TMI BlogForeign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004X X X X Extracts X X X X X X X X Extracts X X X X ..... e Regulations, unless the context otherwise requires: a. "Act" means Foreign Exchange Management Act, 1999, (42 of 1999): b. "authorised dealer" means a person authorised as an authorised dealer under sub section (1) of section 10 of the Act; c. "American Depository Receipt" (ADR) means a security issued by a bank or a depository in United States of America (USA) against underlying rupee shares of a company incorporated in India; d. 'Core Activity' means an activity carried on by an Indian entity turnover wherefrom constitutes not less than 50% of its total turnover in the previous accounting year; e. "Direct investment outside India" means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, but does not include portfolio investment . f. "Financial commitment" means the amount of direct investment by way of contribution to equity and loan and 50 per cent of the amount of guarantees issued by an Indian party to or on behalf of its overseas Joint Venture Company or Whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall have the meanings respectively assigned to them in the Act. 3. Prohibition on issue or transfer of foreign security Save as otherwise provided in the Act or rules or regulations made or directions issued thereunder, no person resident in India shall issue or transfer any foreign security: - Provided that the Reserve Bank may, on application made to it, permit any person resident in India to issue or transfer any foreign security. 4. Purchase and sale of foreign security by a person resident in India A person resident in India a. may purchase a foreign security out of funds held in Resident Foreign Currency (RFC) account maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts) Regulations, 2000; b. may acquire bonus shares on the foreign securities held in accordance with the provisions of the Act or rules or regulations made thereunder; c. when not permanently resident in India, may purchase a foreign security from out of his foreign currency resources outside India; d. may sell the foreign security purchased or acquired under clauses (a), (b) or (c). Explanation: For the purpose of this clause, 'not permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty routes all transactions relating to the investment in a Joint Venture/Wholly Owned Subsidiary through only one branch of an authorised dealer to be designated by it. Explanation: - The Indian Party may designate different branches of authorised dealers for different Joint Ventures/Wholly Owned Subsidiaries outside India. (vi) The Indian Party submits form ODA, duly completed, to the designated branch of an authorised dealer. (3) Investment under this Regulation may be funded out of one or more of the following sources, namely: - i. out of balance held in the Exchange Earners' Foreign Currency account of the Indian party maintained with an authorised dealer in accordance with Regulation 4 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000; ii. drawal of foreign exchange from an authorised dealer in India not exceeding 100 % of the net worth of the Indian Party as on the date of last audited balance sheet; Explanation : - For the purpose of the limit of 100% of the net worth the following shall be reckoned, namely: (a) cash remittance by market purchase (b) capitalisation of export proceeds and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and (ii) in all other cases, by a Chartered Accountant or a Certified Public Accountant. (b) For the purposes of investment under this Regulation by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party's shares, the valuation of shares of the company outside India shall in all cases, be carried out by a Category I Merchant Banker registered with the Securities and Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country. 6A General Permission for Investment in Agricultural Operations Overseas Directly or through Overseas Offices A person resident in India being a company incorporated in India or a partnership firm registered under Indian Partnership Act, 1932, may undertake agricultural operations including purchase of land incidental to such activity either directly or through their overseas offices; Provided that (a)the Indian party is otherwise eligible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an Indian company (1) An Indian Party may acquire shares of a foreign company, engaged in bonafide business activity , in exchange of ADRs/GDRs issued to the latter in accordance with the scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued thereunder from time to time by the Central Government; Provided that a. the Indian Party has already made an ADR and / or GDR issue and that such ADRs/GDRs are currently listed on any stock exchange outside India; such investment by the Indian Party does not exceed amount equivalent to 10 times the export earnings of the Indian Party during the preceding financial year as reflected in its audited balance-sheet, inclusive of all investments made under Regulations in Part I. b. the ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh equity shares issued by the Indian Party; c. the total holding in the Indian Party by persons resident outside India in the expanded capital base, after the new ADR and/or GDR issue, does not exceed the sectoral cap prescribed under the relevant regulations for such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Contribution to external trade and other benefits which will accrue to India through such investment; c. Financial position and business track record of the Indian Party and the foreign entity; d. Expertise and experience of the Indian Party in the same or related line of activity of the Joint Venture or Wholly Owned Subsidiary outside India. 10. Unique Identification Number Reserve bank will allot a unique Identification Number for each Joint Venture or Wholly Owned Subsidiary outside India and the Indian Party shall quote such number in all its communications and reports to the Reserve Bank and the authorised dealer. 11. Investment by capitalization (1) An Indian Party may make direct investment outside India in accordance with the Regulations in Part I by way of capitalisation in full or part of the amount due to the Indian Party from the foreign entity towards: - i. payment for export of plant, machinery, equipment and other goods/software to the foreign entity; ii. fees, royalties, commissions or other entitlements due to the Indian Party from the foreign entity for the supply of technical know-how, consultancy, managerial or other services Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, include the same in the Annual Performance Report required to be forwarded annually to the Reserve Bank in terms of Regulation 15. 14. Acquisition of a foreign company through bidding or tender procedure (1) On being approached by an Indian Party, which is eligible under the Regulations to make investment outside India, an authorised dealer may allow remittance towards earnest money deposit or issue a bid bond guarantee on its behalf for participation in bidding or tender procedure for acquisition of a company incorporated outside India, (2) On the Indian Party winning the bid, i. the authorised dealer may allow further remittances towards acquisition of the foreign company, subject to the ceilings specified in Regulation 6; and ii. the Indian Party shall submit through the authorised dealer concerned a report to the Reserve Bank in form ODA within 30 days of effecting the final remittance. (3) For participation in bidding or tender procedure for acquisition of a company incorporated outside India which does not fall within the provisions of sub-regulation (1), the Reserve Bank may, on application in Form ODI, allow remittance of foreign exchange towards earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations or operational requirements warrant such holdings, subject to the condition that the entire funding for such investment is done by the firm. 16 . Transfer by way of sale of shares of a JV/WOS outside India (1) An Indian party may transfer by way of sale to another Indian party who complies with the provisions of Regulation 6 above, or to a person resident outside India, any share or security held by him in a Joint Venture or Wholly Owned Subsidiary outside India Provided that (i) The sale does not result in any write-off of the investment made; (ii) the sale is effected through a stock exchange where the shares of the overseas Joint Venture or Wholly Owned Subsidiary are listed; (iii) 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 Joint Venture or Wholly Owned Subsidiary: (iv)The Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an authorised dealer or a public financial institution in India. Part II Investments abroad by Individuals in India 19. Prior Permission of the Reserve Bank for Direct Investment by a Proprietary Concern in India A proprietary concern in India may apply to the Reserve Bank in Form ODB for permission to accept shares of a company outside India in lieu of fees due to it for professional services rendered to the said company. Provided that: - (a) the value of the shares accepted from each company outside India shall not exceed fifty per cent of the fees receivable by the Indian concern from that company; and, (b) the Indian concern's shareholding in any one company outside India by virtue of shares accepted as aforesaid shall not exceed ten per cent of the paid-up capital of the company outside India, whose shares are accepted. 20.Investment by Individuals (1) A Resident individual may apply to the Reserve Bank for permission to acquire shares in a foreign entity offered as consideration for professional services rendered to the foreign entity. (2) Reserve Bank may, after taking into account, inter alia, the following factors, grant permission subject to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said foreign company. (3) An authorised dealer may allow the remittance by the person eligible to purchase the shares in terms of sub-regulation (2): - Provided that the condition specified in that sub-regulation is fulfilled. (4) A person resident in India may transfer by way of sale the shares acquired in terms of sub-regulation (1) and (2) above Provided that the proceeds thereof are repatriated immediately on receipt thereof and in any case not later than 90 days from the date of sale of such securities. 23. Transfer of a foreign security by a person resident in India A person resident in India, who has acquired or holds foreign securities in accordance with the provisions of the Act, rules or regulations made thereunder, may transfer them by way of pledge for obtaining fund based or non-fund based facilities in India from an authorised dealer. 24. General Permission for Acquisition of foreign securities as qualification / rights shares (1) A person resident in India being an individual may (a) acquire foreign securities as qualification shares issued by a company incorporated outside India for holding the post of a director in the company: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as it may be notified by SEBI from time to time. Sd/- (Shyamala Gopinath) Executive Director Schedule I See Regulation 21 (2)(i) Automatic Route for Issue of Foreign Currency Convertible Bonds (FCCBs) (i) The FCCBs to be issued will have to conform to the Foreign Direct Investment Policy (including Sectoral Cap and Sectors where FDI is permissible) of the Government of India as announced from time to time and the Reserve Bank's Regulations/directions issued from time to time. (ii) The issue of FCCBs shall be subject to a ceiling of USD 500 million in any one financial year. (iii) Public issue of FCCBs shall be only through reputed lead managers in the international capital market. In case of private placement, the placement shall be with banks, or with multilateral and bilateral financial institutions, or foreign collaborators, or foreign equity holder having a minimum holding of 5% of the paid up equity capital of the issuing company. Private placement with unrecognized sources is prohibited. (iv) The maturity of the FCCB shall not be less than 5 years. The call put option, if any, shall not be exercisable prior to 5 years. (v) Issue of FCCB ..... X X X X Extracts X X X X X X X X Extracts X X X X
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