Overseas Direct Investments by Indian Party – Rationalization / Liberalization - FEMA - 54

RBI/2014-15/371 A.P. (DIR Series) Circular No. 54 December 29, 2014 To All Category - I Authorised Dealer Banks Madam / Sir, Overseas Direct Investments by Indian Party Rationalization / Liberalization Attention of the Authorised Dealer (AD - Category I) bank is invited to Regulation 18 and 18A of Notification No. FEMA. 120/RB-2004 dated July 7, 2004 [ Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004 ] (the Notification), as amended from time to time and the provisions under A.P. (DIR Series) Circular No. 96 dated March 28, 2012. 2. In order to grant more flexibility to the Indian party, it has been decided to further liberalize certain regulations of the Notification as detailed under. (i) Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of domestic / overseas lender In terms of the extant FEMA provisions, creation of charge (pledge) on the shares of an JV / WOS of an Indian party in favour of domestic / overseas lender for the purpose of availing facilities (funded or non-funded) by the Indian party and / or the concerned JV / WOS is under the automatic route. It has been decided that the designated AD bank may permit creation of charge / pledge on the shares of the JV / WOS / SDS (irrespective of the level) of an Indian party in favour of a domestic or overseas lender for securing the funded and / or non-funded facility to be availed of by the Indian party or by its group companies / sister concerns / associate concerns or by any of its JV / WOS / SDS (irrespective of the level) under the automatic route subject to the following: The Indian party is complying with the provisions under Regulation 6 (and Regulation 7, if applicable) of the Notification ibid for undertaking financial commitment; Compliance to the provisions under Regulation 18A(2) of the Notification ibid; The overseas assets, on which charge is being created, are not securitized; The period of charge, if not specified upfront, may be co-terminus with the period of end use (like loan or other facility) for which charge has been created; The loan / facility availed by the JV / WOS / SDS from the domestic lender shall be utilized only for its core business activities overseas and not for investing back in India in any manner whatsoever; A certificate from the Statutory Auditors of the Indian party, to the effect that the loan / facility availed by the JV / WOS / SDS has not been utilized for direct or indirect investments in India, is to be obtained and kept by the designated AD; The invocation of charge resulting into the domestic lender acquiring the overseas assets shall require prior approval of the Reserve Bank; and The matter relating to the setting up / acquiring the multi-layered structure of overseas entities by the Indian party, wherever applicable, is under the examination of the Reserve Bank and the decision taken in this regard shall be conveyed in due course for necessary compliance at AD / Indian party level. 3. Necessary amendments to the Notification ibid has been issued vide Notification No. FEMA.322/2014-RB dated October 14, 2014 and effective from the date of publication in the Gazette i.e. December 03, 2014. 4. AD - Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law. Yours faithfully, (C D Srinivasan) Chief General Manager