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Indian Direct Investment Outside India
Circular No. 23 dated 19th February 2002
Attention of authorised dealers is invited to
Foreign Exchange Management (Transfer or Issue of any Foreign Security)
Regulations, 2000 notified by the Reserve Bank vide Notification No. FEMA
19/RB-2000 dated 3rd May 2000 as amended from time to time.
2. In terms of Regulation 6
of the Notification, Indian parties are permitted to make direct investment in
Joint Venture (JV) or Wholly Owned Subsidiary (WOS) outside India subject to
their complying with the conditions specified therein. In this connection, it is
clarified that the general permission under Regulation 6 does not include
investment proposals which envisage setting up a holding company or a Special
Purpose Vehicle abroad, which would in turn set up one or more step down
subsidiaries as operating units. Accordingly authorised dealers are advised that
overseas investment proposals through a two-tier structure, as explained above
would require prior approval of the Reserve Bank.
3. In terms of clause (v)
of Sub-regulation (2) of Regulation 6, Indian parties included in the Reserve
Bank�s Caution List are not eligible to make overseas investments under the
automatic route. It is clarified that this restriction is also applicable to
Indian parties which are defaulters to the banking system in India and whose
names appear in the Defaulters List published/ circulated by the Reserve Bank.
Authorised Dealers may, while allowing remittances under the automatic route,
satisfy themselves that the Indian party proposing to make the investment is not
included in the defaulters� list. Indian parties whose name appear in the
defaulters� list may be advised to apply to the Reserve Bank for prior
approval for the investment.
4.
Authorised Dealers may bring the contents of this Circular to the notice
of their constituents concerned.
5. The directions contained
in this circular have been issued under Section 10 (4) and Section 11 (1) of the
Foreign Exchange Management Act 1999 (42 of 1999).
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