Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs) Under APPROVAL Route

Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs) Under APPROVAL  Route 

Approval Route

Indian companies may be permitted to buyback FCCBs up to USD 100 million of the redemption value per company, out of their internal accruals with the prior approval of the Reserve Bank, subject to a :

i) minimum discount of 10 per cent of book value for redemption value up to USD 50 million; 

ii) minimum discount of 15 per cent of book value for the redemption value over USD 50 million and up to USD 75 million; and 

iii) minimum discount of 20 per cent of book value for the redemption value of over USD 75 million and up to USD 100 million. 

4. Applications complying with the above conditions may be submitted, together with the supporting documents, through the designated AD Category - I bank, to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, ECB Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001 for consideration. 

5. The other terms and conditions as stipulated in paragraph 5 and 6 of A.P. (DIR Series) Circular No. 39 dated December 8, 2008 will continue to be applicable. This facility shall come into force with immediate effect and the entire process of buyback should be completed by March 31, 2012.

A. P. (DIR Series) Circular No.75 dated 30th June 2011

For any clarification or assistance , please feel free to contact me through rvsekar2007@gmail .com or 919848915177.

Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs) Under Automatic Route

 Buyback / Prepayment of Foreign Currency Convertible Bonds ( FCCBs) Under Automatic Route 

The Reserve Bank is presently considering applications under the approval route for buyback of FCCBs, subject to the issuers complying with the terms and conditions of buyback/ prepayment of FCCBs, as mentioned in the A.P. (DIR Series) Circular No.39 dated December 08, 2008 and A.P. (DIR Series) Circular No.65 dated April 28, 2009. 

The designated AD Category - I banks may allow Indian companies to prematurely buyback FCCBs subject to compliance with the terms and conditions set out hereunder:

i) the buyback value of the FCCB shall be at a minimum discount of 8 per cent on the book value;

ii) the funds used for the buyback shall be out of existing foreign currency funds held either in India (including funds held in the  EEFC account) or abroad and / or out of fresh ECB raised in conformity with the current ECB norms; and

iii) where the fresh ECB is co-terminus with the outstanding maturity of the original FCCB and is for less than three years the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps as applicable to short term borrowings. In other cases, the all-in-cost for the relevant maturity of the ECB, as laid down in A. P. (DIR Series) No.26 dated October 22, 2008, shall apply.

Ref: 

A. P. (DIR Series) Circular No.75 dated 30th June 2011

For any clarification or assistance , please feel free to contact me through rvsekar2007@gmail .com or 919848915177.

Transfer by way of Sales of a Joint venture or Wholly Owned Subsidiary (JV or WOS) Outside India with write off without Prior Approval of Reserve Bank of India

Transfer by way of Sales of a Joint venture or Wholly Owned Subsidiary (JV or WOS) Outside India with write off without Prior Approval of Reserve Bank of India

Transfer by way of sale of shares of a JV / WOS involving write off of the investment

An Indian Party, without prior approval of the Reserve Bank, may transfer by way of sale to another Indian Party which complies with the provisions of Regulation 6 of FEMA Notification 120/RB-2004 dated July 7, 2004 or to a person resident outside India, any share or security held by it in a JV or WOS outside India subject to the following conditions:

 

(a) Indian Parties may disinvest without prior approval of the Reserve Bank, in the under noted cases where the amount repatriated on disinvestment is less than the amount of the original investment:

1. in cases where the JV / WOS is listed in the overseas stock exchange;
   
   
2. in cases where the Indian Party  is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; 
   
   
3. where the Indian Party  is an unlisted company and the investment in the overseas venture does not exceed USD 10 million and 
   
   
4. where the Indian Party is a listed company with net worth of less than Rs.100 crore but investment in an overseas JV/WOS does not exceed USD 10 million.
   

(b) Such disinvestments shall be subject to the conditions listed at items (ii) to (vi) of paragraph 2 above.

4. The Indian Party is required to submit details of such disinvestment through its designated AD category-I bank within 30 days from the date of disinvestment.

5. An Indian Party, which does not satisfy the conditions stated above for undertaking any disinvestment in its JV/WOS abroad, shall have to apply to the Reserve Bank for prior permission.

 
Ref :  
A.P. (DIR Series) Circular No. 73 dated 29 June 2011

Transfer by way of Sales of a Joint venture or Wholly Owned Subsidiary (JV or WOS) Outside India without Write Off without Prior Approval of Reserve Bank of India

Transfer by way of Sales of a Joint venture or Wholly Owned Subsidiary (JV or WOS) Outside India without write off without Prior Approval of Reserve Bank of India 

Transfer by way of sale of shares of a JV / WOS

An Indian Party, without prior approval of the Reserve Bank, may transfer by way of sale to another Indian Party which complies with the provisions of Regulation 6 of FEMA Notification 120/RB-2004 dated July 7, 2004 or to a person resident outside India, any share or security held by it in a JV or WOS outside India subject to the following conditions:

1. the sale does not result in any write off of the investment made. 
   
   
2. the sale is to be effected through a stock exchange where the shares of the overseas JV/ WOS are listed;
   
   
3. if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV / WOS;
   
   
4. the Indian Party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and / or export proceeds from the JV or WOS;
   
   
   
5. the overseas concern has been in operation for at least one full year and the Annual Performance Report
    together with the audited accounts for that year has been submitted to the Reserve Bank;
   
   
6. the Indian party is not under investigation by  CBI / DoE/ SEBI / IRDA or any other regulatory authority in India. 
   
   Ref :  
   A.P. (DIR Series) Circular No. 73 dated 29 June 2011 

ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST Pre-operative/pre-incorporation expenses (including payments of rent, etc.)

ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST
Pre-operative/pre-incorporation expenses (including payments of rent, etc.)

As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.,

The extant guidelines for issue of equity shares/ preference shares under the Government route have been reviewed in consultation with the Government of India and, accordingly, it has been decided to permit issue of equity shares / preference shares under the Government route of the FDI scheme for the following categories of transactions:

Pre-operative/pre-incorporation expenses (including payments of rent, etc.) subject to compliance with the following conditions:

1. Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred;
   
   
2. Verification and certification of the pre-incorporation/ pre-operative expenses by the statutory auditor; 
   
   
3. Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI; and 
   
   
4. The capitalization should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.
   
   Ref - 
   A. P. (DIR Series) Circular No.74 dated 30 June 2011

ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST IMPORT OF capital goods/ machinery / equipments (including second-hand machineries),

 ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST IMPORT OF  capital goods/ machinery / equipments (including second-hand machineries),

1.As per Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time and in  terms of the Schedule 1 of the Notification, ibid, an Indian company may, under the automatic route, issue equity shares/ preference shares to a person resident outside India, being a provider of technology / technical know-how and against royalty / lumpsum fees due for payment subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.

2. The extant guidelines for issue of equity shares/ preference shares under the Government route have been reviewed in consultation with the Government of India and, accordingly, it has been decided to permit issue of equity shares / preference shares under the Government route of the FDI scheme for the following categories of transactions:

(I) Import of capital goods/ machinery / equipments (including second-hand machineries), subject to compliance with the following conditions:

1. The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;
   
   
2. There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;
   
   
3. The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and
   
   
4. All such conversions of import payable for capital goods into FDI should be completed within 180 days from the date of shipment of goods.

Ref - 
A. P. (DIR Series) Circular No.74 dated 30 June 2011

Opening / Hiring of Ware houses abroad Under Automatic Route

Opening / Hiring of Ware houses abroad Under Automatic Route 
 
AD Category – I banks may consider the applications received from exporters and grant permission for opening / hiring warehouses abroad subject to the following conditions:

1. Applicant's export outstanding does not exceed 5 per cent of exports made during the previous financial year.
2. Applicant has a minimum export turnover of USD 100,000/- during the last financial year.
3. Period of realisation should be as applicable.
4. All transactions should be routed through the designated branch of the AD Banks.
5. The above permission may be granted to the exporters initially for a period of one year and renewal may be considered subject to the applicant satisfying the requirement above.
6. AD Category – I banks granting such permission/approvals should maintain a proper record of the approvals granted

GENERAL PERMISSION FOR RECEIPT OF ADVANCE PAYMENTS AGAINST EXPORTS

Advance Payments against Exports

In terms of Regulation 16 of Notification No. FEMA 23 dated May 3, 2000, where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that -

1. the shipment of goods is made within one year from the date of receipt of advance payment;
   
2. the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points, and
   
3. the documents covering the shipment are routed through the AD Category – I bank through whom the advance payment is received;

Provided that in the event of the exporter's inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment, no remittance towards refund of unutilised portion of advance payment or towards payment of interest, shall be made after the expiry of the said period of one year, without the prior approval of the Reserve Bank.

(2) Where the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment, the exporter shall require the prior approval of the Reserve Bank.

(3) AD Category – I banks may allow the purchase of foreign exchange from the market for refunding advance payment credited to EEFC account only after utilising the entire balances held in the exporter’s EEFC accounts maintained at different branches/banks.

Exchange Earners’ Foreign Currency (EEFC) Account

Exchange Earners’ Foreign Currency (EEFC) Account

1. A person resident in India may open with, an AD Category – I bank in India, an account in foreign currency called the Exchange Earners’ Foreign Currency (EEFC) Account, in terms of Regulation 4 of the Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) Regulations, 2000 notified under Notification No. FEMA 10/2000-RB dated May 3, 2000 as amended from time to time.
   
2. All categories of foreign exchange earners are allowed to credit up to 100 per cent of their foreign exchange earnings to their EEFC Accounts.
   
3. This account shall be maintained only in the form of non-interest bearing current account. No credit facilities, either fund-based or non-fund based, shall be permitted against the security of balances held in EEFC accounts by the AD Category – I banks.
4. The eligible credits represent
   
   1. inward remittance received through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank or which represents foreign currency loan raised or investment received from outside India or those received for meeting specific obligations by the account holder.
      
   2. Payments received in foreign exchange by an unit in Domestic Tariff Area (DTA) for supplying goods to an unit in Special Economic Zone out of its foreign currency account.
      
5. AD Category – I banks may permit their exporter constituents to extend trade related loans / advances to overseas importers out of their EEFC balances without any ceiling subject to compliance of provisions of Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time.
   
6. AD Category – I banks may permit exporters to repay packing credit advances whether availed in rupee or in foreign currency from balances in their EEFC account and / or rupee resources to the extent exports have actually taken place.

Diamond Dollar Account (DDA)

Diamond Dollar Account (DDA)

1. Under the scheme of Government of India, firms and companies dealing in purchase / sale of rough or cut and polished diamonds / precious metal jewellery plain, minakari and / or studded with / without diamond and / or other stones, with a track record of at least 3 years in import / export of diamonds / coloured gemstones / diamond and coloured gemstones studded jewellery / plain gold jewellery and having an average annual turnover of Rs. 5 crores or above during the preceding three licensing years (licensing year is from April to March) are permitted to transact their business through Diamond Dollar Accounts.
   
2. They may be allowed to open not more than five Diamond Dollar Accounts with their banks.
   
3.  Eligible firms and companies may apply for permission to their AD Category – I banks in the format prescribed.

OPENING OF FOREIGN CURRENCY ACCOUNTS BY INDIAN RESIDENTS UNDER AUTOMATIC ROUTE

1. Participants in international exhibition/trade fair have been granted general permission vide Regulation 7(7) of the Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) Regulations, 2000 notified under Notification No. FEMA 10/2000-RB dated May 3, 2000 for opening a temporary foreign currency account abroad. Exporters may deposit the foreign exchange obtained by sale of goods at the international exhibition/trade fair and operate the account during their stay outside India provided that the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair and full details are submitted to the AD Category – I banks concerned.
2. Reserve Bank may consider applications in Form EFC (Annex 6) from exporters having good track record for opening a foreign currency account with banks in India and outside India subject to certain terms and conditions. Applications for opening the account with a branch of an AD Category – I banks in India may be submitted through the branch at which the account is to be maintained. If the account is to be maintained abroad the application should be made by the exporter giving details of the bank with which the account will be maintained.
   
3.  An Indian entity can also open, hold and maintain a foreign currency account with a bank outside India, in the name of its overseas office/branch, by making remittance for the purpose of normal business operations of the said office/branch or representative subject to conditions stipulated in Regulation 7 of Notification No. FEMA 10/2000-RB dated May 3, 2000 and as amended from time to time.
   
4. A unit located in a Special Economic Zone (SEZ) may open, hold and maintain a Foreign Currency Account with an AD Category – I bank in India subject to conditions stipulated in Regulation 6 (A) of Notification No. FEMA 10/2000-RB dated May 3, 2000 and as amended from time to time.
   
5. A person resident in India being a project / service exporter may open, hold  and maintain foreign currency account with a bank outside or in India, subject   to the standard terms and conditions in the Memorandum PEM.

The Cabinet Committee on Economic Affairs (CCEA) Approves FDI in LLP

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The Cabinet Committee on Economic Affairs (CCEA)  Approves FDI in LLP

 The Cabinet Committee on Economic Affairs (CCEA) today approved the proposal to amend the policy on allowing Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) firms. 

The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open’ sectors where monitoring is not required, subject to the following conditions: (a) LLPs with FDI will be allowed, through the Government approval route, in those sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions. 

(b) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business. 

(c) LLPs with FDI will not be eligible to make any downstream investments. There are also further following conditions relating to funding, ownership and management of LLPS:

I. Funding of LLPs: 

(a) An Indian company, having FDI, will be permitted to make downstream investment in LLPs only if both the company, as well as the LLP are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions. 

(b) Foreign Capital participation in the capital structure of the LLPs will be allowed only by way of cash considerations, received by inward remittance, through normal banking channels, or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank; and 

(c) Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs.) 

II. Ownership and management of LLPs: 

(a) For the purpose of determination of the designated partners in respect of LLPs with FDI, the term "resident in India" would have the meaning, as defined for "person resident in India", under Section 2(v) (i) (A) & (B) of the Foreign Exchange Management Act, 1999; 

(b) In case the LLP has a body corporate as a designated partner, the body corporate should only be a company registered under the Companies Act, 1956 and not any other body, such as an LLP or a trust.

III. Conversion of a company with FDI into an LLP will be allowed only if the above stipulations are met and with the prior approval of FIPB/Government. IV. The designated partners will be responsible for compliance with the above conditions and liable for all penalties imposed on the LLP for their contravention. Presently, FDI is allowed in Indian companies. It is allowed in a firm or a proprietary concern, subject to certain conditions. FDI in a trust is also allowed with prior Government approval, provided it is a Venture Capital Fund (VCF). 

The CCEA’s approval will benefit the Indian economy by attracting greater FDI, creating employment and bringing in international best practices and latest technologies in the country. 

The Limited Liability Partnership Act, 2008 (LLP Act) was notified in April, 2009. With the passage of this Act, a new hybrid entity, incorporating the features of a body corporate and a partnership, can now be formed for the purpose of undertaking business in India.

REIMBURSEMENT OF PRE-INCORPORATION EXPENSES TO A FOREIGN INVESTOR

REIMBURSEMENT OF PRE-INCORPORATION EXPENSES TO A FOREIGN INVESTOR

Foreign Exchange Management Act (FEMA), 1999 – Current Account Transactions – Reimbursement of pre-incorporation expenses - Liberalization

1. Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Foreign Exchange Management (Current Account Transactions) Rules, 2000 notified vide Notification No. G.S.R.381(E) dated 4th May 2000. In terms of Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 (the Rules), prior approval of the Reserve Bank is required for drawing foreign exchange for remittance exceeding USD 100,000 by an entity in India by way of reimbursement of pre-incorporation expenses [item 17 of Schedule III of the Rules].
2. As announced in the Annual Policy Statement for the year 2007-08 (para 146 (i) iii)) and with a view to liberalise the procedure further and providing greater flexibility, it has been decided to allow remittance of foreign exchange towards reimbursement of pre-incorporation expenses incurred in India up to 5 per cent of the investment brought into India or USD 100,000, whichever is higher, on the basis of certification from statutory auditors. Accordingly, AD Category - I banks may permit drawal of foreign exchange by an entity in India by way of reimbursement of pre-incorporation expenses up to the limit mentioned above, on the basis of certification from statutory auditors.
3. This is also reaffirmed in the RBI Master Circular  RBI/10-11/1 Master Circular 01-2010-2011 dated 1st July 2010.
4. Necessary amendments to Foreign Exchange Management (Current Account Transactions) Rules, 2000 are being notified separately.
5. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
6. The directions contained in this circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.
 
This is in accordance with RBI circular no RBI/2006-2007/368--A. P. (DIR Series) Circular No. 47 dated April 30, 2007.
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For any Clarification ,you may please contact me in the following email - rvsekar2007@gmail.com

EXIM BANK OFFERS FOREIGN CURRENCY TERM LOAN FOR SME INDUSTIRIES

 

EXIM BANK OFFERS FOREIGN CURRENCY TERM LOAN FOR SME INDUSTIRIES

 

EXIM Bank is offering Foreign Currency Term loans toexport oriented SMEs in the states of U.P, Chattisgarh, Uttarakhand, Jharkhand, Rajasthan, M.P, Orissa and Assam under ADB line(Tenor:5 years to 7 years, with 2 years moratorium).This loan can not be given for working capital purpose. 

 

1)For this, the comapny should have an export sales of 10% of total sales or Rs. 5 crores, whichever is lower. The company should be a profit making company for the last 3 years.

 

2) Further, the Gross investment in Plant & Machinery should be less than Rs. 10 crores to qualify under SME (SSI unit) (If this is slightly higher than Rs. 10 crores, some items like DG sets, Dies, other Tools & fixtures can be removed, as per MSME Act Definition).

 

This Foreign Currency Term loan can be utilised even for Rupee Expenditure. The Rate of Interest for this Foreign currency Term loan will be around LIBOR (6 Months) + 450 BPS (Roughly around 0.50+4.50 = 5%), as against the current Rupee Term loan Interest of around 12%.

 

Advance Remittance for Import of Goods - Liberalisation

Advance Remittance for Import of Goods - Liberalisation

Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to A. P. (DIR Series) Circular No.106 dated June 19, 2003, A. P. (DIR Series) Circular No.15 dated September 17, 2003 and A.P. (DIR Series) Circular No.09 dated August 21, 2008 in terms of which AD Category – I banks are required to obtain an unconditional, irrevocable standby Letter of Credit (LC) or a guarantee from an international bank of repute situated outside India or a guarantee of an AD Category – I bank in India, if such a guarantee is issued against the counter guarantee of an international bank of repute situated outside India, for an advance remittance exceeding USD 100,000 or its equivalent.

2. With a view to liberalising the procedure, it has been decided to enhance the aforesaid limit of USD 100,000 to USD 200,000 or its equivalent, with immediate effect for importers (other than a Public Sector Company or a Department/Undertaking of Central/State Governments where the requirement of bank guarantee is to be specifically waived by the Ministry of Finance, Government of India for advance remittances exceeding USD 100,000 or its equivalent).
   
   
3. All the other instructions including the facility to waive the requirement of the standby LC/ bank guarantee for advance remittance up to USD 5,000,000 or its equivalent, where the AD Category – I bank is satisfied about the track record and bonafides of the importer based on their internal Board approved policy, contained in A.P. (DIR Series) Circular No. 09 dated August 21, 2008, shall remain unchanged.

Ref- AP DIR Series 56 dated 29 April 2011

For any Clarification ,you may please contact me in the following email - rvsekar2007@gmail.com

OPENING AN ESCROW ACCOUNT IN INDIA BY FOREIGN INVESTORS FOR FDI WITHOUT PRIOR APPROVAL OF RBI

 OPENING AN ESCROW ACCOUNT IN INDIA BY FOREIGN INVESTORS FOR FDI WITHOUT PRIOR APPROVAL OF RBI

It has been decided to permit AD Category – I banks to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/ or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions subject to certain terms and conditions as given in Annex. It has also been decided to permit SEBI authorised
 

Depository Participants, to open and maintain, without prior approval of the Reserve Bank, Escrow account for securities subject to certain terms and conditions.

In both cases, the Escrow agent shall necessarily be an AD Category- I bank or SEBI authorised Depository Participant (in case of securities’ accounts). These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from/ to the non- residents.

Ref _ [A.P. (DIR Series) Circular No. 58 dated May 2, 2011]


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Pleding of Shares held by Non Resident Indians ( NRI) to Avail loan from Indian and Foreign Banks - Automatic Route

Pledge of shares for business purposes by Indian Companies

Under the extant FEMA regulations, powers have been delegated to the Authorised Dealer Category – I (AD Category – I) banks to convey ‘no objection’ to the resident eligible borrowers under the extant External Commercial Borrowings (ECB) guidelines for pledge of shares held by the promoters, in accordance with the Foreign Direct Investment (FDI) policy, in the borrowing company / domestic associate company of the borrowing company as security for the ECB, subject to certain conditions [c.f. A. P. (DIR Series) Circular No. 1 dated July 11, 2008]. Pledge of shares in respect of all other FDI related transactions requires the prior permission of the Reserve Bank.

2. The extant FEMA regulations have since been reviewed and it has been decided to further liberalise, rationalise and simplify the processes associated with FDI flows to India and reduce the transaction time. Accordingly, it has been decided to delegate powers to the AD Category – I banks to allow pledge of shares of an Indian company held by non-resident investor/s in accordance with the FDI policy in the following cases subject to compliance with the conditions indicated below:

Pledging of Shares by NRIs for availing loan from Indian banks and banks in foreign countries. Under Automatic Route

(i) Shares of an Indian company held by the non-resident investor can be pledged in favour of an Indian bank in India to secure the credit facilities being extended to the resident investee company for bonafide business purposes subject to the following conditions :
(a) in case of invocation of pledge, transfer of shares should be in accordance with the FDI policy in vogue at the time of creation of pledge;

(b) submission of a declaration/ annual certificate from the statutory auditor of the investee company that the loan proceeds will be / have been utilized for the declared purpose;
(c) the Indian company has to follow the relevant SEBI disclosure norms; and
(d) pledge of shares in favour of the lender (bank) would be subject to compliance with the Section 19 of the Banking Regulation Act, 1949.
(ii) Shares of the Indian company held by the non-resident investor can be pledged in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor / non-resident promoter of the Indian company or its overseas group company, subject to the following conditions :
(a) loan is availed of only from an overseas bank;
(b) loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly in India;

(c) overseas investment should not result in any capital inflow into India;

(d) in case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and

(e) submission of a declaration/ annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proceeds will be / have been utilized for the declared purpose.

Ref _ RBI Circular  RBI/2010-11 /497 May 2, 2011---A. P. (DIR Series) Circular No. 5

For any Clarification ,you may please contact me in the following email - rvsekar2007@gmail.com

Setting up a Liaison office in India – DO’s and Don’ts

Setting up  a Liaison office in India – DO’s and Dont's

Setting up of Liaison office

ü  A representative office or a liaison office of a foreign company may be set up in India chiefly to understand and explore the investment and business climate in India. Hence , a Liaison office is not authorised or allowed to engage in trading / commercial / industrial activity either indirectly or directly in India . 

Only the following activities are permitted to becarried on by a Liaison office in India.

ü  To promote financial or technical collaboration between companies in India and with that of foreign parent company.

ü  To represent foreign parent company in India

ü  To promote import or export into or out of India

ü  Providing active communication about business environment to foreign parent company .

Prior approval from RBI is necessary to open a liaison office in India to represent their foreign parent company.

Restriction of activities by a Liaison office in India

v   A liaison office cannot carry on any business activity or generate any income in India.

v  It should maintain a QA22C account with any nominated bank in India . This is a special type of account where only inflows are allowed from foreign countries.

v  A liaison office cannot lend or borrow money in India.

v  A Liaison office is not subject to taxation in India

v  From the inward remittance , all expenses of the Liaison office are to be met with.

v  Annually , the liaison office should submit its annual accounts and APR ( Annual Performance Report) with the RBI.

v  Permission for a Liaison office in India is usually granted from one to 3 years.

What are all the document to be submitted with the RBI for getting approval for setting up a liaison office in India ?

Ø  3 Copies of Form FCN 1

Ø  A letter from Foreign parent company of its intention to setup a liaison office in India

Ø  If a local representative is appointed , then authorisation letter from foreign parent company in this regard to RBI.

Ø  Two copies of Memorandum and Articles of Association of the foreign parent company in English duly attested   by a Notary public or by the Indian Embassy official in that country.

O Procedure for Renewal of Liaison Office  

      Letter should be addressed to Foreign Exchange Department, RBI, regional office (or respective regional office under which principal office of liaison office situates) sought renewal itself is sufficient. No need to apply with RBI, Mumbai. 

a

Application for renewal should be made before the expiry of the validity period of the Liaison office through the AD-Category 1 bank .

     Must ensure submission of APR for the first three years.

      Renewal Letter needs to be forwarded through AD Bank.of such Liaison office 

      RBI may  give permission for further one year or  three years on case to case basis.
 
 R RBI may not accord renewal of Liaison office who are in the field of construction and Development sectors and those involved in NBFC activities.
     
     These above entities after the expiry of their LO should wind-up their operations or should convert their LO into JV or WOS in pursuance to existing FDI policy of Indian Government .
    
     Application for renewal of LO from Insurance Companies will be under the purview of IRDA ( Insurance Regulatory and Development Authority ).
 


T

NO Objection certificate is needed for NBFCs to invest in their foreign branch, representative office subsidiary or JV

Please refer to Regulation No. 7 of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004, dated July 07, 2004, in terms of which an Indian party requires prior approval of the concerned regulatory authorities both in India and abroad, to make an investment in an entity outside India engaged in financial services activities. 

Further in terms of para B.5.3 of the Master Circular on Direct Investment in Joint Venture (JV) / Wholly owned subsidiary (WOS) abroad dated July 01, 2009 issued by Foreign Exchange Department, RBI, regulated entities in the financial sector making investments in any activity overseas are required to comply with the above regulation.

2. In this connection please also refer to the circular DNBS (PD).CC. No. 173/03.10.01/2009-10 dated May 03, 2010 titled ‘Overseas Investment by NBFCs- No Objection (NoC) from DNBS, RBI’ issued to all NBFCs wherein it was advised that all NBFCs desirous of making any overseas investment must obtain ‘No Objection’ (NoC) of the Department of Non-Banking Supervision of Reserve Bank before making such investment, from the Regional Office of the Bank in whose jurisdiction the head office of the company is registered.

3. A NoC in this regard will be issued by Reserve Bank to a NBFC, subject to the NBFC fulfilling the conditions enumerated in the Directions issued in this regard by Reserve Bank in exercise of powers under Sections 45JA, 45K and 45L of the RBI Act, 1934 vide Notification No.DNBS(PD)229/CGM(US)/2011 dated June 14, 2011.

the following conditions have been prescribed by RBI in this regard:-

i) Investment in non-financial services sectors shall not be permitted;

ii) Direct investment in activities prohibited under FEMA or in sectoral funds will not be permitted;

iii) Aggregate overseas investment should not exceed 100% of the Net Owned Fund (NoF);

iv) Overseas investment should not involve multi layered, cross jurisdictional structures;

v) The level of NPA of NBFC should not be more than 5% of the net advances; and the NBFC shall comply with the regulation issued FEMA, 1999 from time to time; and shall also comply with the KYC norms.

RBI has also clarified that any permission issued by it in this regard is independent of the approval process of the overseas regulators.

RBI has given permission to 28 companies to open subsidiaries abroad.

REFERENCE -  RBI/2010-11/566 DNBS (PD) CC.No. 222/03.10.001/2010-11

For any Clarification ,you may please contact me in the following email - rvsekar2007@gmail.com

Remittance of assets( savings ) by foreign nationals- Opening and Operation of NRO Accounts

1.The foreign nationals employed in India holding valid visas are eligible to maintain resident accounts with an Authorised Dealer Category - I (AD Category-I) bank in India. The AD Category-I banks are required to close the resident accounts of such foreign nationals on their leaving the country and transfer their assets to their accounts maintained abroad.

In this connection, attention of the AD Category-I banks is invited to paragraph 8 of Schedule 3 to the Notification No. FEMA 5 /2000-RB dated 3rd May 2000, viz. Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time, in terms of which when a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating her / his stay outside India for an uncertain period, her / his existing account should be designated as a Non-Resident (Ordinary) [NRO] Account.

2. The extant instructions have been reviewed so as to facilitate the foreign nationals to collect their pending dues in India. AD Category-I banks may, therefore, permit such foreign nationals to re-designate their resident account maintained in India as NRO account on leaving the country after their employment to enable them to receive their pending bonafide dues, subject to the following conditions:

a) AD Category-I bank should obtain the full details from the account holder about his legitimate dues expected to be received into his account.

b) AD Category-I bank has to satisfy itself as regards the credit of amounts which have to be bonafide dues of the account holder when she / he was a resident in India.

c) The funds credited to the NRO account should be repatriated abroad immediately, subject to the AD Category-I bank satisfying itself regarding the payment of the applicable Income tax and other taxes in India.

d) The amount repatriated abroad should not exceed USD one million per financial year.

e) The debit to the account should be only for the purpose of repatriation to the account holder’s account maintained abroad.

f) There should not be any other inflow / credit to this account other than that mentioned at point (a) above

Reference -RBI/2010-11/ 560   A.P. (DIR Series) Circular No.70  dated June 9, 2011

For any Clarification ,you may please contact me in the following email - rvsekar2007@gmail.com

Issue of guarantee by an Indian Party to step down subsidiary of JV /WOS under general permission

Issue of guarantee by an Indian Party to step down subsidiary of JV /WOS under general permission

(a) Currently Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV /WOS set up by their JV /WOS operating as a Special Purpose Vehicle (SPV) under the Automatic Route, subject to the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment. As a measure of further liberalization, it has been decided that irrespective of whether the direct subsidiary is an operating company or a SPV, the Indian promoter entity may extend corporate guarantee on behalf of the first generation step down operating company under the Automatic Route, within the prevailing limit for overseas direct investment. Such guarantees will have to be reported to the Reserve Bank in Form ODI, as hitherto, through the designated AD concerned.

(b) Further, it has also been decided that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party directly or indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued.

Disinvestment by the Indian Parties of their stake in an overseas JV/WOS involving write-off

Disinvestment by the Indian Parties of their stake in an overseas JV/WOS involving write-off

(a) Currently, in terms of Regulation 16 of the Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, all disinvestment involving ‘write off’, i.e., where the amount repatriated on disinvestment is less than the amount of original investment, need prior approval of the Reserve Bank. In terms of A.P. (DIR Series) Circular No. 29 dated March 27, 2006 it was decided to allow the under-noted categories of disinvestment under the Automatic Route without prior approval of the Reserve Bank, subject to the following conditions:

i) In cases where the JV/WOS is listed in the overseas stock exchange;
ii) In cases where the Indian promoter company is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; and
iii) Where the Indian promoter company is an unlisted company and the investment in the overseas venture does not exceed USD 10 million.

In partial modification of the above, it has now been decided to include listed Indian promoter companies with net worth of less than Rs.100 crore and investment in an overseas JV/WOS not exceeding USD 10 million, for disinvestment under the Automatic Route with the requirement that the Indian Party shall report the disinvestment through its designated AD Category I bank within 30 days from the date of disinvestment.

(b) It is also clarified that disinvestment cases falling under the Automatic Route would also include cases where the amount repatriated after disinvestment is less than the original amount invested, provided the corporate falls under the above mentioned categories.