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Foreign Exchange Control Manual, Chapter-10 (Part 1 Of 2) About Foreign Investment In India.


FOREIGN INVESTMENT IN INDIA
Introduction
PART A - INVESTMENTS BY NON-RESIDENTS IN GENERAL
Reporting of investment inflows
PART B
Approvals for Technical Collaboration Agreements
Investment in Shares by Foreign Collaborators
Investment by Foreign Institutional Investors
Remittance of Royalties/Technical Fees
Remittance of Interest
Transfer of Shares/Securities by Non-residents to Residents
Repatriation of Capital Investment in India
Euro Issues by Indian Companies
PART C - NON-RESIDENT INDIAN INVESTMENT
Non-resident Indian Nationals
Persons of Indian origin
Overseas Corporate Bodies
General permission to subscribe to the Memorandum and Articles of Association
Direct Investment in Firms/Companies in India
Investment in Partnership/Proprietorship Concerns
Investment in New Issues of Shares/Debentures of Indian Companies
Purchase of Shares of Indian Companies by Private Arrangement

FOREIGN INVESTMENT IN INDIA


Introduction

    1. Foreign investment in India is subject to policy guidelines framed by the Government of India from time to time in accordance with its Industrial Policy. In terms of the Industrial Policy announced by the Government of India on 24th July 1991 followed by subsequent guidelines issued by them, foreign equity upto 50%/51%/74%, as the case may be, is permitted by Reserve Bank under the Automatic Route in specified industries/services sector. Applications which do not conform to the parameters of the Automatic Route, are required to be made to the Secretariat for Industrial Assistance (SIA), Ministry of Industry, Government of India, New Delhi. Foreign Institutional Investors are permitted to invest in all securities in primary and secondary markets in India as per guidelines issued by Ministry of Finance, Government of India, New Delhi.
    2. A wide range of facilities for making investments in India in shares and securities,
      bank deposits, company deposits, etc. is available to individuals of Indian nationality or origin resident outside India (NRIs) and overseas corporate bodies predominantly owned by such persons (OCBs). They are subject to different rules and investments both with repatriation and non-repatriation benefits are permitted under various schemes.
    3. Foreign investment in India is also subject to regulation through the various provisions of FERA 1973. However, once foreign investment is approved by Government under its foreign investment and industrial policy, requisite approvals under FERA 1973 are granted by Reserve Bank in pursuance of the Government approval/guidelines. While the relative provisions of FERA 1973 have been explained in Part 'A', detailed regulations governing investments and certain ancillary matters such as remittance of dividend, royalty and technical know-how fee, sale/transfer of shares, repatriation of capital, etc. are given in Part 'B'. The various schemes for investment by NRIs/OCBs and other matters relating to loans, overdrafts and guarantees to non-residents have been explained in Parts 'C' and 'D' respectively.

      NOTE: Regulations relating to foreign investment in immovable property in India have been explained in

PART A - INVESTMENTS BY NON-RESIDENTS IN GENERAL

  1. Purchase of Shares and Securities by Non-residents

    In terms of Section 29(1)(b) of FERA 1973, no person resident outside India, whether an individual or a firm/company (other than a banking company) incorporated outside India, can acquire shares of any company carrying on trading, commercial or industrial activity in India without permission of Reserve Bank. Permission of Reserve Bank is also required for transfer or issue of any security (which includes shares, debentures, bonds, etc.) to a person resident outside India in terms of Sections 19(1)(b) or 19(1)(d) of the Act. While granting permission for transfer or issue of shares to a non-resident investor under Section 19(1)(b) or 19(1)(d), permission under Section 29(1)(b) for purchase of shares by him is granted simultaneously and hence it is not generally necessary for non-resident investors to apply separately for permission to purchase shares in Indian companies in such cases.

NOTES:

  1. Issue and transfer of Indian rupee shares and securities to any person resident in Nepal requires permission of Reserve Bank.
  2. Section 19(1)(b) of the Act also prohibits creation or transfer of any interest in a security in favour of a non-resident. This prohibition also precludes pledging of any security to or in favour of a non-resident (e.g. as collateral or prime security for credit facilities abroad) or utilising them for forming a trust or settlement of which a non-resident is the beneficiary.
  3. Reserve Bank has granted general permission (i) to persons of Indian nationality/origin(NRIs) to subscribe to the Memorandum and Articles of Association and to take up shares of an Indian company for its incorporation and (ii) to an Indian company to issue shares to NRIs subject to certain conditions. The scope of the general permission has been explained in paragraph Shares of Indian Companies held by Non-residents at the commencement of FERA 1973
  1. In terms of Section 29(4)(a) of FERA 1973, non-resident individuals (including Indian nationals), firms, companies, etc. holding shares of Indian companies which were acquired before the commencement of the Act i.e. 1st January 1974, had to take permission of Reserve Bank for continuing to hold the shares. Reserve Bank had issued holding licences in these cases indicating the eligibility of the non-resident holder in regard to repatriation or non-repatriation of the capital or income earned thereon depending upon the condition imposed in this regard while permitting the original investment. Transfer of Shares/Securities from Non-residents to Non-residents
  2. Until 1992, transfer of shares of a company registered in India made by a person resident outside India to another person also resident outside India was required to be confirmed by Reserve Bank in terms of Section 19(5) of FERA 1973. After the amendment to FERA 1973 made in January 1993, no such confirmation of Reserve Bank is required to be obtained for transfer of shares (as also bonds or debentures) between two non-residents. The non-resident transferee, however, requires permission under Section 29(1)(b) of FERA 1973 for purchase of the shares or the Indian company for registering the transfer in favour of another non-resident under Section 19(4) of FERA 1973. Such transfers will, therefore, not be registered by the Indian company unless the non-resident purchaser has obtained the necessary permission under Section 29 ibid (Also see paragraph 10A.5). Transfer of Shares/Bonds/Debentures
    from Non-residents to Residents
  3. In terms of Section 19(5) of FERA 1973, no transfer of shares/bonds/debentures of a company registered in India made by a person resident outside India to another person resident in India will be valid unless the transfer is confirmed by Reserve Bank on an application made to it by the transferor or the transferee. Reserve Bank has, however, exempted transfer of shares, bonds or debentures of Indian companies held by persons of Indian nationality/origin(NRIs) on both repatriation and non-repatriation basis to residents as also transfer of shares, bonds or debentures by way of gift from the purview of Section 19(5) through issue of Notifications under Section 19(6) of the Act, subject to fulfilment of certain conditions. The scope of the exemption has been explained in paragraphs 10C.26 to 10C.28. Responsibility of Companies Registering Transfer of Shares/Securities in favour of Non-residents
  4. In terms of clause (a) of Section 19(4) of FERA 1973 no person can enter transfer of securities in any register or book in which securities are registered or inscribed, if he has any ground to suspect that the transfer involves a contravention of the provisions of Section 19, i.e. issue, transfer or creation of interest in any security to/in favour of a person resident outside India. Clause (b) of this Section prohibits the registration of the foreign address of the holder of a security except by way of substitution for any such address in the same country or for which permission has been granted by Reserve Bank. Before registering any transfer of shares/securities in the names of non-residents, companies concerned must obtain permission of Reserve Bank except where such permission has already been obtained by transferor/transferee.

    NOTE: See paragraphs 10C.30 and 10C.31 regarding general permission granted to Indian companies for recording overseas address consequent on change of status of the security holder from resident to non-resident or for conversion of holdings into joint holdings between residents/non-residents. Safe Custody of Shares/Securities
  5. Authorised dealers and financial institutions extending custodial services may hold in their safe custody, shares and securities issued/transferred to non-residents and also release the shares/securities from non-resident safe custody account for purposes like recording change of name, sale, etc., provided the relative purchase/sale/transfer is covered by the general or special permission of Reserve Bank. General rule for Remittance of Dividend/Interest/ Sale proceeds of Securities
  6. As a general rule, the dividend, interest and other income on shares/securities and sale proceeds of shares and securities originally purchased out of funds held in the investor's Ordinary Non-resident Rupee(NRO) accounts as also those acquired subject to the condition that they will not carry the right of repatriation are required to be credited to the investor's NRO account. In other cases, authorised dealers may remit the net amount of dividend, interest, sale proceeds etc. after deducting Indian taxes at applicable rates or credit them to the investor's NRE/FCNR accounts to the extent permitted by Reserve Bank [see paragraphs 10B.6, 10B.7 and 10C.24]. Export of Shares/Securities
  7. In terms of Section 19(1)(a) of FERA 1973, export of anysecurity (which includes shares, bonds, debentures, etc.) to anyplace outside India requires permission of Reserve Bank.

NOTES:

  1. Unit Trust of India has been granted general permission by Reserve Bank to export certificates covering units purchased by non-resident investors from out of foreign exchange remittances to India or from their non-resident accounts in India.
  2. At the time of granting permission for purchase/issue of shares/bonds/debentures by/to non-residents, permission for export of the share/bond/debenture certificates is generally granted by Reserve Bank. Permission for export of shares/securities will, therefore, be required to be obtained only in cases where such a permission has not been given.

Reporting of investment inflows

  1. Reserve Bank has granted general permission under Sections 19(1)(d), 19(1)(a) and 29(1)(b) of the Foreign Exchange Regulation Act, 1973 to Indian companies for issue and exports of shares/securities to non-resident investors, and to non-resident investor to acquire shares/securities of Indian companies under various non-resident direct investment schemes. In terms of Reserve Bank Notification Nos.FERA 188 and 189/RB-98 dated 11th November 1998 it is obligatory on the part of Indian companies seeking non-resident investment to file a report containing the following particulars with the Regional Office of Reserve Bank not later than 30 days from the date of receipt of remittance.
    1. Name of the foreign investor:
    2. Country of residents or incorporation of the foreign investor;
    3. Date of receipt of remittance and its rupee equivalent;
    4. Name and address of the authorised dealer in India through whom the remittance is received;
    5. Number and date of SIA/FIPB approval in respect of which remittance is received.

This requirement is in addition to the submission of the prescribed declaration in form FC(RBI)/ISD(R)/ISD, as the case may be, alongwith the documents, within 30 days form the date of issue of shares.


PART B


(i) INVESTMENT BY FOREIGN COMPANIES UNDER TECHNICAL/ FINANCIAL COLLABORATIONS
(ii) INVESTMENT BY FOREIGN INSTITUTIONAL INVESTORS

Approvals for Technical Collaboration Agreements

    1. Under the old procedure, all proposals for entering into foreign technical collaborations were required to be approved by the Government of India and on receipt of Government's approval, formal authorisations under FERA 1973 were being issued by Reserve Bank. Copies of collaboration agreements were required to be filed with Reserve Bank/Government of India. However, under the revised liberalised procedure Reserve Bank considers under the Automatic Route, applications from Indian companies for foreign technical collaborations, for lumpsum payment of technical know-how fee upto Rs.one crore and/or royalty up to 5% on domestic sales and 8% on exports over a period of 7 years from the date of commencement of commercial production or 10 years from the date of agreement, whichever is earlier. Since November 1996, the limit for lumpsum payment of technical know-how fee has been increased from Rs. one crore to US $ 2 million. Applications for foreign technical collaborations under the Automatic Route should be made to the concerned regional office of Reserve Bank in form FT (RBI). Proposals which do not conform to the above parameters would require the approval of Secretariat for Industrial Assistance (SIA), Ministry of Industry, Government of India, New Delhi. The extension of foreign technical collaboration agreements (including those approved by Reserve Bank) would also need the approval of SIA, Government of India.
    2. In cases where the collaboration is approved by Reserve Bank/Government of India, a letter of approval will be issued indicating the terms and conditions of the approval. A copy of the letter of approval will also be issued by Reserve Bank to the designated branch of an authorised dealer (as mentioned in the application) through whom remittances of technical know-how fee and/or royalty are to be made by the Indian company. A registration number will be granted by Reserve Bank when an approval is granted for foreign technical collaboration under the Automatic Route. Also in cases where the approval for collaboration is granted by the Government, the Indian company should obtain a registration number for the collaboration agreement from the concerned regional office of Reserve Bank before remittances under the agreement are made.
    3. The Indian company which has obtained approval for the foreign collaboration agreement from the Reserve Bank/Government should file a copy of the agreement with the designated branch of the authorised dealer through whom remittances falling due under the collaboration agreement would be made. The Indian company should also submit a Return in form TCD to the concerned office of Reserve Bank in the first fortnight of January each year showing payments made under the collaboration during the preceding calendar year duly countersigned by the designated branch of an authorised dealer.
    4. Indian companies which had executed collaboration agreements under the old procedure and the agreements are subsisting should switch over to the revised procedure for making payments under the agreement (see paragraph 10B.5). Application for the purpose should be made to the concerned office of the Reserve Bank together with a Return in Form TCD showing details of all payments made under the collaboration till the 31st December of the previous year. Reserve Bank will grant a registration number and approval to the concerned authorised dealer to effect future remittances.

Investment in Shares by Foreign Collaborators

    1. As per the Foreign Investment guidelines issued by the Government of India, Ministry of Industry, foreign investment(equity/preference shares) upto certain specified limits would be permitted by Reserve Bank under Automatic Route as under:
      1. Foreign investment (equity/preference) upto 50% in respect of Mining activities referred to in Part 'A' of Annexure III to Ministry of Industry's Press Note No.14 (1997 Series) dated 8th October 1997;
      2. Foreign investment (equity/preference) upto 51% in (i) industries/items included in part 'B' of Annexure III to Ministry of Industry's Press Note No.14 (1997 series) dated 8th October 1997 and (ii) a trading company primarily engaged in export activity;
      3. Foreign investment (equity/preference) upto 74% in industries/items included in part 'C' of Annexure III to Ministry of Industry's Press Note No.14 (1997 series) dated 8th October 1997;
      4. Foreign Investment upto 100% in industries/items included in Part ‘D’ of Annexure III, to Ministry of Industry’s Press Note No.14(1997 Series) as amended from time to time provided the foreign investment in a project does not exceed Rs.1500 crores.

        Existing Indian companies are also permitted to raise foreign investment (equity/preference) to the level permissible as indicated above under the Automatic Route in case the company is engaged in the manufacture of item/s included in the Annexure III industries or the proposed expansion of capital is for undertaking an activity covered under the said Annexure. Raising of foreign investment (equity/preference) upto 51% in an existing trading company [cf. sub-paragraph 10B.,2(i)(b)(i) above] will be permitted if the company has already been registered as Export/Trading/Star Trading House.

        Reserve Bank, vide its Notifications No.F.E.R.A.180/98-RB dated 13th January 1998 as amended by Notification No.F.E.R.A.188/98-RB dated 11th November 1998 has granted general permission under Sections 19(1) (a), 19(1)(d) and 29(1)(b) of Foreign Exchange Regulation Act, 1973 to Indian companies for issue and export of equity/preference shares to foreign investors in respect of eligible investments under the Automatic Route. As a result of the general permission, Indian companies seeking foreign investment (equity/preference) under the Automatic Route of Reserve Bank and satisfying the conditions laid down in the said Notifications will not require prior clearance of Reserve Bank. Such Indian companies may issue shares to foreign investors and file a declaration in form FC(RBI) together with the required documents with the concerned Regional Office of Reserve Bank under whose jurisdiction their registered office is situated, within 30 days from the date of issue of shares to foreign investors/collaborators. Accordingly, non-residents who have been issued shares under the general permission granted by this Notification would not need specific approval under Section 29(1)(b) of FERA 1973 from Reserve Bank. Issue of preference shares to Non-Resident Indians/Overseas Corporate Bodies is also permitted under 100% Scheme.
    2. Applications for foreign investment which do not satisfy the parameters prescribed for Automatic Approval by Reserve Bank or in 100% Export Oriented Units located outside the Export Processing Zones are required to be made to the Secretariat for Industrial Assistance (SIA)/Foreign Investment Promotion Board (FIPB), as the case may be. If the unit is located in any of the Export Processing Zones, applications should be made to the Development Commissioner of the Export Processing Zone concerned.
    3. With a view to simplifying the procedure under SIA/FIPB route, Reserve Bank, vide its Notification No.F.E.R.A.182/98-RB dated 10th February 1998 has granted general permission under Sections 19(1) and 29(1)(b) of FERA 1973 to Indian companies for issue and export of shares/securities to foreign investors/collaborators in respect of such investments approved by SIA/FIPB. As a result of the general permission, Indian companies seeking foreign investments based on the approvals granted by SIA/FIPB and satisfying the conditions laid down in the notification will not require any prior clearance of Reserve Bank. Such Indian companies may issue shares to foreign investors/collaborators and file a declaration in form ISD together with the required documents, with the concerned Regional Office of Reserve Bank under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares/securities to foreign investors/collaborators. In the case of composite approvals granted by SIA/FIPB for foreign financial as also technical collaborations, while issue of shares/securities will be governed by the general permission, in respect of technical collaboration, the procedure contained in paragraph 10B.1 should be followed A.D.(M.A. Series) Circular No.29
    4. Retention of share subscriptions in foreign currency accounts in India/abroad for financing import of capital goods, etc. requires prior approval of Reserve Bank. Reserve Bank will also permit receipt of interest-free loans as advance share subscription from the collaborators to be adjusted against share capital contribution later, for meeting expenses in India of the Indian company.
      NOTE: Indian companies intending to raise foreign equity through preferential allotment of shares to non-residents are required to comply with the guidelines issued by Government of India, Reserve Bank of India, SEBI and other regulatory authorities from time to time.

      A.D.(M.A. Series) Circular No.29

      A.D.(M.A. Series) Circular No.2

  1. Issue of Rights/Bonus Shares to Non-Residents

    In terms of Notification No.F.E.R.A.208/99-RB dated 31st July 1999, Reserve Bank has granted general permission to (a) Indian Companies to issue rights/bonus shares to Non-Residents and to send such shares out of India and (b) non-residents to acquire such shares, subject to the following conditions:
    1. the issue of rights/bonus shares does not bring any change in the percentage of foreign equity already approved.
    2. the existing shares on which the rights/bonus shares are proposed to be issued are held by the Non-Resident holders with the Reserve Bank's permission under Section 29 of the F.E.R.A, 1973, and where the shares were issued under the general permission of the Reserve Bank, the Indian Company had made the requisite report to Reserve Bank in Form FC, form ISD/ISD (R) as the case may be.
    3. the rights shares are not issued to the Non-Residents at a price lower than that at which the rights shares are offered to resident shareholders.
    4. the rights/bonus shares are subject to the same restrictions with regard to repatriability and other conditions as are applicable to the original shares against which rights/bonus shares are issued.
      1. in case of foreign nationals and companies incorporated outside India, the consideration is received by way of inward remittance,
      2. in case the original investment was made by NRIs/Persons of Indian Origin/OCBs on repatriation basis, the funds are received through normal banking channels by way of inward remittance or by debit to the FCNR/NRE account of the NRI/PIO/OCB concerned,
      3. in case the original investment was made by NRIs/Persons of Indian Origin/OCBs on non-repatriation basis, the funds are received through normal banking channels by way of inward remittance or by debit to the FCNR/NRE/NRO/NRSR account of the NRI/PIO/OCB concerned.
    5. the original project cost as approved by FIPB does not exceed Rs.600 crores. It may be noted, that issue of rights/bonus shares resulting in increase in the percentage of foreign equity as also issue of shares by companies whose original project cost was more than Rs.600 crores shall continue to require prior approval by Government of India, as per the existing procedure.

Investment by Foreign Institutional Investors

    1. Foreign Institutional Investors (FIIs) including pension funds, mutual funds, investment trusts, university funds, endowments, foundations or charitable trusts or charitable societies, etc. are permitted to invest in all securities, i.e. equity shares/debentures/ PCDs/FCDs/Rights renunciations/warrants of Indian companies (other than Banking Companies) listed as well as unlisted, dated Government securities, Treasury bills and units of domestic mutual fund schemes in the primary and secondary markets. Investments by FIIs will be subject to a ceiling of 24% of the total paid up equity capital of the company. The ceiling would apply to all holdings taken together including conversions out of the fully and partly convertible debentures issued by the company. The holding of a single FII or each SEBI approved sub-account of an FII or the concerned FII group in any company would also be subject to a ceiling of 10% of the total issued and paid up capital of the company. Indian companies, however, would be permitted to raise the normal ceiling limit of 24% to 40% of the issued and paid up capital of the company provided it has been approved by the Board of Directors of the company and a Special Resolution is passed to that effect by the General Body. The ceiling of 24% or 40%, as the case may be, applicable for investment by FIIs will not include investments made by NRIs/OCBs under the Portfolio Investment Scheme. It will also not include direct foreign investment by an FII as a foreign collaborator and investment by FIIs through off-shore funds, Global Depository Receipts and Euro - Convertible Bonds.
    2. FIIs are required to register themselves with Securities and Exchange Board of India (SEBI) before they invest in the Indian capital market. Application for registration should be made by FIIs to SEBI in the prescribed form in duplicate. One copy of the application will be forwarded by SEBI to Reserve Bank. Reserve Bank will grant permission under FERA 1973 to the bank branch designated by the applicant FII to buy/sell equity shares/debentures/warrants/dated Government securities/Treasury Bills/units of domestic mutual funds. Reserve Bank's permission will be initially valid for five years and will be operative only after obtaining registration from SEBI. This permission can be renewed for a further period of five years on request. Reserve Bank's permission would enable the FIIs to buy/sell the securities and remit the income/dividend/sale proceeds after payment of applicable taxes through the designated bank branch. Reserve Bank's permission will also cover investment in shares/debentures of Indian companies in primary market i.e. new issues provided the company has reserved certain quota out of its public issue in favour of FIIs. The designated bank branch is required to submit to Reserve Bank a statement in form LEC(FII) on daily basis in respect of purchases/sales of shares/debentures made for the purpose of monitoring by Reserve Bank the overall ceiling of 24% or 40%, as the case may be, referred to in sub-paragraph (i).
    3. In order to facilitate making of investments in India and repatriation of income/sale proceeds of such investments, Reserve Bank will permit the designated bank to open a foreign currency denominated account and a special Non-resident Rupee account in the name of FII. The designated bank branch will also be permitted (a) to transfer funds from foreign currency account to rupee account and vice versa, (b) to make investments out of the balance in the rupee account, (c) to credit sale proceeds of shares and other investments as also dividend/interest earned on the investments to the rupee account and (d) to transfer the repatriable proceeds (net of taxes) from the rupee account to the foreign currency account.
      (iv) Reserve Bank vide its Notification No.F.E.R.A.212/99-RB dated 18th October 1999 has granted general permission to mutual funds in India to issue units or similar instruments to FIIs under the schemes approved by Securities and Exchange Board of India and to send such units/instruments out of India to their global custodians, as also to repurchase units/instruments from FIIs (cf. paragraph 10C.16A).

Remittance of Royalties/Technical Fees

    1. Reserve Bank has granted general permission to Indian companies for making payment of technical fee/royalty through an authorised dealer designated for the purpose under the technical collaboration arrangement approved by the Government of India/Reserve Bank, vide its Notification No. FERA.92/91-RB dated 13th September 1991. Indian companies who have obtained approval from Government of India/Reserve Bank for technical collaborations may, therefore, approach the designated authorised dealer for remittance of technical fee/royalty. The application should be supported by a certificate from the company's auditors, in form TCK / TCR, and other documents specified in the form. It will be in order for authorised dealers to allow remittances strictly in accordance with the terms and conditions prescribed by Reserve Bank/Government while approving the collaboration provided a registration number for the collaboration has been allotted by Reserve Bank. Authorised dealers should maintain a proper record of the collaboration agreements and the remittances allowed thereagainst which should be preserved for a period of five years from the date of expiry of the agreement.Remittance of Dividend
    1. Indian companies intending to remit dividend to their non-resident shareholders should make an application to an authorised dealer in Form RCD 1, supported by the particulars of non-resident shareholding in form RCD 2 and other documents prescribed in the form. Authorised dealers may allow the remittance of dividend in accordance with the procedure mentioned below.
      1. Authorised dealers should verify the particulars with reference to the documents submitted in support of the non-resident shareholding and satisfy themselves that necessary permission of the Reserve Bank has been obtained by the non-resident shareholders in terms of Section 29(1)(b) or 29(4)(a) of the Act for purchase/holding of the shares and/or the company has permission under Section 19(1) of the Act for issue of shares to the non-residents and that the terms of the permission do not prohibit remittance of dividend.
      2. Authorised dealers should also verify that the certificate given in Part 'B' of the form RCD 1 has been properly completed by the company's auditors and specifically confirm on form A2 that they have verified the Reserve Bank's approval for purchase/holding/issue of the shares held by the non-resident beneficiary and it does not prohibit the remittance of dividend.
      3. Authorised dealers should separately forward one copy of the application in form RCD 1 (without its enclosures) to the office of Reserve Bank within whose jurisdiction the Head/Registered Office of the company is situated, after completing the certificate in Part C thereof.
      4. The Indian company/authorised dealers should ensure that the reference number, date, etc. of Reserve Bank's permission and the repatriable/non-repatriable nature of the shares/debentures/bonds held by the concerned non-residents are incorporated on the counterfoil of the dividend warrants.
    2. As Indian companies are required to remit dividend to all their non-resident shareholders through the normal banking channels, it is not necessary for them to prepare individual dividend warrants for despatch to such non-resident shareholders. However, dividends due to non-resident shareholders who are not eligible for having the amounts remitted to them abroad or those who wish to have the dividend paid in India for credit to their non-resident accounts, may be paid by issuing individual dividend warrants to their mandatee bankers in India for credit to their Ordinary Non-resident Rupee (NRO) accounts. In cases where dividend is to be credited to NRO accounts of the non-resident investors, there is no need to follow the procedure in sub-paragraph (i) above.
    3. As regards the remittance of interim dividend, application may be made by the company in India to the authorised dealer by letter (in duplicate) enclosing only the form RCD 2 and a copy of the Board Resolution approving the payment of interim dividend. Authorised dealers may allow the remittance of interim dividend subject to what has been stated in paragraph (i) above.
    4. As regards non-resident investment in consumer goods industries, the Government/Reserve Bank would stipulate that the dividend outflow should be balanced with inflow on account of export earnings. The balancing is required to be done for a period of 7 years from the date of commencement of commercial production. Reserve Bank's permission is also necessary for carrying on agricultural/plantation activities by FERA companies in terms of Section 29(1)(a) of FERA 1973. Before allowing remittance of dividend in such cases, authorised dealers should verify that items 'C' and 'D' of Part 'B' in the auditor's certificate in form RCD 1 have been properly completed by the company's auditors.
    5. Investment in companies engaged in export trading activity is permitted by Reserve Bank provided the company registers itself as an Export/Trading/Star Trading House. Authorised dealers should, therefore, before allowing the remittance of dividend by such companies ensure that the company has attained the status of an Export/Trading/Star Trading House.
    6. In the case of investments by Foreign Institutional Investors (FIIs), Reserve Bank authorises the designated branch of an authorised dealer to credit the net amount of dividend on the shares purchased to the special non-resident rupee account [see paragraph 10B.4(iii)]. It will, therefore, be in order for companies to pay the dividend amounts to the designated branches of FIIs by way of dividend warrant together with a statement, under the signature of an authorised official, showing the number of shares held by the non-resident shareholder, face value, rate of dividend declared, year/period to which it relates, gross dividend, tax deducted at source, net dividend, and the particulars of Reserve Bank's approval under Section 19(1) 29(1)(b) of FERA, 1973 for issue/purchase of shares.

Remittance of Interest

  1. Applications for remittance of interest on bonds or debentures issued to non-residents, should be made by the Indian companies concerned to authorised dealers giving the following particulars -
    1. Name and address of the non-resident bond or debenture holder
    2. Nationality or place of incorporation
    3. Number and face value of the bond/debenture
    4. Number & date of Reserve Bank approval for issue of bond/debenture along with a certified copy
    5. Amount of gross interest
    6. Tax deducted at source
    7. Net remittable amount On receipt of the application, authorised dealers may allow the remittance of the net amount of interest i.e. after payment of tax at applicable rate after verifying that the necessary permission of Reserve Bank for issue of the bond/debenture to the non-resident holder was obtained and that it does not prohibit the remittance of interest. Interest due to non-residents who are not eligible for having it remitted abroad can, however, be credited only to their Ordinary Non-resident Rupee (NRO) accounts. The Indian company/authorised dealers should ensure that the reference number, date etc. of Reserve Bank's permission and the repatriable/non-repatriable nature of the bonds/debentures held by the concerned non-residents are incorporated on the counterfoil of interest warrants.

      NOTE: While granting permission for purchase of bonds/debentures with repatriation rights on behalf of the Foreign Institutional Investors, Reserve Bank authorises the designated bank branches to credit interest to the special non-resident rupee account of the investor (see paragraph 10B.4). The Indian companies concerned may, therefore, send the interest warrants to designated bank branch concerned giving the necessary particulars as indicated above.

Transfer of Shares/Securities by Non-residents to Residents

    1. Applications for transfer of shares by non-resident investors to residents should be made to the concerned Regional Office of Reserve Bank under whose jurisdiction the Head/Registered Office of the company, whose shares are to be transferred, is situated, in form TS 1 together with the documents mentioned therein. These applications will be considered by Reserve Bank in accordance with the following guidelines:
      1. In case the shares to be transferred are traded on Stock Exchange, Reserve Bank will permit such transfers provided the sale is made at the prevailing market price on stock exchange/s through a registered merchant banker or a stock broker.
      2. In the case of transfer of shares by private arrangement (i.e. other than through stock exchange) to a resident, Reserve Bank will satisfy itself that the shares are proposed to be sold at a price arrived at by taking the average quotations (average of daily high and low) for one week preceding the date of application with ± 5 per cent variation. However, if the disinvestment of shares is by the foreign collaborators/promoters of the Indian company in favour of existing Indian promoters with the objective of passing management control in favour of the resident promoters, the proposal will be considered by Reserve Bank at a price which is higher by up to a ceiling of 25% over the price arrived at as above.
      3. Applications for disinvestment of unlisted/thinly traded shares by non-residents to residents for gross consideration upto Rs.20 lakhs per seller, per company, per annum, will be cleared at mutually agreed price based on any valuation methodology currently in vogue. In respect of transactions exceeding Rs.20 lakhs the non-resident seller will have the following options:
        1. To sell the shares with prior approval of Reserve Bank at higher of the price based on Earning Per Share (EPS) linked to the Price Earning (P/E) multiple and that based on the Net Asset Value (NAV) linked to Book Value (BV) multiple. The NAV per share may be calculated by subtracting the miscellaneous expenses carried forward, accumulated losses, total outside liabilities, revaluation reserves and capital reserves except subsidy received in cash, from the total assets and then dividing the amount of net assets thus arrived at by the number of equity shares. Alternatively, intangible assets may be subtracted from the equity capital and reserves (excluding revaluation reserves) and the figure so arrived at should be divided by the number of equity shares. For computing the price based on EPS, the earning per share as per the latest audited balance sheet of the company will be used in conjunction with the average P/E multiple of Bombay Stock Exchange National Index (BSEN) for the calendar month immediately preceding the month in which the application is made. The P/E multiple will be discounted by 40 per cent. Similarly, for computing price based on Net Asset Value, the NAV per share calculated as above will be used in conjunction with the average BV multiple of BSEN during the calendar month immediately preceding the month in which application is made. The BV multiple will be discounted by 40 per cent.
        2. To sell the thinly traded shares, with the prior approval of Reserve Bank, on stock exchange at the prevailing market price in small lots so that the entire holding is sold in not less than five trading days through screen based trading system.
        3. To sell the shares, with the prior approval of Reserve Bank, at a price which is lower of the two independent valuations, one by the statutory auditors and the other by a Chartered Accountant or SEBI registered category-I merchant banker, giving a reasoned report in respect of the price.

          A share/security will be considered as thinly traded if on the main exchange(s) in India, the annualised trading turnover in that share/security during the preceding six calendar months prior to the month in which the application is submitted, is less than 2 per cent (by number of shares) of the listed stock. For this purpose, the weighted average of the number of shares listed during the said six months period may be taken. In cases of securities with a history of listing and trading of less than six months, the trading turnover may be annualised with reference to the actual number of days for which the stock has been listed.
    2. In the case of sale of shares of Indian companies listed on a stock exchange in India, the application may be submitted by the transferor or his attorney. Applications for sale/transfer of shares by private arrangement (i.e. other than through stock exchange), may, however, be made either by the transferor or the transferee with a copy of letter of consent for the sale/transfer from other party. While conveying its approval, Reserve Bank will stipulate the conditions subject to which the sale/transfer should be effected.

      NOTE: Transfer of Indian shares and securities standing in the names of persons resident in Nepal to persons resident in India is also subject to the regulations laid down in the above paragraph.

Repatriation of Capital Investment in India

  1. Repatriation of investments made in India is permissible (except where investment was permitted on specific condition that it will not be eligible for repatriation), provided the disinvestment has been made with the approval of Reserve Bank (See paragraph 10B.8). Applications for repatriation of the capital investment should be made to Reserve Bank through an authorised dealer stating the full particulars of the investment, number and date of Reserve Bank's approval for disinvestment, documentary evidence in support of disinvestment proceeds and 'No Objection'/Tax Clearance Certificate from the Indian Income Tax authorities. In cases of sale/transfer of shares and debentures acquired with repatriation rights, repatriation of sale proceeds of bulk holdings (i.e. shares/bonds/debentures exceeding Rs. one lakh in face value or 5% of the company's paid-up capital, whichever is lower) will be permitted only on production of a certificate from a chartered accountant or the concerned company's secretary stating that shares with necessary transfer forms duly signed have been received/lodged with the company for registration in favour of the transferee.

Euro Issues by Indian Companies

    1. In terms of the Guidelines issued by the Government of India, vide Ministry of Finance Notification No.S-II(25)CCI-II/89/NRI dated 12 November 1993 (as amended), Indian companies are permitted to raise foreign currency resources through issue of Foreign Currency Convertible Bonds (FCCBs) and/or issue of ordinary equity shares through Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) to foreign investors i.e. institutional investors or individuals (including NRIs) residing abroad. Applications for necessary permission should be made to the Government of India, Ministry of Finance, Department of Economic Affairs, New Delhi. After obtaining the necessary approval from the Government, the Indian company should submit an application to the General Manager, Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai - 400 001 enclosing a copy of the application made to the Government and the in-principle/final approval granted by the Government, for necessary permission under FERA 1973 for issue/acquisition of shares to/by non-residents, remittance of issue expenses, opening of foreign currency accounts, etc.
    2. The FCCBs/GDRs/ADRs issued by Indian companies to non-residents have free convertibility outside India. As regards transfer of shares (on conversion of GDRs/ADRs into shares) in favour of residents, the non-resident holder of GDRs/ADRs should approach the Overseas Depository bank with a request to the Domestic Custodian bank to get the corresponding underlying shares released in favour of the non-resident investor for being sold by the non-resident or for being transferred in the books of the issuing company in the name of the non-resident. Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.185/98-RB dated 19th August 1998, permitting transfer of shares from non-residents to residents, provided (a) such shares were released by the Indian custodian of a GDR/ADR issue against surrender of GDRs/ADRs by the non-resident concerned and (b) the sale is made on a stock exchange or the shares are offered for sale in terms of an offer made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Authorised dealers may allow remittance of sale proceeds of such underlying shares on verification of the following documents:
      1. Release Order in original from the Domestic Custodian bank of the GDR/ADR issue.
      2. Sale note from a SEBI registered broker/merchant banker showing the number of shares transferred and the amount of sale proceeds.
      3. An undertaking/Accountant's certificate regarding payment of Income-tax (cf.paragraph 3B.10).

        Authorised dealers may also allow the non-resident transferor to keep the above mentioned shares in their safe custody till the sale of the shares is effected and to open a non-resident non-interest bearing account to collect the sale proceeds of the shares. A statement giving details, such as the name of the company whose shares have been sold, number of shares sold and the amount remitted should be submitted to the General Manager, Foreign Investment Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai 400 001 within a period of 7 days from the date of effecting the remittance.

        NOTE: The above general permission will be applicable for transfer of shares underlying GDRs/ADRs through stock exchange or under an offer made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997. All other cases including transfer of shares, on conversion of FCCBs into shares in favour of residents, will require approval of Reserve Bank.
    3. A Reserve Bank has granted general exemption vide its Notification No.F.E.R.A.193/99-RB dated 16th March 1999 permitting, (a) the non-resident holders of ADRs/GDRs issued by a company registered in India to acquire the underlying shares against surrender of ADRs/GDRs held by them when such shares are released by the Indian Custodian of the ADR/GDR issue, and (b) the company/depository concerned to enter in its register or books an address outside India of the non-resident holder in respect of the underlying shares issued against surrender of ADRs/GDRs.
    4. In terms of Government guidelines, issue proceeds are required to be kept in foreign currency and can be utilised only for certain purposes such as for meeting the cost of expansion/diversification /acquisition/import of new plants and machinery, repayment of foreign currency loans, etc. as approved by the Government. Pending deployment of funds for approved purposes, the Indian company is allowed to keep the foreign currency funds abroad with foreign banks (which are rated for short-term obligations as A1 + by Standard & Poor or P1 by Moody's ) or with branches of Indian banks abroad as deposits, or to invest them abroad in treasury bills and other monetary instruments with maturity not exceeding one year. Funds raised through GDRs/ADRs, FCCBs and ECBs will also be allowed to be invested in rated certificates of deposit abroad. The issue proceeds can also be kept in foreign currency accounts with authorised dealers/public financial institutions in India authorised to deal in foreign exchange. It will accordingly be in order for authorised dealers/public financial institutions to accept foreign currency deposits from Indian companies out of Euro Issue proceeds subject to the following conditions:
      1. The foreign currency deposits would carry interest at a rate not exceeding LIBOR for the respective period for which the deposit is accepted.
      2. Authorised dealers/public financial institutions with whom the foreign currency deposits are kept should not swap the foreign currency for rupees but use the amounts for on-lending in foreign currency to eligible clients.
      3. Authorised dealers may also invest surplus foreign currency out of such Euro Issue proceeds as permitted in paragraph 5B.9 subject to the condition indicated in (b) above.
      4. Authorised dealers/public financial institutions accepting the foreign currency deposits would be eligible to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR for lending out of such funds.
      5. Authorised dealers will have to comply with the requirements of CRR/SLR as laid down by Reserve Bank from time to time.
      6. The deposits can be converted into Indian rupees only as and when expenditure for approved end uses (including upto a maximum of 15% of the proceeds earmarked for general corporate restructuring) are incurred by the Indian company.
      7. Authorised dealers/public financial institutions accepting such deposits as also the Indian company, as the case may be, should comply with the conditions stipulated by Government of India in their approval letters for such issues.


PART C - NON-RESIDENT INDIAN INVESTMENT


Non-resident Indian Nationals

  1. Non-resident Indian nationals generally fall under the following broad categories:
    1. Indian citizens who stay abroad for employment or for carrying on any business or vocation or for any other purpose in circumstances indicating an indefinite period of stay outside India.
    2. Indian citizens working abroad on assignments with foreign Governments, Government agencies or international/multinational agencies like United Nations Organisation (UNO), International Monetary Fund (IMF), World Bank (IBRD), etc.
    3. Officials of Central and State Governments and public sector undertakings deputed abroad on assignments with foreign Governments/agencies/ organisations or posted to their own offices (including Indian Diplomatic Missions) abroad.

      NOTE: Non-resident Indians become resident in India only when they come back to India for employment or for carrying on in India any business or vocation or for any other purpose indicating an indefinite period of stay in India. They are not regarded as persons resident in India during their short visits to India, say, on holiday, leave, etc.

Persons of Indian origin

  1. For the purpose of the facility of opening and maintenance ofvarious types of bank accounts and making investments in shares and securities in India, a Foreign citizen (not being a citizen of Pakistan or Bangladesh) is deemed to be a person of Indian origin if (i) he at any time held an Indian passport, or (ii) he or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955 (57 of 1955). A spouse (not being a citizen of Pakistan or Bangladesh) of an Indian citizen or of a person of Indian origin is also treated as a person of Indian origin for the above purposes provided the bank accounts are opened or investments in shares/securities in India are made by such persons only jointly with their NRI spouses.

Overseas Corporate Bodies

    1. Overseas corporate bodies predominantly owned by individuals of Indian nationality or origin resident outside India (OCBs) include Overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60% by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons. The various facilities granted to NRIs are also available, with certain exceptions, to OCBs so long as the ownership/beneficial interest held in them by persons of Indian nationality/origin resident outside India continues to be at or above the level of 60%. In order to establish that the ownership interest of or beneficial interest in any OCB held by individuals of Indian nationality/origin resident outside India is not less than 60%, the concerned corporate body/trust should obtain and furnish, at the time of applying for the facility for the first time and thereafter as and when required by Reserve Bank/authorised dealer, a certificate from an overseas auditor/chartered accountant/certified public accountant in form OAC where the ownership/beneficial interest is directly held by NRIs, and in form OAC 1 where it is held indirectly by NRIs.
    2. Authorised dealers maintaining bank accounts or making investments in the names of OCBs should obtain an undertaking from each such corporate body/trust stating that it will promptly intimate to the authorised dealer if the ownership interest or the irrevocable beneficial interest held by NRIs in the OCB falls below the level of 60% at any time. The corporate body/trust should also submit a certificate in form OAC or OAC 1, as appropriate, to the authorised dealer on an annual basis and the authorised dealer should satisfy himself that the ownership/beneficial interest held by NRIs continues to be at or above the level of 60%. If such ownership/beneficial interest is reduced to a level below 60%, the authorised dealer should report the matter to Reserve Bank immediately for instructions together with full particulars of the investments made by the corporate body/trust in its name.
      NOTE: In the case of closely held OCBs i.e. where shareholders belong to the same family or are closely related to each other, certificate in form OAC / OAC 1 may be submitted in the first instance alongwith documentary evidence to the effect that the shareholders belong to the same family or are closely related to each other. Annual submission of OAC/OAC 1 thereafter is not necessary and it will suffice if a certificate signed by the Managing Director/Chief Executive Officer of the OCB is submitted stating that there is no change in the shareholding pattern since submission of the last certificate.

General permission to subscribe to the Memorandum and Articles of Association

  1. In order to facilitate NRIs to set up new companies in India, Reserve Bank vide its Notification No.FERA.143/93-RB dated 26th April 1993, has granted general permission under Section 29(1)(b) read with Section 19(1)(d) of the Foreign Exchange Regulation Act, 1973 to NRIs to subscribe to the Memorandum and Articles of Association and to take up the shares of Indian companies for their incorporation. The general permission empowers such Indian companies to issue shares to NRIs provided the total face value of the shares to be issued does not exceed Rs.10,000/- and the company is not engaged in any activity relating to agricultural and plantation. The Indian company is required to file a declaration of the issue to Reserve Bank in form DSS within period of 90 days from the date of its incorporation. The repatriability or otherwise of this investment will be decided by Reserve Bank while granting permission under Section 19(1)(d) of the Act for issue of further shares to NRIs.

Direct Investment in Firms/Companies in India

  1. NRIs are permitted to make direct investment in partnership/proprietorship concerns in India as also by way of subscription to shares/debentures of Indian companies. They are also permitted to place funds in company deposits. Similar facilities are also available to OCBs with certain exceptions. Wherever the investments are allowed with repatriation benefits, the funds for the purpose should be received by inward remittances from abroad or from the investor's NRE/FCNR Accounts. However, in respect of investment on non-repatriation basis, funds in NRO Accounts could also be used.
  2. Investment facility for NRIs resident in Nepal

    Non-resident Indians resident in Nepal will be permitted to make investments in India provided the funds for the purpose are remitted in free foreign exchange through proper banking channels. Such investments will either be on repatriation or on non-repatriation basis depending on the terms and conditions applicable under the existing schemes for NRI investment.
    1. Investments without Repatriation Benefits

      NRIs/OCBs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non-repatriation basis, as explained in paragraph 10C.6 to 10C.10. The incomes earned on these investments as and when accrued are required to be credited to the Ordinary Non-resident Rupee (NRO rupee) account of the investor. Reserve Bank would, however, permit repatriation of the net (i.e. after payment of tax) income/interest earned during the financial year 1994-95 and onwards on such investments/deposits in accordance with the procedure laid down in paragraph 10C.24A.

Investment in Partnership/Proprietorship Concerns

    1. By its Notification No. FERA.113/92-RB dated 27th April 1992, Reserve Bank has granted general permission to NRIs to invest by way of capital contribution in any proprietary or partnership concern in India engaged in any industrial, trading or commercial activity on non-repatriation basis subject to the following conditions:
      1. The amount invested should be remitted from abroad through normal banking channels or by transfer of funds held in investor's bank accounts in India.
      2. The concern or the NRI does not engage in any agricultural/plantation activity or real estate business i.e. dealing in land and immovable property with a view to earning profit or income therefrom.
      3. The amount invested and income accruing thereon are not eligible for repatriation outside India and are payable only in non-convertible Indian rupees.

        Consequently, it will not be necessary for such partnership/ proprietorship concerns in India to obtain prior permission of Reserve Bank for receiving capital contribution from NRIs provided the conditions mentioned in the Notification are satisfied. The firm should, however, submit the declaration in form DIN to the concerned Regional Office of the Reserve Bank in whose jurisdiction it is situate within a period of 90 days from the date of receipt of investment. The profits due to the NRI investor may be credited to his ordinary Non-Resident Account maintained with a bank in India.

Investment in New Issues of Shares/Debentures of Indian Companies

    1. By its Notification No. FERA.114/92-RB dated 27th April 1992 amended upto 24th February 1997 Reserve Bank has granted general permission to NRIs/OCBs to subscribe to the shares/convertible debentures of an Indian company on non-repatriation basis, and to an Indian company to issue shares or convertible debentures by way of new/rights/bonus issue to NRIs/OCBs on non-repatriation basis provided that the investee company is not engaged in agricultural/plantation activities or real estate business (excluding real estate development i.e. development of property or construction of houses) or chit fund or is not a Nidhi company. The payment for these shares should, however, be received from the NRIs/OCBs by inward remittance or by debit to their NRE/FCNR/NRO accounts maintained with an authorised dealer or an authorised bank in India. Consequently, it will be in order for companies in India to issue shares/convertible debentures to NRIs/OCBs on non-repatriation basis by way of new, rights or bonus issues without the prior approval of Reserve Bank provided the conditions mentioned in the Notification are satisfied. The company should, however, file a declaration in form DIN within 90 days from the date of receipt of the investment to the concerned Regional Office of the Reserve Bank in whose jurisdiction its registered office is situated. The company may also credit the dividend/interest in respect of the shares/convertible debentures to the investor's NRO account with a bank in India.
    2. Reserve Bank of India vide its Notification No.F.E.R.A.213/99-RB dated 1st November 1999, has granted general permission to Indian companies to issue, by way of public issue, non-convertible debentures (NCDs) to NRIs/PIOs/OCBs on non-repatriation basis subject to the following conditions:
      1. The amount of subscription should be received by inward remittance from abroad through normal banking channels or by debit to the non-resident's NRE/FCNR/NRO/NRSR account, as the case may be, with an authorised dealer in India. The principal amount representing the investment is not repatriable. If the investment is made out of funds held in NRSR account, the principal as well as interest earned are not repatriable.
      2. The rate of interest on such NCDs shall not exceed prime lending rate of State Bank of India, plus 300 basis points.
      3. The minimum period for redemption of such NCDs should be three years.
      4. The company raising funds through NCDs should not be engaged in agricultural/plantation activity, real estate business, trading in transferable development rights (TDRs) or act as Nidhi/Chit Fund company.
      5. The issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of receipt of remittance, a report containing the following:-
        1. A list containing names of NRIs/OCBs.
        2. Country of residence or incorporation of the non-resident investor;
        3. Amount and date of receipt of remittance and its rupee equivalent;
        4. Name and address of the authorised dealer in India through whom the remittance is received.
      6. The issuer company files with Regional Office of Reserve Bank, not later than thirty days from the date of issue of NCDs, the following:-
        1. A list containing names of NRIs/OCBs and the number and face value of NCDs issued to each of them on non-repatriation basis.
        2. Certified true copy of resolution passed in the meeting of the Board of Directors of the company, indicating the quantum and value of NCDs issued to NRIs/OCBs and residents and other details of the issue such as coupon rate, date of redemption, etc.
        3. Original Foreign Inward Remittance Certificate (FIRC)/Bank Certificate evidencing receipt of funds, from abroad or from the NRE/FCNR/NRO/NRSR accounts as the case may be, of the NRI/PIO/OCB.
        4. Memorandum and Articles of Association of the issuer company.
        5. Certificate in Form OAC/OAC1 indicating the NRI shareholding to the extent of atleast 60% either directly or indirectly in case of investment by OCB.
        6. Any information sought by the Reserve Bank with reference to the issue of NCDs within such time as may be stipulated.
        7. An undertaking that the issuer company is not and shall not be engaged in agricultural/plantation activity, real estate business, trading in TDRs or act as Nidhi/Chit Fund company.

Purchase of Shares of Indian Companies by Private Arrangement

  1. NRIs/OCBs require permission of Reserve Bank for purchasing shares of Indian companies by private arrangement. For this purpose, application in form FNC 7 together with the non-repatriation undertaking in form NRU may be submitted by the non-resident investor to the office of the Reserve Bank in whose jurisdiction the company's Head/Registered Office is situated. Investment in Domestic Public Sector and Private Sector Mutual Funds
  2. NRIs/OCBs will be permitted to invest in Mutual Funds floated by domestic public sector and private sector mutual funds on non-repatriation basis. Applications for the purpose should be made to Reserve Bank in form ISD by the concerned bank/institution. The non-resident investors do not need separate approval from Reserve Bank for the purpose.A.D.(M.A. Series) Circular No.9
    Investment in Money Market Mutual Funds (MMMFs)
  3. NRIs/OCBs will be permitted to invest, on non-repatriation basis, in Money Market Mutual Funds (MMMFs) floated by commercial banks and public sector/private sector financial institutions, with authorisation from Reserve Bank of India/Securities and Exchange Board of India (SEBI). Applications for the purpose should be made to the Reserve Bank in form ISD(R) by the concerned bank/institution. The NRI/OCB investors do not need separate permission from Reserve Bank for the purpose. Acceptance of deposits by proprietorship concerns/firms/companies in India on Non-repatriation basis
    1. NRIs/OCBs will be permitted to place funds in deposits with firms/companies in India on non-repatriation basis. The application for this purpose may be made by the depositor or the deposit accepting firm/company to the office of Reserve Bank under whose jurisdiction its Head/Registered Office is situated. In case of acceptance of deposits from NRIs/OCBs under the public deposit scheme, the application for permission should be made by the deposit accepting firm/company through an authorised dealer to the concerned office of Reserve Bank under whose jurisdiction the registered office of the firm/company is situate. No separate application from the non-resident depositor is necessary in such cases.

      A.D.(M.A. Series) Circular No.9
    2. Indian companies wishing to raise deposits by issue of Commercial Paper (CP) have to comply with the Non-Banking Companies (Acceptance of Deposits through Commercial Paper) Directions, 1989 issued by Reserve Bank (IECD). Reserve Bank (ECD) has granted general permission to Indian companies for issue of CP to NRIs/OCBs vide Notification Notification No.F.E.R.A. 85/89-RB dated 9th October 1989 as amended by Notification No.F.E.R.A. 205/99-RB dated 3rd July 1999 subject to the company complying with the conditions stipulated by Reserve Bank (IECD) and (ECD). Indian companies may accordingly raise deposits from NRIs/OCBs through issue of CP without obtaining specific permission of Reserve Bank (ECD) provided the amount invested will not be allowed to be repatriated outside India and the CP will not be transferable. Payment for investment in CP should be received by remittance from abroad through normal banking channel or by debit to investor's NRE/FCNR/NRO/NRSR account and maturity proceeds should be paid by credit to NRO/NRSR account of the non-resident investor with a bank in India.

      NOTE: OCBs are not permitted to invest in CPs.

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