Notification No. FEMA 179 / 2008-RB
Dated August 22, 2008
Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) (second Amendment) Regulations, 2008
In exercise of the powers conferred by clause (b) 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 hereby makes the following amendments in the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated 3rd May 2000),
namely:-
1. Short Title & Commencement:-
(i) These Regulations may be called the Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident Outside India) (second Amendment)
Regulations, 2008.
(ii) Save as otherwise provided in these Regulations, the provisions of these
Regulations shall come into force from the date of their publication in the
Official Gazette.
2. Amendment of Regulation 2 - In the Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident Outside India) Regulations 2000,
(Notification No. FEMA 20/2000-RB dated 3rd May, 2000) (hereinafter referred to
as 'the principal Regulations'), in Regulation 2,
(A) for clause (ii) , the following clause shall be substituted and shall be
deemed to have been substituted with effect from the 1st day of May 2007,
namely:-
“(ii) ‘Capital’ means equity shares, preference shares and convertible
debentures
(B) after clause (iia), the following new clause shall be inserted and shall be
deemed to have been inserted with effect from the 1st day of May 2007, namely :-
"(iib) "preference shares" mean compulsorily and mandatorily convertible
preference shares."
(C) after clause (iib) as so inserted , the following new clause shall be
inserted and shall be deemed to have been inserted with effect from the 8th day
of June, 2007, namely :-
"(iic) "debenture" means compulsorily and mandatorily convertible debenture"
3. Amendment of Regulation 5
In the principal Regulations, in Regulation 5, for sub-regulation 6 the
following new sub-regulation shall be substituted and shall be deemed to have
been substituted with effect from the 31st day of December 2007, namely;
“ 6. A registered Foreign Institutional Investor (FII) having valid approval
under the Foreign Exchange Regulation Act, 1973 or under the Foreign Exchange
Management Act, 1999 may trade in all exchange traded derivative contracts
approved by RBI/SEBI subject to the limits and margin requirement prescribed by
RBI/SEBI as well as the stipulations regarding collateral securities as directed
by the Reserve Bank from time to time”.
4. Amendment of Regulation 6B
In the principal Regulations, for Regulation 6B, the following shall be
substituted, namely :-
“ 6B . A company issuing rights shares or bonus shares in terms of these
Regulations shall report to the Reserve Bank in form FC-GPR as stipulated in
Paragraph 9 (1)(B) of Schedule 1 to these Regulations.”
5. Amendment of Regulation 10
In the principal Regulations, in Regulation 10, in sub-Regulation A, after
clause (b), before the Explanation, the following new clause shall be inserted
and shall be deemed to have been inserted with effect from 10th day of February,
2006, namely:-
"(c) any security by way of sale, shall make an application to the Reserve Bank
for its approval if,
(i) the activity of the Indian company, whose securities are being transferred,
falls outside the Automatic Route, and the approval of the FIPB has been
obtained for the said transfer;
(ii) the activity of the Indian company whose securities are being transferred,
falls under the financial services sector;
(iii) the transfer falls within the purview of the provisions of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997;and
(iv) the transfer is to take place at a price which falls outside the pricing
guidelines specified by Reserve Bank, from time to time."
6. Amendment of Schedule 1
In the principal Regulations, in Schedule 1,
i) in paragraph 1,
(a) for sub-paragraph (2), the following shall be substituted, namely :-
"(2) If the person purchasing the shares under this Scheme proposes to be a
collaborator or proposes to acquire the entire shareholding of a new Indian
company, he should obtain prior permission of Central Government if he has, as
on January 12, 2005, an existing joint venture or technology transfer/trademark
agreement in the same field as that of such Indian company.”
(b) after sub-paragraph (2), the following provisos shall be inserted and shall
be deemed to have been inserted with effect from the 12th day of January 20051,
namely:
" Provided that no prior permission of Central Government shall be required for
investments to be made by Venture Capital Funds registered with SEBI;
investments by multinational financial institutions; or where in the existing
joint-venture investment by either of the parties is less than 3%; or where the
existing joint venture/ collaboration is defunct or sick or for transfer of
shares of an Indian company engaged in Information Technology sector or in the
mining sector, if the existing joint venture or technology transfer/trade mark
agreement of the person to whom the shares are to be transferred are also in the
Information Technology sector or in the mining sector for same area/mineral”.
ii) in paragraph 2, for sub-paragraph (1) the following shall be substituted and
shall be deemed to have been substituted with effect from the 10th day of
February 2006, namely:
"(1) An Indian company, not engaged in any activity/sector mentioned in Annex A
to this schedule, may issue shares or convertible debentures to a person
resident outside India, subject to the limits prescribed in Annex B to this
schedule, in accordance with the Entry Routes specified therein and the
provisions of Foreign Direct Investment Policy, as notified by the Ministry of
Commerce & Industry, Government of India, from time to time.
Provided that the shares or convertible debentures are not being issued by the
Indian company with a view to acquire existing shares of any Indian company.
Explanation: A company which proposes to embark on expansion programme to
undertake activities or manufacture items included in
1This Regulation is given retrospective effect from 12th day of January, 2005,
that is, from the date on which Press Note No. 1 (2005 Series) was issued by
Department of Industrial Policy and Promotion, Ministry of Commerce and
Industry, Government of India.
Annex B to this Schedule may issue shares or debentures out of fresh capital
proposed to be issued by it for the purpose of financing expansion programme, up
to the extent indicated in Annex B, subject to compliance with the provisions of
this paragraph."2
iii) in paragraph 2, sub-paragraph (2) shall be omitted.
iv) in paragraph 2, sub-paragraphs (3), (4) and (5) shall be renumbered as
sub-paragraphs (2), (3) and (4) respectively.
v) for paragraph 3, the following shall be substituted, namely:-
"3. Issue of shares by a company requiring the Government approval
An Indian company intending to issue shares to a person resident outside India
in accordance with these Regulations shall obtain prior approval of the Foreign
Investment Promotion Board of Government of India if the company;
(a) is engaged or proposes to engage, in any activity given in Annex A (A) to
this schedule; or
(b) falls under the FIPB route as stipulated under the column "Entry Route" in
Annex B to this schedule; or
(c) proposes to issue shares to a person resident outside India against
considerations other than inward remittance i.e. against royalty/ lumpsum feedue
for payment;or
(d) proposes to issue shares to a person resident outside India, on or after
28th day of November 2003, against External Commercial
Borrowings(ECBs){excluding those deemed as ECBs} received in convertible foreign
currency ”.3
vi) in paragraph 4,
2 This amendment is given retrospective effect from 10th day of February, 2006,
that is, from the date on which Press Note No. 4 (2006 Series) was issued by
Department of Industrial Policy and Promotion, Ministry of Commerce and
Industry, Government of India.
3 This amendment is given retrospective effect from 29th day of November 2003,
that is, from the date on which Press Note 5(2003) was issued by Department of
Industrial Policy and Promotion, Ministry of Commerce and Industry, Government
of India.
i. in sub-paragraph (2), for the words "form specified in Annexure C", the words
"Form DR" shall be substituted.
ii. in sub-paragraph (3), for the words "form specified in Annexure D", the
words "Form DR-Quarterly" shall be substituted.
vii) for paragraph 4B, the following new paragraph shall be substituted, namely:
"4B. An Indian company may sponsor an issue of ADRs/GDRs with an overseas
depository against shares held by its shareholders at a price to be determined
under the provisions of the Scheme for Issue of Foreign Currency Convertible
Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993
and guidelines issued by the Government of India and the reporting requirements
as directed by Reserve Bank, from time to time."
viii) paragraph 5A shall be omitted
ix) for paragraph 6, the following new paragraph shall be substituted, namely:-
"6. Issue price of ADRs/ GDRs
The pricing of ADRs/GDRs to be issued to a person resident outside India shall
be determined under the provisions of the Scheme for Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism)
Scheme, 1993 and guidelines issued by the Government of India from time to
time.”
x) in paragraph 9,
(i) in sub-paragraph (1),
(a) in clause (A), for the word “report”, the words “report in form specified in
Annex C to this schedule” shall be substituted
(b) in clause (B), for sub. clause (d), for the words and figure “ In accordance
with paragraph 9”, the words and figure “ in accordance with paragraph 8” shall
be substituted.
(ii) after clause (B), at the end, the following new clause (C), shall be
inserted, namely;-
" C) the amount of consideration received by Indian company as advance against
equity shall be reported to the Regional Office of the Reserve Bank under whose
jurisdiction the Registered Office of the Company operates in the form specified
in “Annex C ” within 30 days of receipt thereof."
xi) for Annexure A and Annexure B, “Annex A” and ‘Annex B’ respectively to these
regulations shall be substituted.
xii) Annexure C and Annexure D shall be renamed as "Form DR" and "Form
DR-Quarterly", respectively.
xiii) Annexure E shall be omitted.
xiv) for ‘Form FC-GPR’, “Annex D ” to these regulations shall be substituted.
7. Amendment of Schedule 4
In the principal Regulations, in Schedule 4, in paragraph 2, for the provisos,
the following provisos shall be substituted, namely:-
“Provided that the person to whom the shares are being transferred, shall obtain
prior permission of the Central Government to acquire the shares if he has, as
on 12th day of January 2005, an existing joint venture or technology
transfer/trademark agreement in the same field as that of the company of which
the shares or convertible debentures to be acquired by him.
Provided further that no prior permission of Central Government shall be
required for:
(a) transfer of shares to multinational financial institutions such as Asian
Development Bank (ADB), International Finance Corporation (IFC), Commonwealth
Development Corporation (CDC), Deutsche Entwicklungs Gescelscchaft (DEG).
(b) transfer of shares of an Indian company engaged in Information Technology
sector or in the mining sector, if the existing joint venture or technology
transfer/trade mark agreement of the person to whom the shares are to be
transferred are also in the Information Technology sector or in the mining
sector for same area/mineral.
(c) investments to be made by Venture Capital Funds registered with SEBI;
investments by multinational financial institutions or where in the existing
joint-venture investment by either of the parties is less than 3%; or where the
existing joint venture/ collaboration is defunct or sick.”
8. Amendments of Schedule 5
In the principal Regulations, in Schedule 5,
(i) for paragraph 1, the following new paragraph shall be substituted, namely:-
“1. Permission to Foreign Institutional Investors for purchase of securities -
A registered Foreign Institutional Investor may purchase, on repatriation basis,
dated Government securities/treasury bills, listed non-convertible
debentures/bonds, commercial papers issued by an Indian company and units of
domestic mutual funds, Security Receipts issued by Asset Reconstruction
Companies and Perpetual Debt instruments eligible for inclusion as Tier I
capital and Debt capital instruments as upper Tier II capital issued by banks in
India to augment their capital (the definitions of Tier I capital and Tier II
capital will be the same as clarified by Reserve Bank, Department of Banking
Operations and Development and modified from time to time); subject to the
limits prescribed by RBI and SEBI from time to time; either directly from the
issuer of such securities or through a registered stock broker on a recognised
Stock Exchange in India:
Provided that;
i) the FII shall restrict allocation of its total investment between equity and
debt instruments (including dated Government Securities and Treasury Bills in
the Indian capital market) in the ratio of 70:30;
ii) if the FII desires to invest up to 100 per cent in dated Government
Securities including Treasury Bills, listed non-convertible debentures/ bonds
issued by an Indian company, it shall form a 100% debt fund and get such fund
registered with SEBI;
iii) The total holding by a single FII in each tranche of scheme of Security
Receipts shall not exceed 10 per cent of the issue and the total holdings of all
FIIs put together shall not exceed 49 percent of the paid up value of each
tranche of scheme of Security Receipts issued by the Asset Reconstruction
Companies; and
iv) The investment by all FIIs in Perpetual Debt instruments (Tier I) should not
exceed an aggregate ceiling of 49 per cent of each issue, and investment by
individual FII should not exceed the limit of 10 per cent of each issue. The
investment by FIIs in Debt capital instruments (Tier II) shall be within the
limits stipulated by SEBI for FII investment in corporate debt.
Provided further that FIIs may offer such securities as permitted by the Reserve
Bank from time to time as collateral to the recognized Stock Exchanges in India
for their transactions in exchange traded derivative contracts as specified in
sub-Regulation 6.”
(ii) in paragraph 2, for sub-paragraph (1) the following shall be substituted
and shall be deemed to have been substituted with effect from the 25th day of
January 2006, namely :-
“1A. A Non-resident Indian may, without limit, purchase on repatriation basis,
i) Government dated securities (other than bearer securities) or treasury bills
or units of domestic mutual funds;
ii) bonds issued by a public sector undertaking (PSU) in India;
iii) shares in Public Sector Enterprises being disinvested by the Government of
India, provided the purchase is in accordance with the terms and conditions
stipulated in the notice inviting bids.
1B. A Non-resident Indian may purchase on repatriation basis perpetual debt
instruments eligible for inclusion as Tier I capital and Debt capital
instruments as upper Tier II capital issued by banks in India to augment their
capital, as stipulated by Reserve Bank from time to time. The investments by all
NRIs in Perpetual Debt instruments (Tier I) should not exceed an aggregate
ceiling of 24 per cent of each issue and investments by a single NRI should not
exceed 5 percent of each issue. Investment by NRIs in Debt capital instruments
(Tier II) shall be in accordance with the extant policy for investment by NRIs
in other debt instruments. "
(Salim Gangadharan)
Chief General Manager-in-Charge
Foot Note: The Principal Regulations were published in the Official Gazette vide
G.S.R.No. 406 (E) dated May 8, 2000 in Part II, Section 3, sub-section (i) and
subsequently amended as under:
G.S.R.No. 158(E) dated 02.03.2001
G.S.R.No. 175(E) dated 13.03.2001
G.S.R.No. 182(E) dated 14.03.2001
G.S.R.No. 4(E) dated 02.01.2002
G.S.R.No. 574(E) dated 19.08.2002
G.S.R.No. 223(E) dated 18.03.2003
G.S.R.No. 225(E) dated 18.03.2003
G.S.R.No. 558(E) dated 22.07.2003
G.S.R.No. 835(E) dated 23.10.2003
G.S.R.No. 899(E) dated 22.11.2003
G.S.R.No. 12(E) dated 07.01.2004
G.S.R.No. 278(E) dated 23.04.2004
G.S.R.No. 454(E) dated 16.07.2004
G.S.R.No. 625(E) dated 21.09.2004
G.S.R.No. 799(E) dated 08.12.2004
G.S.R.No. 201(E) dated 01.04.2005
G.S.R.No. 202(E) dated 01.04.2005
G.S.R.No. 504(E) dated 25.07.2005
G.S.R.No. 505(E) dated 25.07.2005
G.S.R.No. 513(E) dated 29.07.2005
G.S.R.No. 738(E) dated 22.12.2005
G.S.R.No. 29(E) dated 19.01.2006
G.S.R.No. 413(E) dated 11.07.2006
G.S.R.No. 712(E) dated 14.11.2007
G.S.R.No. 713(E) dated 14.11.2007
G.S.R.No. 737(E) dated 29.11.2007
G.S.R.No. 575(E) dated 05.08.2008