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TMI BlogMaster Circular on Foreign Investment in India ((Amended upto April 08, 2015)X X X X Extracts X X X X X X X X Extracts X X X X ..... suitably indicated. 3. This Master Circular may be referred to for general guidance. The Authorised Persons and the Authorised Dealer Category - I banks may refer to respective circulars/ notifications for detailed information, if so needed. Yours faithfully, (B. P. Kanungo) Principal Chief General Manager INDEX PART - I Foreign Investments in India - Schematic Representation Section - I: Foreign Direct Investment 1. Foreign Direct Investment in India 2. Entry routes for investments in India 3. Eligibility for investment in India 4. Type of instruments 5. Pricing guidelines 6. Mode of payment 7. Foreign investment limits, prohibited sectors and investment n MSEs 8. Modes of investment under Foreign Direct Investment Scheme 8.A Issuance of fresh shares by the company 8.B Acquisition by way of transfer of existing shares by person resident outside India 8.C Issue of Rights /Bonus shares 8.D Issue of shares under Employees Stock Option Scheme (ESOPs) 8.E Conversion of ECB / Lumpsum Fee / Royalty / Import of capital goods by SEZs in to Equity / Import payables / Pre incorporation expenses 8.F Issue of shares eligible securities by Indian Companies under De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NRI investments under PIS 8. Reporting of foreign investment by way of issue / transfer of 'participating interest/right' in oil fields PART II Investment in Partnership Firm / Proprietary Concern 1. Investment in partnership firm / proprietary concern 2. Investments with repatriation benefits 3. Investment by non-residents other than NRIs/PIO 4. Restrictions Annexures Annex A - Salient features of Portfolio Investment Scheme (PIS) for investments by a Non Resident Indian (NRI) Annex B - Scheme for Acquisition/ Transfer by a person resident outside India of capital contribution or profit share of Limited Liability Partnerships (LLPs) Annex - 1 Sector-Specific Policy For Foreign Investment Annex - 2 Sectors prohibited for FDI Annex - 3 Terms And Conditions for Transfer Of Shares / Convertible Debentures, By Way Of Sale Annex - 4 Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift Annex - 5 Definition Of "Relative" As Given in Section 6 Of Companies Act, 1956 Annex - 6 report by the Indian company receiving amount of consideration for issue of shares / convertible deben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r approval of the Government of India (Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be) for the investment. 3. Eligibility for Investment in India * A person resident outside India or an entity incorporated outside India, can invest in India, subject to the FDI Policy of the Government of India. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Scheme, with the prior approval of the FIPB. Further, a person who is a citizen of Pakistan or an entity incorporated in Pakistan, may, with the prior approval of the FIPB, can invest in an Indian company under FDI Scheme, subject to the prohibitions applicable to all foreign investors and the Indian company, receiving such foreign direct investment, should not be engaged in sectors / activities pertaining to defence, space and atomic energy. * NRIs, resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in shares and convertible debentures of Indian companies under FDI Scheme on repatriation basis, subject to the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Borrowings (ECBs). On and from December 30, 2013 it has been decided that optionality clauses may henceforth be allowed in equity shares and compulsorily and mandatorily convertible preference shares/debentures to be issued to a person resident outside India under the Foreign Direct Investment (FDI) Scheme. The optionality clause will oblige the buy-back of securities from the investor at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return. The provision of optionality clause shall be subject to the following conditions: (a) There is a minimum lock-in period of one year or a minimum lock-in period as prescribed under FDI Regulations, whichever is higher (e.g. defence sector where the lock-in period of three years has been prescribed). The lock-in period shall be effective from the date of allotment of such shares or convertible debentures or as prescribed for defence sector, etc. in Annex B to Schedule 1 of Notification No. FEMA. 20 as amended from time to time; (b) After the lock-in period, as applicable above, the non-resident investor exercising option/right shall be eligible to exit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rupees five hundred crores. However, the investee company shall appoint a monitoring agency on the same lines as required in case of a listed Indian company under the SEBI (ICDR) Regulations. Such monitoring agency (AD Category -1 bank) shall report to the investee company as prescribed by the SEBI regulations, ibid, for the listed companies. The pricing of the warrants and price/ conversion formula shall be determined upfront and 25% of the consideration amount shall also be received upfront. The balance consideration towards fully paid up equity shares shall be received within a period of 18 months; The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants, in accordance with the extant FEMA Regulations and pricing guidelines stipulated by RBI from time to time. Thus, Investee Company shall be free to receive consideration more than the pre-agreed price. It is clarified that where the liability sought to be converted by the company is denominated in foreign currency as in case of ECB, import of capital goods, etc. it will be in order to apply the exchange rate prevailing on the date of the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Investee company under these guidelines for issue/transfer of partly-paid shares/warrants, shall require to comply with the requirements under the Companies Act, 2013 for issuance of partly paid shares and warrants; * Issue of shares by SEZs against import of capital goods: In this case, the share valuation has to be done by a Committee consisting of Development Commissioner and the appropriate Customs officials. * Right Shares: The price of shares offered on rights basis by the Indian company to non-resident shareholders shall be: * In the case of shares of a company listed on a recognised stock exchange in India, at a price as determined by the company. * In the case of shares of a company not listed on a recognised stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to the resident shareholders. * Acquisition / transfer of existing shares (private arrangement). The acquisition of existing shares from Resident to Non-resident (i.e. to incorporated non-resident entity other than erstwhile OCB, foreign national, NRI, FII) would be at a:-; (a) negotiated price for shares of companies listed on a recognized s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as consideration for issue of shares with the approval of FIPB. (v) debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category - I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration. If the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR(B) / Escrow account, the amount of consideration shall be refunded. Further, the Reserve Bank may on an application made to it and for sufficient reasons, permit an Indian Company to refund / allot shares for the amount of consideration received towards issue of security if such amount is outstanding beyond the period of 180 days from the date of receipt. 7. Foreign Investment limits, Prohibited Sectors and investment in MSEs a) Foreign Investment Limits The details of the entry route applicable and the maximum permissible foreign investment / sectoral cap in an Indian Company are determined by the sector in which it is operating. The details of the entry route applicable along with the sectoral cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not exceed two crore rupees. c) Prohibition on foreign investment in India (i) Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as, Trusts) which is engaged or proposes to engage in the following activities: * Business of chit fund, or * Nidhi company, or * Agricultural or plantation activities, or * Real estate business, or construction of farm houses, or * Trading in Transferable Development Rights (TDRs). (ii) It is clarified that "real estate business" means dealing in land and immovable property with a view to earning profit or earning income therefrom and does not include development of townships, construction of residential / commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. It is further clarified that partnership firms /proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print media sector. (iii) In addition to the above, Foreign investment in the form of FDI is also prohibited in certain sectors such as (Annex-2): (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them to another NRI. c. Non Resident to Resident(Sale / Gift): (i) Gift: A person resident outside India can transfer any security to a person resident in India by way of gift. (ii) Sale under private arrangement: General permission is also available for transfer of shares / convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India in case where transfer of shares are under SEBI regulations and where the FEMA pricing guidelines are not met, subject to the following * The original and resultant investment comply with the extant FDI policy/ FEMA regulations; * The pricing complies with the relevant SEBI regulations (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI (SAST) and buy back); and * CA certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form FC-TRS to be filed with the AD bank. * Compliance with reporting and other guidelines as given in Annex 3. Note: Transfer of shares from a Non Resident to Resident other than under SEBI regulations and where the FEMA pricing guidelines are not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization,etc.),reporting requirements, documentation, etc.; ii) The pricing for the transaction is compliant with specific/explicit , extant and relevant SEBI regulations(such as IPO, book building, block deals, delisting, open/ exit offer,substantial acquisition/SEBI(SAST); and iii) CA Certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form FC-TRS to be filed with the AD bank. d) where the investee company is in the financial services sector provided that: i). With effect from October 11, 2103, the requirement of NoC(s) from the respective regulators/regulators of the investee company as well as the transferor and transferee entities and filing of such NOCs along with the Form FC-TRS with the AD bank has been waived from the perspective of Foreign Exchange Management Act, 1999 and no such NoC(s) need to be filed along with form FC-TRS. However, any 'fit and proper/ due diligence' requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated May 3, 2000, as amended from time to time. b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company / each series of debentures / each mutual fund scheme. c) The applicable sectoral cap limit in the Indian company is not breached. d) The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 6 of the Companies Act, 1956, as amended from time to time. The current list is reproduced in Annex - 5. e) The value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 per financial year. f) Such other conditions as stipulated by the Reserve Bank in public interest from time to time. (iii) Transfer of shares from NRI to NR requires the prior approval of the Reserve Bank of India. 8.B.V - Escrow account for transfer of shares AD Category - I banks have been given general permission to open and maintain non-interest bearing Escrow account in Indian Rupees in India on behalf of residents and non-residents, towards payment of share purchase consideration and / or provide Escrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Issue of Right shares to OCBs: OCBs have been de-recognised as a class of investor with effect from September 16, 2003. Therefore, companies desiring to issue rights share to such erstwhile OCBs will have to take specific prior permission from the Reserve Bank. As such, entitlement of rights share is not automatically available to OCBs. However, bonus shares can be issued to erstwhile OCBs without prior approval of the Reserve Bank, provided that the OCB is not in the adverse list of RBI. * Additional allocation of rights share by residents to non-residents : Existing non-resident shareholders are allowed to apply for issue of additional shares / convertible debentures / preference shares over and above their rights share entitlements. The investee company can allot the additional rights shares out of unsubscribed portion, subject to the condition that the overall issue of shares to non-residents in the total paid-up capital of the company does not exceed the sectoral cap. 8. D. Issue of shares under Employees Stock Option Scheme (ESOPs) An Indian Company may issue shares under ESOPs to its employees or employees of its joint venture or wholly owned subsidiary abroad who are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment route, subject to the compliance with the following conditions: (a) 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; (b) There is an independent valuation of the capital goods /machineries / equipments 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; (c) The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and (d) Applications complete in all respects, for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods. (v) Issue of equity shares against Pre-operative / pre - incorporation expenses (including payment of rent etc.) is allowed under the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000, a person will be eligible to issue or transfer eligible securities to a foreign depository, for the purpose of converting the securities so purchased into depository receipts in terms of Depository Receipts Scheme, 2014 and guidelines issued by the Government of India thereunder from time to time. Depository Receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the corresponding provisions of DR Scheme, 2014 and have to comply with the provisions laid out in Schedule 10 of Notification ibid. * A company can issue DRs, if it is eligible to issue eligible instruments to person resident outside India under Schedules 1, 2, 2A, 3, 5 and 8 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. * The aggregate of eligible securities which may be issued or transferred to foreign depositories, along with eligible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible securities under the the relevant regulations framed under FEMA, 1999. * The eligible secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh shares to the non-residents as well as transfer of shares to the non-residents as well as transfer of shares from / to the non-residents. 10. Acquisition of shares under Scheme of Merger / Amalgamation Mergers and amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the Scheme submitted by the companies undergoing merger/amalgamation. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a Court in India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India, subject to the conditions that : (i) the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap, and (ii) the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI policy (refer para 7(c) ). 11. Remittance of sale proceeds AD Category - I bank can allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller of shares resident outside India, provided the security has been he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pledge, transfer shall be in accordance with the extant FDI Policy and directions issued by the Reserve Bank; iii). the Statutory Auditor has certified that the borrowing company will be utilized / has utilized the proceeds of the ECB for the permitted end use/s only. b) Non-resident holding shares of an Indian company, can pledge these shares in favour of the AD bank in India to secure credit facilities being extended to the resident investee company for bonafide business purpose, subject to the following conditions: * 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; * 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; * the Indian company has to follow the relevant SEBI disclosure norms; and * pledge of shares in favour of the lender (bank) would be subject to Section 19 of the Banking Regulation Act, 1949. c) Non-resident holding shares of an Indian company, can pledge these shares in favour of an overseas bank to secure the credit facilities being ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the calculation of total foreign investment in Indian companies, transfer of ownership and control of Indian companies and downstream investment by Indian companies (i) These guidelines, shall come into force from February 13, 2009 as mentioned in the Notification No.FEMA.278/2013-RB dated June 07, 2013 and notified vide G.S.R.393(E) dated June 21, 2013. (ii) Any foreign investment already made in accordance with the guidelines in existence prior to February 13, 2009 would not require any modification, to conform to these guidelines. All other investments, after the said date, would come under the ambit of these new guidelines. (iii) As regards investments made between February 13, 2009 and the date of publication of the FEMA notification, Indian companies shall be required to intimate within 90 days from July 4, 2013, through an AD Category I bank to the concerned Regional Office of the Reserve Bank, in whose jurisdiction the Registered Office of the company is located, detailed position where the issue/transfer of shares or downstream investment is not in conformity with the regulatory framework being prescribed. Reserve Bank shall consider treating such cases as compliant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in India' (as defined at Section 2(v) of FEMA, 1999), excluding an individual; (x) 'Resident Indian citizen' shall be interpreted in line with the definition of person resident in India as per FEMA, 1999, read in conjunction with the Indian Citizenship Act, 1955. (xi) 'Total foreign investment' in an Indian Company would be the sum total of direct and indirect foreign investment. B. Direct and indirect foreign investment in Indian companies - meaning 2. Investment in Indian companies can be made by both non-resident as well as resident Indian entities. Any non-resident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise both resident and non-resident investments. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The indirect investment can also be a cascading investment, i.e. through multi-layered structure. C. Guidelines for calculation of total foreign investment, i.e., direct and indirect foreign investment in an Indian company. 3.(i) Counting of Direct foreign investment: All investments made directly by non-resident enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tizens and Indian companies, which are owned and controlled by resident Indian citizens. (a) For this purpose, the equity held by the largest Indian shareholder would have to be at least 51% of the total equity, excluding the equity held by Public Sector Banks and Public Financial Institutions, as defined in Section 4A of the Companies Act, 1956. The term "largest Indian shareholder", used in this clause, will include any or a combination of the following: (aa) In the case of an individual shareholder, (aai) The individual shareholder, (aaii) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956. (aaiii) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest. (ab) In the case of an Indian company, (abi) The Indian company (abii) A group of Indian companies under the same management and ownership control. (b) For the purpose of this Clause, "Indian company" shall be a company which must have a resident Indian or a relative as defined under Section 6 of the Companies Act, 1956/ HUF, either singly or in combination holding at least 51% of the shares. (c) Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition, etc. or (v) It is clarified that these guidelines will not apply to sectors/activities where there are no foreign investment caps, that is, where100% foreign investment is permitted under the automatic route. (vi) For the purpose of computation of indirect foreign investment, foreign investment shall include all types of direct foreign investments in the Indian company making downstream investment. For this purpose, portfolio investments either by FIIs, NRIs, QFIs or RFPIs holding as on March 31 of the previous year would be taken into account. e.g. for monitoring foreign investment for the financial year 2011-12, investment as on March 31, 2011 would be taken into account. Besides, investments in the form of Foreign Direct Investment, Foreign Venture Capital investment, investments in ADRs/GDRs, Foreign Currency Convertible Bonds (FCCB) will also be taken in account. Thus, regardless of the investments having been made under Schedule 1, 2, 2A, 3, 6 and 8 of the Notification No.FEMA. 20/2000-RB dated May 3, 2000, as amended from time to tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny subject to the provisions above and as also elaborated below: Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian company /ies, will require prior Government/FIPB approval, regardless of the amount or extent of foreign investment. Foreign investment into Non-Banking Finance Companies (NBFCs), carrying on activities approved for FDI, will be subject to the conditions specified in Annex-B of Schedule 1 of FEMA Notification No. 20 dated May 3, 2000 as amended from time to time; Those companies, which are Core Investment Companies (CICs), will have to additionally follow RBI's Regulatory Framework for CICs. For infusion of foreign investment into an Indian company which does not have any operations and also does not have any downstream investments, Government/FIPB approval would be required, regardless of the amount or extent of foreign investment. Further, as and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps. Note: Foreign investment into other Indian companies would be in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y convertible/partially convertible debentures) under the FDI scheme would continue to be subject to A.P. (DIR Series) Circular Nos.73 and 74 dated June 8, 2007 as hitherto. 16. Foreign Direct Investment in Limited Liability Partnership (LLP) Limited Liability Partnership (LLP) formed and registered under the Limited Liability Partnership Act, 2008 shall be eligible to accept Foreign Direct Investment (FDI) under Government approval route, subject to the conditions given in Annex B. Section - II: Foreign investments under Portfolio Investment Scheme (PIS) 1. Entities (i) Foreign Institutional Investors (FIIs) registered with SEBI are eligible to purchase shares, convertible debentures and warrants issued by Indian companies under the Portfolio Investment Scheme (PIS). (ii) NRIs are eligible to purchase shares, convertible debentures and warrants issued by Indian companies under PIS, if they have been permitted by the designated branch of any AD Category - I bank. RBI will allot Unique Code number only to the Link Office of the AD Category - I bank. AD Category - I bank shall be free to permit its branches to administer the Portfolio Investment Scheme for NRIs, in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Indian companies A. FIIs (a) An Individual FII/ SEBI approved sub accounts of FIIs can invest up to a maximum of 10 per cent of the total paid-up capital or 10 per cent of the paid-up value of each series of convertible debentures issued by the Indian company. The 10 per cent limit would include shares held by SEBI registered FII/ SEBI approved sub accounts of FII under the PIS (by way of purchases made through a registered broker on a recognized stock exchange in India or by way of offer/private placement) as well as shares acquired by SEBI registered FII under the FDI scheme. (b) Total holdings of all FIIs / SEBI approved sub accounts of FIIs put together shall not exceed 24 per cent of the paid-up capital or paid-up value of each series of convertible debentures. This limit of 24 per cent can be increased to the sectoral cap / statutory limit, as applicable to the Indian company concerned, by passing of a resolution by its Board of Directors, followed by a special resolution to that effect by its General Body which should necessarily be intimated to the Reserve Bank of India immediately as hitherto, along with certificate from the Company Secretary stating that all the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine investments in securities in terms of the SEBI (FII) Regulations, 1995, as amended from time to time. The sums may be transferred from Foreign Currency Account to SNRR A/c at the prevailing market rate and the AD Category - I bank may transfer repatriable proceeds (after payment of tax) from the SNRR A/c to the Foreign Currency account. The SNRR A/c may be credited with the sale proceeds of shares / debentures, dated Government securities, Treasury Bills, etc. Such credits are allowed, subject to the condition that the AD Category - I bank should obtain confirmation from the investee company / FII concerned that tax at source, wherever necessary, has been deducted from the gross amount of dividend / interest payable / approved income to the share / debenture / Government securities holder at the applicable rate, in accordance with the Income Tax Act. The SNRR A/c may be debited for purchase of shares / debentures, dated Government securities, Treasury Bills, etc., and for payment of fees to applicant FIIs' local Chartered Accountant / Tax Consultant where such fees constitute an integral part of their investment process. B. NRIs NRIs can approach the designated branch of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the guidelines issued from time to time by SEBI in this regard: a. to open and maintain demat accounts with foreign depositories and to acquire, hold, pledge and transfer the foreign sovereign securities, offered as collateral by FIIs; b. to remit the proceeds arising from corporate action, if any, on such foreign sovereign securities; and c. to liquidate such foreign sovereign securities, if the need arises. Clearing Corporations have to report, on a monthly basis, the balances of foreign sovereign securities, held by them as non-cash collaterals of their clearing members to the Reserve Bank. The report should be submitted by the 10th of the following month to which it relates. b) Equity Segment: The above guidelines are also applicable to the equity segment. Further, domestic Government Securities (subject to the overall limits specified by SEBI from time to time, the current limit being USD 30 billion and investments in Corporate bonds can also be kept as collateral with the recognised Stock Exchanges in India, in addition to cash and foreign sovereign securities with AAA rating for their transactions in cash segment of the market. However, cross-margining of Government Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue price should be determined as per the pricing guidelines stipulated under the FDI scheme. 8. Transfer of shares acquired under PIS under private arrangement Shares purchased by NRIs and FIIs on the stock exchange under PIS cannot be transferred by way of sale under private arrangement or by way of gift to a person resident in India or outside India without prior approval of the Reserve Bank. However, NRIs can transfer shares acquired under PIS to their relatives as defined in Section 6 of Companies Act, 1956 or to a charitable trust duly registered under the laws in India. 9. Monitoring of investment position by RBI and AD banks The Reserve Bank monitors the investment position of RFPIs/NRIs in listed Indian companies, reported by Custodian/designated AD banks, on a daily basis, in Forms LEC (FII) and LEC (NRI). However, the respective designated bank (NRIs) / Custodian bank (FIIs) should monitor: * the individual limit of NRI / RFPI to ensure that it does not breach the prescribed limits. * that the trades are not undertaken in the prohibited sectors when the same is reported to them. * that all trades are reported to them by monitoring the transactions in the design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Stock Exchanges, on behalf of their FII clients for purchase of shares under the Portfolio Investment Scheme (PIS). 14. Investment by Qualified Foreign Investors (QFIs) in listed equity shares Qualified Foreign Investors, who meet the following definition are allowed to make investments in all eligible securities for QFIs: (i) Definition - QFIs shall mean a person who fulfills the following criteria : (a) Resident in a country that is a member of Financial Action task Force (FATF) or a member of a group which is a member of FATF; and (b) Resident in a country that is a signatory to IOSCO's MMoU (Appendix A Signatories) or a signatory of a bilateral MoU with SEBI PROVIDED that the person is not resident in a country listed in the public statements issued by FATF from time to time on jurisdictions having a strategic AML/CFT deficiencies to which counter measures apply or that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies; PROVIDED that such person is not resident in India; PROVIDED FURTHER that such person is not registered with SEBI as a Foreign Institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Each QFI shall maintain a single demat account with a QDP for all investments in eligible securities for QFIs in India. (v) Limits - The individual and aggregate investment limits for investment by QFIs in equity shares of listed Indian companies shall be 5% and 10% respectively of the paid up capital of an Indian company. These limits shall be over and above the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme for foreign investment in India. Further, wherever there are composite sectoral caps under the extant FDI policy, these limits for QFI investment in equity shares shall also be within such overall FDI sectoral caps. The onus of monitoring and compliance of these limits shall remain jointly and severally with the respective QFIs, QDPs and the respective Indian companies (receiving such investment). (vi) KYC - QDPs will ensure KYC of the QFIs as per the norms prescribed by SEBI. AD Category-I banks will also ensure KYC of the QFIs for opening and maintenance of the single non- interest bearing Rupee accounts as per the extant norms. (vii) Permissible currencies - QFIs will remit foreign inward remittance through normal banking channel in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sell shares or convertible debentures so acquired * in open offer in accordance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; or * in an open offer in accordance with the SEBI (Delisting of Equity shares) Regulations, 2009; or * through buyback of shares by a listed Indian company in accordance with the SEBI (Buy-back of securities) Regulations, 1998 * RFPI may also acquire shares or convertible debentures * in any bid for, or acquisition of, securities in response to an offer for disinvestment of shares made by the Central Government or any State Government; or * in any transaction in securities pursuant to an agreement entered into with merchant banker in the process of market making or subscribing to unsubscribed portion of the issue in accordance with Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. * The individual and aggregate investment limits for the RFPIs shall be below 10% (per cent) or 24% (per cent) respectively of the total paid-up equity capital or 10% (per cent) or 24% (per cent) respectively of the paid-up value of each series of convertibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered Foreign Venture Capital Investor (FVCI) with specific approval from the Reserve Bank can invest in Indian Venture Capital Undertaking (IVCU) or Venture Capital Fund (VCF) or in a scheme floated by such VCFs subject to the condition that the domestic VCF is registered with SEBI. These investments by SEBI registered FVCI, would be subject to the respective SEBI regulations and FEMA regulations and sector specific caps of FDI. (ii) An IVCU is defined as a company incorporated in India whose shares are not listed on a recognized stock exchange in India and which is not engaged in an activity under the negative list specified by SEBI. A VCF is defined as a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capital raised in a manner specified under the said Regulations and which invests in Venture Capital Undertakings in accordance with the said Regulations. (iii) FVCIs can purchase equity / equity linked instruments / debt / debt instruments, debentures of an IVCU or of a VCF or in units of schemes / funds set up by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in non-convertible debentures issued by an Indian Company, both on repatriation basis and on non-repatriation basis, subject to the other terms and conditions stated under Notification No FEMA 4/2000-RB dated May 3, 2000 (as amended from time to time). NRIs may also invest, both on repatriation and non-repatriation basis, in non-convertible/redeemable preference shares or debentures issued in compliance with Regulation 7 (2) of FEMA Notification No. 20. (ii) On repatriation basis A NRI can purchase on repatriation basis, without limit, Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds; bonds issued by a public sector undertaking (PSU) in India and shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids. 2. Indian Depository Receipts (IDR) Indian Depository Receipts (IDRs) can be issued by non resident companies in India subject to and under the terms and conditions of Companies (Issue of Depository Receipts) Rules, 2004 and subsequent amendment made thereto and the SEBI (ICDR) Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e followed, on redemption of IDRs: i. Listed Indian companies may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulations 6B and 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time. ii. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulation 6C of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time. iii. Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares. iv. The FEMA provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs, RFPIs and NRIs. f) The proceeds of the issue of IDRs shall be immediately repatriated outside India by the eligible companies issuing such IDRs. The IDRs issued should be denominated in Indian Rupees. 3. Purchase of other securities by RFPIs, FIIs, QFIs and Long Term Investors R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds/ debentures by all borrowers eligible to raise ECB under the automatic route. All the other terms and conditions mentioned in para 4 (iv)[guarantee fee and other cost], (vi)[applicable rate of interest in case of default] to (viii)[reporting requirements] of A.P. (DIR Series) Circular No. 40 dated March 02, 2010 will remain unchanged. Further, w.e.f. February 03, 2015, all future investments by eligible investors within the limit for investment in corporate bonds shall be required to be made in corporate bonds with a minimum residual maturity of three years. Further, all future investments against the limits vacated when the current investment runs off either through sale or redemption, shall be required to be made in corporate bonds with a minimum residual maturity of three years. FPIs shall not be allowed to make any further investment in liquid and money market mutual fund schemes. FPIs shall not be allowed to make any further investment in CPs. The present limit for investment by SEBI registered FIIs, QFIs, long term investors and RFPIs in Government securities including Treasury Bills is USD 30 billion. Within USD 30 billion, a sub-limit of USD 10 billion was available f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruments (Tier I) should not exceed an aggregate ceiling of 24 per cent of each issue and investments by a single NRI should not exceed 5 percent of each issue. * Investment by FIIs in Rupee denominated Debt Capital instruments (Tier II) shall be within the limits stipulated by SEBI for FII investment in corporate debt instruments. * Investment by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments. (ii) The issuing banks are required to ensure compliance with the conditions stipulated above at the time of issue. They are also required to comply with the guidelines issued by the Department of Banking Operations and Development (DBOD), Reserve Bank of India, from time to time. (iii) The issue-wise details of the amount raised as Perpetual Debt Instruments qualifying for Tier I capital by the bank from RFPIs/FIIs / NRIs are required to be reported in the prescribed format within 30 days of the issue to the Reserve Bank. (iv) Investment by RFPIs/ FIIs in Rupee denominated Upper Tier II Instruments raised in Indian Rupees will be within the limit prescribed by SEBI for investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -resident investors are allowed to invest on repatriation basis in (i) Rupee and Foreign currency denominated bonds issued by the IDFs set up as an Indian company and registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank of India and in (ii) Rupee denominated units issued by IDFs set up as SEBI registered domestic Mutual Funds (MFs), in accordance with the terms and conditions stipulated by the SEBI and the Reserve Bank of India from time to time. (iii) The eligible instruments are Foreign Currency & Rupee denominated Bonds and Rupee denominated Units; (iv) The facility of Foreign exchange hedging would be available to non-resident IDF investors, IDFs as well as infrastructure project companies exposed to the foreign exchange/ currency risk. 8. Purchase of other securities by QFIs QFIs can invest through SEBI registered Qualified Depository Participants (QDPs) (defined as per the extant SEBI regulations) in eligible corporate debt instruments, viz. listed Non-Convertible Debentures (NCDs), listed bonds of Indian companies, listed units of Mutual Fund debt Schemes and "to be listed" corporate bonds (hereinafter referred to as 'eligible debt securities') dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consideration (including each upfront/call payment) to the Regional Office concerned of the Reserve Bank through it's AD Category I bank, not later than 30 days from the date of receipt in the Advance Reporting Form enclosed in Annex - 6. Non-compliance with the above provision would be reckoned as a contravention under FEMA, 1999 and could attract penal provisions. The Form can also be downloaded from the Reserve Bank's website http://www.rbi.org.in/Scripts/BSViewFemaForms.aspx (c) Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares/convertible debentures/warrants , through an AD Category - I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report (enclosed as Annex - 7) on the non-resident investor from the overseas bank remitting the amount. The report would be acknowledged by the Regional Office concerned, which will allot a Unique Identification Number (UIN) for the amount reported. (ii) Annual Return on Foreign Liabilities and Assets - All Indian companies which have received FDI and/or made FDI abroad in the previous year(s) including the curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed by Managing Director/Director/Secretary of the Company and submitted to the Authorised Dealer of the company, who will forward it to the concerned Regional Office of the Reserve Bank. The following documents have to be submitted along with Form FC-GPR: (i) A certificate from the Company Secretary of the company certifying that : * all the requirements of the Companies Act, 1956 have been complied with; * terms and conditions of the Government's approval, if any, have been complied with; * the company is eligible to issue shares under these Regulations; and * the company has all original certificates issued by AD banks in India evidencing receipt of amount of consideration. (ii) A certificate from SEBI registered Merchant Banker or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India. (c) The report of receipt of consideration as well as Form FC-GPR have to be submitted by the AD bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated. (d) Issue of bonus/rights shares or shares on conversion of stock options issued u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir constituents/customers together with the statement of inflows/outflows on account of remittances received/made in connection with transfer of shares, by way of sale, to IBD/FED/or the nodal office designated for the purpose by the bank in the enclosed proforma (which is to be prepared in MS-Excel format). The IBD/FED or the nodal office of the bank will consolidate reporting in respect of all the transactions reported by their branches into two statements inflow and outflow statement. These statements (inflow and outflow) should be forwarded on a monthly basis to Foreign Exchange Department, Reserve Bank, Foreign Investment Division, Central Office, Mumbai in soft copy (in MS- Excel) by e-mail. The bank should maintain the FC-TRS forms with it and should not forward the same to the Reserve Bank of India. (vi) The transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer in its books. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with SEBI who are purchasing various securities (except derivative and IDRs) by debit to the Special Non-Resident Rupee Account should report all such transactions details (except derivative and IDRs) in the Form LEC (FII) to Foreign Exchange Department, Reserve Bank of India, Central Office by uploading the same to the ORFS web site (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the bank's responsibility to ensure that the data submitted to RBI is reconciled by periodically taking a FII holding report for their bank. (iii) The Indian company which has issued shares to FIIs under the FDI Scheme (for which the payment has been received directly into company's account) and the Portfolio Investment Scheme (for which the payment has been received from FIIs' account maintained with an AD Category - I bank in India) should report these figures separately under item no. 5 of Form FC-GPR (Annex - 8) (Post-issue pattern of shareholding) so that the details could be suitably reconciled for statistical / monitoring purposes. 7. Reporting of NRI investments under Portfolio Investment Scheme (PIS) The designated link office of the AD Category - I bank shall furnish to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on will be decided in consultation with the Government of India. 4. Restrictions An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business (i.e. dealing in land and immovable property with a view to earning profit or earning income therefrom) or engaged in Print Media. Annex A Salient features of Portfolio Investment Scheme (PIS) for investments by a Non Resident Indian (NRI) a) An NRI intending to buy and sell shares / convertible debentures of an Indian company through a registered broker on a recognized stock exchange in India will apply in prescribed form to the designated branch of AD bank for participating in the Scheme on repatriation and / or non-repatriation basis. b) While applying, the NRI should also undertake that i) the particulars furnished are true and correct; ii) he has no dealing with/ he will not deal with any other designated branch/bank under PIS; iii) he will ensure that total holding in shares / convertible debentures, both on repatriation and non-repatriation basis in any one Indian company at no time shall exceed 5 per cent of the paid up capital/ paid up valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under; Permissible Credits (i) Inward remittances in foreign exchange though normal banking channels; (ii) Transfer from applicant's other NRE accounts or FCNR (B) accounts or NRO accounts maintained with AD bank in India; (iii) Net sale proceeds (after payment of applicable taxes) of shares and convertible debentures which were acquired on repatriation (at the NRI's option) and non repatriation basis under PIS and sold on stock exchange through registered broker; and (iv) dividend or income earned on investments under PIS. Permissible debits (i) Outward remittances of dividend or income earned; (ii) Amounts paid on account of purchase of shares and convertible debentures on non- repatriation basis on stock exchanges through registered broker under PIS. (iii) Any charges on account of sale/ purchase of shares or convertible debentures under PIS. g) The purchase of equity shares in an Indian company, both repatriation and non-repatriation basis by each NRI shall not exceed 5 per cent of the paid up capital of the company subject to an overall ceiling of 10 per cent of the total paid-up capital of the company concerned by all NRIs both on repatriation and non-repatriatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Reserve Bank to that designated branch/ AD bank to whom the PIS account is being transferred. o) In cases, where an NRI is eligible to make investment in India, his resident Power of Attorney holder can be permitted by AD bank to operate NRE(PIS)/NRO (PIS) account to facilitate investment under the Scheme. Annex B Scheme for Acquisition/ Transfer by a person resident outside India of capital contribution or profit share of Limited Liability Partnerships (LLPs) 1. Eligible Investors: A person resident outside India or an entity incorporated outside India shall be eligible investor for the purpose of FDI in LLPs. However, the following persons shall not be eligible to invest in LLPs: (i) a citizen/entity of Pakistan and Bangladesh or (ii) a SEBI registered Foreign Institutional Investor (FII) or (iii) a SEBI registered Foreign Venture Capital Investor (FVCI) or (iv) a SEBI registered Qualified Foreign Investor (QFI) or (v) a Foreign Portfolio Investor registered in accordance with Securities and Exchange Board of India(Foreign Portfolio Investors) Regulations, 2014 (RFPI). 2. Eligibility of LLP for accepting foreign Investment: (i) An LLP, existing or new, operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer shall be for a consideration equal to or more than the fair price of capital contribution/profit share of an LLP. Further, in case of transfer of capital contribution/profit share from a non-resident to a resident, the transfer shall be for a consideration which is less than or equal to the fair price of the capital contribution/profit share of an LLP. 6. Mode of payment for an eligible investor: Payment by an eligible investor towards capital contribution/profit share of LLPs will be allowed only by way of cash consideration to be received - i) by way of inward remittance through normal banking channels; or ii) by debit to NRE/FCNR(B) account of the person concerned, maintained with an AD Category - I bank. 7. Reporting: (i) LLPs shall report to the Regional Office concerned of the Reserve Bank, the details of the receipt of the amount of consideration for capital contribution and profit shares in Form FOREIGN DIRECT INVESTMENT-LLP(I) as given in Annex 11, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor in Annex 9-II, through an AD Category - I bank, and valuation certificate (as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. (iii) Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations (except the stipulation as regards mode of payment) are met and with the prior approval of FIPB/Government. (iv) LLPs shall not be permitted to avail External Commercial Borrowings (ECBs). Annex - 14 Appendix List of Important Circulars/Notifications which have been consolidated in the Master Circular on Foreign Investments in India and investments in proprietory / partnership firms Sl.No. Notification Date 1. No. FEMA 32/2000-RB December 26, 2000 2. No. FEMA 35/2001-RB February 16, 2001 3. No. FEMA 41/2001-RB March 2, 2001 4. No. FEMA 45/2001-RB September 20, 2001 5. No. FEMA 46/2001-RB November 29, 2001 6. No. FEMA 50/2002-RB February 20, 2002 7. No. FEMA 55/2002-RB March 7, 2002 8. No. FEMA 76/2002-RB November 12, 2002 9. No. FEMA 85/2003-RB January 17, 2003 10. No. FEMA 94/2003-RB June 18, 2003 11. No. FEMA 100/2003-RB October 3, 2003 12. No. FEMA 101/2003-RB October 3, 2003 13. No. FEMA 106/2003-RB October 27, 2003 14. No. FEMA 108/2003-RB January 1, 2004 15. No. FEMA 111/2004-RB March 6 , 2004 16. No.FEMA.118/2004-RB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular No.101 May 5, 2003 15. A.P.DIR(Series) Circular No.10 August 20, 2003 16. A.P.DIR(Series) Circular No.13 September 1, 2003 17. A.P.DIR(Series) Circular No.14 September 16, 2003 18. A.P.DIR(Series) Circular No.28 October 17, 2003 19. A.P.DIR(Series) Circular No.35 November 14, 2003 20. A.P.DIR(Series) Circular No.38 December 3, 2003 21. A.P.DIR(Series) Circular No.39 December 3, 2003 22. A.P.DIR(Series) Circular No.43 December 8, 2003 23. A.P.DIR(Series) Circular No.44 December 8, 2003 24. AP (DIR Series) Circular No.53 December 17, 2003 25. A.P.DIR(Series) Circular No.54 December 20, 2003 26. A.P.DIR(Series) Circular No.63 February 3, 2004 27. A.P.DIR(Series) Circular No.67 February 6, 2004 28. A.P.DIR(Series) Circular No.89 April 24, 2004 29. A.P.DIR(Series) Circular No.11 September 13, 2004 30. A.P.DIR(Series) Circular No.13 October 1, 2004 31. A.P.DIR(Series) Circular No.15 October 1, 2004 32 A.P.DIR(Series) Circular No.16 October 4, 2004 33. AP (DIR Series) Circular No. 04 July 29, 2005 34. A.P. (DIR Series) Circular No. 06 August 11, 2005 35. A.P. (DIR Series) Circular No. 07 August 17, 2005 36. A.P. (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 67 January 13, 2012 79. A.P. (DIR Series) Circular No. 89 March 1, 2012 80. A.P. (DIR Series) Circular No. 93 March 19, 2012 81. A.P. (DIR Series) Circular No. 94 March 19, 2012 82. A.P. (DIR Series) Circular No. 120 May 8, 2012 83. A.P. (DIR Series) Circular No. 121 May 8, 2012 84. A.P. (DIR Series) Circular No. 127 May 15, 2012 85. A.P. (DIR Series) Circular No. 133 June 20, 2012 86. A.P. (DIR Series) Circular No. 135 June 25, 2012 87. A.P. (DIR Series) Circular No. 137 June 28, 2012 88. A.P. (DIR Series) Circular No. 7 July 16, 2012 89. A.P. (DIR Series) Circular No. 16 August 22, 2012 90. A.P. (DIR Series) Circular No.19 August 28, 2012 91. A.P. (DIR Series) Circular No. 32 September 21, 2012 92. A.P. (DIR Series) Circular No. 36 September 26, 2012 93 A.P. (DIR Series) Circular No. 41 October 10, 2012 94. A.P. (DIR Series) Circular No. 74 January 10, 2013 95. A.P. (DIR Series) Circular No. 80 January 24, 2013 96. A.P. (DIR Series) Circular No. 90 March 14, 2013 97. A.P. (DIR Series) Circular No. 94 April 01, 2013 98. A.P. (DIR Series) Circular No. 104 May 17, 2013 99. A.P. (DIR Series) Circular No. 110 June 12, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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