)

        "Pre-Revised
        (iv)The Indian Party has earned net profit during the preceding three accounting years;"
      5. The Indian Party is not on the Reserve Bank’s caution list or under investigation by the Enforcement Directorate;
      6. 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.
      7. The Indian Party submits form ODA, duly completed, to the designated branch of an authorised dealer for onward transmission to Reserve Bank
    2. Investment under this Regulation may be funded out of one or more of the following sources, namely:-
      1. 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) Regulations, 2000;
      2. drawal of foreign exchange from an authorised dealer in India not exceeding 50% of the net worth of the Indian Party as on the date of last audited balance sheet;

        (Pl. see Circular No. 27/2002, Dt. 2/3/2002)
        (In above clause (ii) bold words has been amended vide Notification No. 53/2002-RB, Dt. 1/3/2002)
      3. utilisation of the amount raised by issue of ADRs/GDRs by the Indian Party;
        (Above clause (iii) has been substituted vide Notification No. 40/2001-RB, dated 02/03/2001)

        "Pre-Revised (iii)utilisation of the proceeds of ADR/GDR issues, not exceeding 50 per cent of the amount so raised by the Indian Party:-

        Provided that where the investment is entirely funded out of the source mentioned in clause (i), the conditions specified in clauses (iii) and (iv) of sub-regulation (2) shall not apply."
    3. 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 provided such holding company or, as the case may be, subsidiary company, has not availed of the facility of direct investment abroad during the relevant block of three years and has furnished a letter of disclaimer in favour of the Indian Party.
    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.
    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:-
      1.  For the purposes of investment under this Regulation by way of remittance from India, the valuation of shares of the company outside India shall be made , -
        1. where the investment is more than US $ 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
        2. in all other cases, by a Chartered Accountant or a Certified Public Accountant."
      2. 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.

        (Above sub-regulations (7) has been added vide Fema Notification No. 48/2002-RB, Dt. 01/01/2002)
        Provided that:
        1. 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;
        2. Deleted
          (Above provision (b) has been deleted vide Notification No. 40/2001-RB, dated 02/03/2001)

          "Pre-Revised (b) the proposed investment together with investments already made in terms of clause (iii) of sub-regulation (3) does not exceed 50% of the proceeds of GDR and/or ADR issued; and"
        3. the Indian Party files with Reserve Bank, in form ODA full details of the investment made, within 30 days of such investment.
          (Pl. refer A.P. (DIR Series) Circular. No. 83/2002-03-RB, Dt. 01/03/2003 - Overseas Direct Investment – Liberalisation of Automatic Route)

          (Pl. refer A.P. (DIR Series) Circular. No. 43/2002-RB, Dt. 30/04/2002 for Indian Direct Investment in Joint Ventures/Wholly Owned Subsidiaries Outside India)

6A. Permission for Direct Investment in Equity of Companies 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 a share holding in its name of not less than 10% in any listed Indian company as on 1st January of the year of investment, provided that :–

  1. in the case of investment by the listed Indian company, the investment shall not exceed 25% of its net worth shown in its latest audited balance sheet;
  2. in the case of investment by Mutual Fund, the investment shall not exceed the ceiling stipulated by Securities & Exchange Board of India (SEBI) from time to time;
  3. every transaction relating to purchase and sale of shares of the overseas company shall be routed through the designated branch of an authorised dealer in India.
    (Regulation 6A has been inserted vide Notification No. FEMA 88/2003-RB, Dt. 01/04/2003)
  1. Investment in Financial Services Sector

    Subject to the Regulations in Part I, an Indian party engaged in the financial services activities, may make investment in an entity outside India also engaged in financial services activities:-
    Provided that the Indian party –
    1. has earned net profit during the preceding three financial years from the financial services activities;
    2. is registered with the appropriate regulatory authority in India for conducting the financial services activities;
    3. has a minimum net worth of Rs.15 crores as on the date of the last audited balance sheet; and
    4. has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India.
  2. Investment in a foreign security by swap or exchange of shares of an Indian company
    1. An Indian Party may acquire shares of a foreign company, engaged in the same core 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
      1. 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;
      2. such investment by the Indian Party does not exceed the higher of the following amounts, namely: -
        1.  amount equivalent of US$ 100 mn., or
        2. 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, including under (i) of this clause, in the same financial year,
      3. the ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh equity shares issued by the Indian Party;
      4. 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;
      5. the valuation of the shares of the foreign company is made, -
        1. as per the recommendations of the Investment Banker if the shares are not listed on any stock exchange; or
        2. 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.
      (Above sub-regulation (1) has been substituted vide Notification No. 40/2001-RB, dated 02/03/2001)
      "Pre-Revised (1) An Indian Party engaged in any sector included in Schedule may acquire shares of a foreign company engaged in similar 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, for the shares so acquired:-
      Provided that -
      1.  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;
      2. such investment by the Indian Party does not exceed,-
        1. an amount equivalent of US$ 100 mn., or
        2. an amount equivalent to 10 times the export earnings of the Indian Party during preceding financial year as reflected in its audited balance-sheet, inclusive of all investments made under Regulations in Part I, including under (i) of this clause, in the same financial year,”
      3. at least 80% of the average turnover of the Indian Party in the previous three financial years is from the activities/sectors included in Schedule or the Indian Party has an annual average export earnings of at least Rs.100 crores in the previous three financial years from the activities/sectors included in Schedule;
      4. the ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh equity shares issued by the Indian Party;
      5. 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,
      6. the valuation of the shares of the foreign company is made,-
        1. as per the recommendations of the Investment Banker if the shares are not listed on any stock exchange; or
        2. 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."
    2. 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
  3. Approval of 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 Form ODI, or in Form ODB, respectively.
      (2A) An application made under sub regulation (2) in Form ODI.
      1. for the purpose of investment by way of remittance from India, shall be accompanied by the valuation of shares of the company outside India, made -
        1. where the investment is more than US $ 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
        2. in all other cases, by a Chartered Accountant or a Certified Public Accountant.
      2. for the purpose 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."

        (Above sub-regulations (2A) has been inserted vide Fema Notification. No. 48/2002-RB, Dt. 01/01/2002)
    3. Reserve Bank may, inter alia, take into account following factors while considering the application made under sub-regulation (2) :
      1. Prima facie viability of the Joint Ventue/Wholly Owned Subsidiary outside India;
      2. contribution to external trade and other benefits which will accrue to India through such investment;
      3. financial position and business track record of the Indian Party and the foreign entity;
      4. 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 Block allocation by Reserve Bank

  1. Reserve Bank may, on application made to it, approve, subject to such terms and conditions as considered necessary, a block allocation of foreign exchange to an Indian Party which has exhausted the limit available to it under sub-regulation (2) of Regulation 6.
  2. For considering the application made under sub-regulation (1), the Reserve Bank may take into account the factors mentioned in sub-regulation (3) of Regulation 9.
    (Above Regulation (9A) has been inserted vide Notification No. 40/2001-RB, dated 02/03/2001)
  1. 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.
  2. Method of Investment by capitalisation
    An Indian Party may also 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 as follows:-
    1. payment for export of plant, machinery, equipment and other goods/software to the foreign entity;
    2. fees, royalties, commissions or other entitlements of the Indian Party due 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, such proceeds shall not be capitalised without the prior permission of Reserve Bank.
  3. Export of Goods towards Equity
    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 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.

      (In above sub-regulation (3) bold words has been substituted vide Notification No. 40/2001-RB, dated 02/03/2001)

      "Pre-Revised :
      An Indian Party capitalising exports under Regulation 10 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."
  4. Submission of Information to Reserve Bank
    1. Where the Indian Party holds 50% or more of the paid-up capital of the foreign entity and
      1.  the foreign entity has been in operation for a period of less than two years; or
      2. the Indian Party has not repatriated the amount of dividends, fees and royalties due to it from the foreign entity; or
      3. proceeds of exports to the foreign entity have not been realised in accordance with the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, or
      4. additional capital contribution will be required from India; or
      5. the percentage of equity shareholding of the Indian Party in the foreign entity is being reduced otherwise than in pursuance of the laws of the host country, the Indian Party shall not consent to the decision relating to the following subject matters, without prior approval of the Reserve Bank -
        1. undertaking any activity other than the activity in which the foreign entity was engaged/or proposed to be engaged at the time of investment by the Indian party; or
        2. articipation in the capital of another foreign entity; or
        3. alteration of the company’s capital structure, authorised or issued, or its shareholding pattern.
    2. The restriction contained in sub-regulation(1) shall not apply where the investment in the foreign entity is entirely made out of balances held in Exchange Earners Foreign Currency account of the Indian Party and/or out of foreign currency resources raised by the Indian Party through ADR/GDR issue.
  5. Acquisition of a foreign company through bidding or tender procedure.
    1. On being approached by an Indian Party, which is eligible under the Regulations in Part I 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,
      1. the authorised dealer may allow further remittances towards acquisition of the foreign company, subject to the ceilings specified in Regulation 6; and
      2. 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.
    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, 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 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,-
      1. 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
      2. 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.
  6. Obligations of the Indian Party
    An Indian Party which has acquired foreign security in terms of the Regulations in Part I shall –
    1. 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;
    2. 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;
    3. 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.
  7. Transfer by way of sale of shares of a JV/WOS
    Save as otherwise provided in the Act or rules or regulations made or directions issued thereunder or with the permission of the Reserve Bank, no Indian Party shall transfer by way of sale to any person whether resident in India or outside India, any share or security held by him in a Joint Venture or Wholly Owned Subsidiary outside India.
    Provided that a person resident in India, being an individual, holding qualification shares or rights shares in a company incorporated outside India acquired in terms of clauses (a) and (c) of Regulation 21 may sell such shares without prior approval.

    (Above proviso has been inserted vide Notification No. 59/2002-RB, Dt. 24/04/2002)
  8. 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.

"Part IA

Investments abroad by a firm in India
17A. Investments abroad by a firm in India

  1. A firm in India registered under the Indian Partnership Act, 1932, may apply to the Reserve Bank for permission to invest abroad to the extent and in the manner specified in Part I.
  2. Reserve Bank may, after taking into account the factors specified in sub regulation (3) of Regulation 9, grant permission subject to such terms and conditions as are considered necessary.

17B. Investments by partnership firm without prior approval of Reserve Bank

  1. A partnership firm registered under the Indian Partnership Act, 1932 which is engaged in providing professional services specified in the Schedule, may make investment in foreign concerns engaged in similar activity, by way of remittance from India and/or capitalization of fees/other entitlements due to it from such foreign concerns

    Provided that:-
    1. such investments do not exceed US$ 1 (one) million or its equivalent in one financial year,
    2. the investing firm is a member of the respective All India professional organization/body; and
    3. a report containing (i) name, full address, registration and membership particulars of the investing firm, (ii) full details of investment abroad, (iii) date and amount of remittance/amount of capitalization of fees/other entitlements due to the investing firm, (iv) name and address of the foreign concern together with its line of activity, (v)identification number , if already allotted by the Reserve Bank, is submitted to the Reserve Bank through the authroised dealer within 30 days of making such investments."
      (Above Part (IA) has been inserted vide Notification No. 40/2001-RB, dated 02/03/2001)

      (Pl. refer A.P. (DIR Series) Circular . No. 43/2002-RB, Dt. 30/04/2002 for Indian Direct Investment in Joint Ventures/Wholly Owned Subsidiaries Outside India)

17C. A proprietary concern in India may apply to the Reserve bank in Form ODB for general permission valid for a period of one year 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 :-

  1. the value of the shares accepted from each company outside India shall not exceed fifty percent of the fees receivable by the Indian party from that company; and
  2. the Indian concern's share holding in any one company outside India by virtue of shares accepted as aforesaid shall not exceed ten percent of the paid-up capital of the company outside India, whose shares are accepted."

    (Above sub-regulations (17C) has been inserted vide Fema Notification No. 48/2002-RB, Dt. 01/01/2002)

Part II
Investments in Foreign Securities other than by way of Direct Investment

  1. 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,
      1. may issue FCCBs not exceeding US$50 million, to a person resident outside India in accordance with and subject to the conditions stipulated in Schedule II;
      2. where the issue exceeds US $50 million but does not exceed US $100 million, may apply to the Reserve Bank in Form ECB for permission to issue FCCBs;
      3. where the issue exceeds US $100 million, may apply to the Government of India, Ministry of Finance, (Department of Economic Affairs) for approva
        (Above sub-regulation (2), has been substituted vide Notification No. FEMA 55/2002, Dt. 7/3/2002)
      "Pre-Revised
      (2) A person resident in India, being an Indian company or a body corporate created by an Act of Parliament, which has obtained an approval of Government of India, Ministry of Finance (Department of Economic Affairs), may issue Foreign Currency Convertible Bonds (FCCBs) to a person resident outside India."
    3. The company/ body corporate referred to in clause (iii) of 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:
      (In above sub-regulation (3), bold words has been substituted vide Notification No. FEMA 55/2002, Dt. 7/3/2002)
      1. A copy of Government’s approval for issue of FCCBs
      2. Total amount for which FCCBs have been issued,
      3. Names of the investors resident outside India and number of FCCBs issued to each of them.
      4. 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).
  2. Permission for purchase/acquisition of foreign securities in certain cases
    1. A person resident in India being an individual may acquire foreign securities:-
      1. by way of gift from a person resident outside India; or
      2. issued by a company incorporated outside India under Cashless Employees Stock Option Scheme:-
        Provided it does not involve any remittance from India, or
      3.  by way of inheritance from a person whether resident in or outside India.
    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 is not less than 51 per cent, may purchase the equity shares offered by the said foreign company:-
      Provided that -
      1. the shares are offered at a concessional price; and
      2. the consideration for purchase does not exceed US$ 20,000 or its equivalent, in any one calendar year.
        (Above clause (b) has been substituted vide Notification No. 40/2001-RB, 02/03/2001)
        "Pre-Revised
        b) the consideration for purchase does not exceed U.S.$ 10,000 or its equivalent in a block of five calendar years."
    3. An authorised dealer may allow the remittance by the person eligible to purchase the shares in terms of sub-regulation (2):-
      Provided that the conditions specified in that sub-regulation are fulfilled.
  3. 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.
  4. Prior Permission from Reserve Bank in certain cases
    1. Reserve Bank, on an application, may permit a person resident in India to acquire foreign securities :-
      1. 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 -
        1. 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% of the paid-up capital of the company, and
        2. the consideration for acquisition of such shares does not exceed US$ 20,000 (Twenty Thousand only) in a calendar year.
      2. 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) shall apply to the Reserve Bank for prior approval.
      3. "A person resident In India, being an individual, may 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.
        (In above regulation 21 Clauses (a) (b) of sub-regulation (1) has been substituted & new (c) inserted and old (c) relettered as (d) vide Notification No. FEMA 59/2002-RB, Dt. 24/04/2002)
      "Pre-Revised
      1. being the minimum number of qualification shares issued by a company incorporated outside India for holding a post of a director in the company;
      2. by way of right shares issued by a company incorporated outside India:-
        Provided that the consideration for acquisition of such shares does not exceed US$10,000 in a block of five calendar years:
        Further 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; -"

        (d) by way of purchase by the employees/directors of an Indian promoter company of shares of a Joint Venture or Wholly Owned Subsidiary outside India of the Indian promoter company, in the field of software:-
        Provided that –
        1. the consideration for purchase does not exceed US10,000 or its equivalent per employee in a block of five calendar years,
        2. the shares so acquired do not exceed 5% of the paid-up capital of the Joint Venture or Wholly Owned Subsidiary outside India, and
        3. 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. Reserve Bank may, on an application made to it by the Indian software company 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 US $ 50,000/- or its equivalent in a block of five calendar years.
  5. Investment by Mutual Funds
    Reserve Bank may, on application, permit a Mutual Fund, to purchase foreign securities subject to such terms and conditions as it may stipulate.

Schedule - I
(See Regulation 17B)
List of professional services provided by
Registered partnership firms eligible for investment
Abroad without prior approval of the Reserve Bank

  1. Chartered Accountancy
  2. Legal practice and related services
  3. Information Technology and Entertainment Software related services
  4. Medical and healthcare services

(Above (Schedule) has been substituted vide Notification No. 40/2001-RB, dated 02/03/2001)

Schedule II
See Regulation 18 (2)(i)
Automatic Route for Issue of Foreign Currency Convertible Bonds (FCCBs)

  1.  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.
  2. The issue of FCCBs shall be subject to a ceiling of U S $ 50 million in any one financial year.
  3. 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 unrecognised sources is prohibited.
  4. 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.
  5. Issue of FCCBs with attached warrants is not permitted.
  6. The "all in cost" will be 100 basis points less than 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.
  7. 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 utilised under the ECB schemes.
  8. In case the FCCBs are issued for financing imports/foreign exchange capital expenditure, the proceeds can be retained abroad with the approval of the Reserve Bank of India. In all other cases, the proceeds shall be repatriated to India immediately on completion of issue process.
  9. 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.
  10. 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:
    1. The total amount of the FCCBs issued,
    2. Names of the investors resident outside India and number of FCCBs issued to each of them, and
    3. The amount repatriated to India through normal banking channels and/or, duly supported by bank certificates.

(Pl. refere Circular .No. 29/2002, Dt. 11/3/2002 for paragraph (x) of Schedule II )
(Schedule re-numbered as "Schedule I", & Schedule-II has been added vide Notification No. 55/2002-RB, dated 07/03/2002)

Pre-Revised
Schedule I
(See Regulation 8)

List of Sectors for which swap or exchange of shares route is available

  1. Information Technology and Entertainment software.
  2. Pharmaceutical Sector
  3. Biotechnology

(Please refer Circular No. 57/2003-04-RB, DT. 13/01/2004 for Overseas Investment by Indian Companies/Partnership Firms – Liberalisation of the Automatic Route & Facilities for Investment in Agriculture)

(Please refer Circular. No. 42/2003-04-RB, DT. 06/12/2003 for Overseas Direct Investment - Liberalisation)
(Please refer Circular No. 41/2003-04-RB, DT. 06/12/2003 for Indian Direct Investment in JVs/WOSs Abroad)
(Pl. See Circular.No.66/2002-03, Dt. 13/01/2003 - Overseas Investments)
(Note:- see
Notification No. FEMA 19/2000-RB, dt. 03/05/2001)

(Pl. See Circular.No. 29/2002, Dt. 11/3/2002)

(Pl. refer A.P. (DIR Series) Circular No.51/2002-RB, Dt. 24/06/2002 for Indian Direct Investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) outside India)


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