RBI/2014-15/371
A.P. (DIR Series) Circular No. 54
December 29, 2014
To
All Category - I Authorised Dealer Banks
Madam / Sir,
Overseas Direct Investments by Indian Party – Rationalization /
Liberalization
Attention of the Authorised Dealer (AD - Category I) bank is invited to
Regulation 18 and 18A of
Notification No. FEMA.120/RB-2004 dated July 7, 2004
[Foreign Exchange Management (Transfer or Issue of any Foreign Security)
(Amendment) Regulations, 2004] (the Notification), as amended from time to time
and the provisions under
A.P. (DIR Series) Circular No. 96 dated March 28, 2012.
- In order to grant more flexibility to the Indian party, it has been
decided to further liberalize certain regulations of the Notification as
detailed under.
(i) Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in
favour of domestic / overseas lender
In terms of the extant FEMA provisions, creation of charge (pledge) on the
shares of an JV / WOS of an Indian party in favour of domestic / overseas lender
for the purpose of availing facilities (funded or non-funded) by the Indian
party and / or the concerned JV / WOS is under the automatic route.
It has been decided that the designated AD bank may permit creation of charge /
pledge on the shares of the JV / WOS / SDS (irrespective of the level) of an
Indian party in favour of a domestic or overseas lender for securing the funded
and / or non-funded facility to be availed of by the Indian party or by its
group companies / sister concerns / associate concerns or by any of its JV / WOS
/ SDS (irrespective of the level) under the automatic route subject to the
following:
- The Indian party is complying with the provisions under Regulation 6 (and
Regulation 7, if applicable) of the Notification ibid for undertaking financial
commitment;
- Compliance to the provisions under Regulation 18 of the Notification ibid;
- The period of charge, if not specified upfront, may be co-terminus with the
period of end use (like loan or other facility) for which charge has been
created;
- The loan / facility availed by the JV / WOS / SDS from the domestic / overseas
lender shall be utilized only for its core business activities overseas and not
for investing back in India in any manner whatsoever;
- A certificate from the Statutory Auditors’ of the Indian party, to the effect
that the loan / facility availed by the JV / WOS / SDS has not been utilized for
direct or indirect investments in India, is to be obtained and kept by the
designated AD;
- The invocation of charge resulting into the domestic lender acquiring the shares
of the overseas JV / WOS / step down subsidiary shall be governed by the extant
FEMA provisions / regulations issued by the Reserve Bank from time to time;
- The facilities (funded or non-funded) extended by the domestic lender to the
Indian party or to its group / sister / associate concern or to any of its
overseas JV / WOS / SDS shall also be governed by the prudential norms and other
guidelines issued by the Department of Banking Regulation (DBR, the erstwhile
DBOD), Reserve Bank of India from time to time; and
- The matter relating to the setting up / acquiring the multi-layered structure of
overseas entities by the Indian party, wherever applicable, is under the
examination of the Reserve Bank and the decision taken in this regard shall be
conveyed in due course for necessary compliance at AD / Indian party level.
(ii) Creation of charge on the domestic assets in favour of overseas lenders to
the JV / WOS / step down subsidiary
As per the extant FEMA provisions, creation of charge on the domestic assets
(movable / immovable / financial / other) of an Indian party (or its group /
sister / associate concern including the individual promoter / director) in
favour of an overseas lender to the JV / WOS / step down subsidiary (SDS)
requires prior approval of the Reserve Bank.
It has been decided that the designated AD bank may permit creation of charge
(by way of pledge, hypothecation, mortgage, or otherwise) on the domestic assets
of an Indian party (or its group companies / sister concerns / associate
concerns including the individual promoters / directors) in favour of an
overseas lender for securing the funded and / or non-funded facility to be
availed of by the JV / WOS / SDS (irrespective of the level) of the Indian party
under the automatic route subject to the following:
- The Indian party is complying with the provisions under Regulation 6 (and
Regulation 7, if applicable) of the Notification ibid for undertaking the
financial commitment;
- Compliance to the provisions under Regulation 18A(1) of the Notification ibid;
- The domestic assets, on which charge is being created, are not securitized;
- The period of charge, if not specified upfront, may be co-terminus with the
period of end use (like loan or other facility) for which charge has been
created;
- The loan / funds raised overseas by the JV / WOS / SDS shall be utilized only
for its core business activities overseas and not for investing back in India in
any manner whatsoever;
- A certificate from the Statutory Auditors’ of the Indian party, to the effect
that the loan / funds raised overseas by the JV / WOS / SDS has not been
utilized for direct or indirect investments in India, is to be obtained and kept
by the designated AD;
- The overseas lender undertakes that, in the event of enforcement of charge, they
shall transfer the domestic assets by way of sale to a resident only;
- In case of invocation of charge, the resultant remittance of the proceeds
exceeding the prescribed limit of the financial commitment of the Indian party
(prevailed at the time of creation of charge) shall require prior approval of
the Reserve Bank;
- Wherever creation of charge involves pledge of shares of an Indian company, the
pledge shall also be governed by the extant FEMA provisions / regulations issued
by the Reserve Bank and the consolidated Foreign Direct Investment (FDI) policy
issued by the Government of India from time to time; and
- The matter relating to the setting up / acquiring the multi-layered structure of
overseas entities by the Indian party, wherever applicable, is under the
examination of the Reserve Bank and the decision taken in this regard shall be
conveyed in due course for necessary compliance at AD / Indian party level.
(iii) Creation of charge on overseas assets in favour of domestic lender
Creation of charge on the overseas assets of JV / WOS / SDS of an Indian party
in favour of a domestic lender to the Indian party or to its group / sister /
associate concern or to any of its overseas JV / WOS / SDS requires prior
approval of the Reserve Bank.
It has been decided that the designated AD bank may permit creation of charge
(by way of hypothecation, mortgage, or otherwise) on the overseas assets
(excluding the shares) of the JV / WOS / SDS (irrespective of the level) of an
Indian party in favour of a domestic lender for securing the funded and / or
non-funded facility to be availed of by the Indian party or by its group
companies / sister concerns / associate concerns or by any of its overseas JV /
WOS / SDS (irrespective of the level) under the automatic route subject to the
following:
- The Indian party is complying with the provisions under Regulation 6 (and
Regulation 7, if applicable) of the Notification ibid for undertaking financial
commitment;
- Compliance to the provisions under Regulation 18A(2) of the Notification ibid;
- The overseas assets, on which charge is being created, are not securitized;
- The period of charge, if not specified upfront, may be co-terminus with the
period of end use (like loan or other facility) for which charge has been
created;
- The loan / facility availed by the JV / WOS / SDS from the domestic lender shall
be utilized only for its core business activities overseas and not for investing
back in India in any manner whatsoever;
- A certificate from the Statutory Auditors’ of the Indian party, to the effect
that the loan / facility availed by the JV / WOS / SDS has not been utilized for
direct or indirect investments in India, is to be obtained and kept by the
designated AD;
- The invocation of charge resulting into the domestic lender acquiring the
overseas assets shall require prior approval of the Reserve Bank; and
- The matter relating to the setting up / acquiring the multi-layered structure of
overseas entities by the Indian party, wherever applicable, is under the
examination of the Reserve Bank and the decision taken in this regard shall be
conveyed in due course for necessary compliance at AD / Indian party level.
- Necessary amendments to the Notification ibid has been issued vide
Notification No. FEMA.322/2014-RB dated October 14, 2014 and effective from the
date of publication in the Gazette i.e. December 03, 2014.
- AD - Category I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- The directions contained in this circular have been issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999)
and are without prejudice to permissions/approvals, if any, required under any
other law.
Yours faithfully,
(C D Srinivasan)
Chief General Manager
|