RBI/2011-12/474
A. P. (DIR Series) Circular No.97
March 28, 2012
To
All Category-I Authorised Dealer Banks
Madam / Sir,
Overseas Investments by Resident Individuals –
Liberalisation / Rationalisation
Attention of the Authorised Dealer (AD - Category I) banks is invited to the
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.
2. Reserve Bank of India has reviewed the facilities
available to the resident individuals for acquiring equity shares of a foreign
entity by way of / under (i) qualification shares, (ii) professional services
rendered and (iii) ESOP scheme. Further, the Committee to Review the Facilities
for Individuals under the Foreign Exchange Management Act, 1999 (Chairperson Smt
K J Udeshi) in its report submitted in August 2011 suggested that general
permission may be made available to the resident individuals for acquiring
equity shares of a foreign entity as above. Accordingly, it has been decided to
grant general permission to resident individuals in respect of the following.
3. Acquiring qualification shares of an overseas company for holding
the post of a Director
In terms of Regulation 24(1)(a) of the Notification ibid,
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 (one)
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.
Since the necessity of having certain qualification shares by
an individual to be appointed as a Director of the company is governed by the
law of the host country, it has been decided to remove the existing cap of 1
(one) per cent on the ceiling for resident individuals to acquire qualification
shares for holding the post of a Director in the overseas company. Accordingly,
henceforth, remittance shall be allowed from resident individuals for acquiring
the qualification shares for holding the post of a Director in the overseas
company to the extent prescribed as per the law of the host country where the
company is located. The limit of remittance for acquiring such qualification
shares shall be within the overall ceiling prescribed for the resident
individuals under the Liberalized Remittance Scheme (LRS) in force at the time
of acquisition.
4. Acquiring shares of a foreign company towards professional services
rendered or in lieu of Director’s remuneration
Presently, Regulation 20 of the Notification ibid
prescribes that 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 and the Reserve Bank may,
after taking into account certain factors, grant permission subject to such
terms and conditions as are considered necessary.
It has been decided to grant General Permission to the resident individuals
to acquire shares of a foreign entity in part / full consideration of
professional services rendered to the foreign company or in lieu of Director’s
remuneration. The limit of acquiring such shares in terms of value shall be
within the overall ceiling prescribed for the resident individuals under the
Liberalized Remittance Scheme (LRS) in force at the time of acquisition.
5. Acquiring shares in a foreign company through ESOP Scheme
As per the extant Regulation 22(2) of the Notification
ibid, General permission has been granted to a resident individual to
purchase equity shares offered by a foreign company under its ESOP Schemes, if
he 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, an Indian
company in which foreign equity holding, either direct or through a holding
company/Special Purpose Vehicle (SPV), is not less than 51 per cent.
Accordingly, AD Category – I banks are permitted to allow
remittances for purchase of shares by eligible persons under this provision
irrespective of the method of operationalisation of the scheme i.e. where the
shares under the scheme are offered directly by the issuing company or
indirectly through a trust / a Special Purpose Vehicle (SPV) / step down
subsidiary, provided:
-
the company issuing the shares effectively, directly or indirectly, holds
in the Indian company, whose employees / directors are being offered shares,
not less than 51 per cent of its equity,
-
the shares under the ESOP Scheme are offered by the issuing company
globally on a uniform basis, and
-
an Annual Return is submitted by the Indian company to the Reserve Bank
through the AD Category – I bank giving details of remittances /
beneficiaries, etc.
It has now been decided that resident employees or Directors may be permitted to
accept shares offered under an ESOP Scheme globally, on uniform basis, in a
foreign company irrespective of the percentage of the direct or indirect equity
stake in the Indian company subject to:
-
the shares under the ESOP Scheme are offered by the issuing company
globally on a uniform basis, and
-
an Annual Return is submitted by the Indian company to the Reserve Bank
through the AD Category – I bank giving details of remittances /
beneficiaries, etc.
6. Necessary amendments to the Foreign Exchange Management (Transfer or Issue
of Any Foreign Security), Regulations, 2004 are being issued separately.
7. AD - Category I banks may bring the contents of this circular to the
notice of their constituents and customers concerned.
8. 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,
(Dr. Sujatha Elizabeth Prasad)
Chief General Manager