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 ..... up to which the Master Circular has been updated is 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 Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Monitoring of Investment position by RBI and AD banks 10. Prior intimation to Reserve Bank of India 11. Caution List 12. Ban List 13. Issue of irrevocable payment commitment (IPCs) to stock exchanges on behalf of FIIs 14. Investments by Qualified Foreign investors (QFIs) in listed equity shares 15. Foreign Portfolio Investment Scheme Section - III: Foreign Venture Capital Investments 1. Investments by Foreign Venture Capital Investor Section - IV : Other Foreign Investments 1. Purchase of other securities by NRIS 2. Indian Depository Receipts (IDRs) 3. Purchase of other securities by RFPIs/FIIs , QFIs and long term investors 4. Investment by Multilateral Development Banks (MDBs) 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 debentures under the FDI scheme - advance remittance form Annex - 7 - Know Your Customer (KYC) Form in Respect Of The Non-Resident Investor Annex - 8 - FC- GPR Annex - 9-I - FC-TRS Annex - 9-II Know Your Customer (KYC) Form in respect of the non-resident investor Annex - 10 Return to be filed by an Indian Company who has arranged issue of GDR/ADR Annex-11 Form FOREIGN DIRECT INVESTMENT LLP(I) Annex-12 Form FOREIGN DIRECT INVESTMENT LLP(II) Annex-13 Appendix of A.P. DIR and Notifications Section - I: Foreign Direct Investment 1. Foreign Direct Investment in India Foreign Direct Investment (FDI) in India is : undertaken in accordance with the FDI Policy which is formulated and announced by the Government of India. The Department of Industrial Policy and Promotion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels. Overseas Corporate Bodies (OCBs) have been de-recognised as a class of investor in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under adverse notice of the Reserve Bank can make fresh investments under the FDI Scheme as incorporated non-resident entities, with the prior approval of the Government of India, if the investment is through the Government Route; and with the prior approval of the Reserve Bank, if the investment is through the Automatic Route. However, before making any fresh FDI under the FDI scheme, an erstwhile OCB shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gher (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 without any assured return, as under: (i) In case of a listed company, the non-resident investor shall be eligible to exit at the market price prevailing at the recognised stock exchanges; (ii) In case of unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares of the investee company at a price as per any internationally accepted pricing methodology on arm s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker. The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreements and shall exit at the fair price computed as above at the time of exit, subject to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance 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 agreement between the parties concerned for such conversion. Reserve Bank will have no objection if the borrower company wishes to issue equity shares for a rupee amount less than that arrived at as mentioned above by a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only. It is further clarified that the principle of calculation of INR equivalent for a liability denominated in foreign currency as mentioned at paragraph 3 above shall apply, mutatis mutandis , to all cases where any payables/liability by an Indian company such as, lump sum fees/royalties, etc. are permitted to be converted to equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stock exchange in India which shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant. (b) negotiated price for shares of companies which are not listed on a recognized stock exchange in India which shall not be less than the fair value worked out as per any internationally accepted pricing methodology for valuation of shares on arm s length basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund / 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 for foreign investment in various sectors are given in Annex -1. b) Investments in Micro and Small Enterprise (MSE) A company which is reckoned as Micro and Small Enterprise (MSE) (earlier Small Scale Industrial Unit) in terms of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, including an Export Oriented Unit or a Unit in Free Trade Zone or in Export Processing Zone or in a Software Technology Park or in an Electronic Hardware Technology Park, and which is not engaged in any activity/sector mentioned in Annex 2 may issue shares or convertible debentures to a person resident outside India (other than a resident of Pakistan and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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) Lottery Business including Government/ private lottery, online lotteries, etc. (b) Gambling and Betting including casinos etc. (c) Chit funds (d) Nidhi company (e) Trading in Transferable Development Rights (TDRs) (f) Real Estate Business or Construction of Farm Houses (g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (h) Activities / sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations (other than permitted activities mentioned in entry 18 of Annex B). Note: Foreign technology collaboration in any form including licensing for franchis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DI 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 met would require the prior approval of the Reserve Bank of India. iii) Sale of shares/ convertible debentures on the Stock Exchange by person resident outside India: A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI. AD Category -I bank may issue bank guarantee, without prior approval of the Reserve Bank, on behalf of a non-resident acquiring shares or convertible debentures of an Indian company through open offers/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall have to be complied with. ii). The FDI policy and FEMA Regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with. Note: The above general permission also covers transfer by a resident to a non-resident of shares / convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route of the Reserve Bank, as well as transfer of shares by a non-resident to an Indian company under buyback an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready 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 facilities for keeping securities to facilitate FDI transactions relating to transfer of shares. It has also been decided to permit SEBI authorised Depository Participant, to open and maintain, without approval of the Reserve Bank, Escrow account for securities as stated in para 9 (b). 8. B.VI Acquisition of shares under the FDI scheme by a non-resident on a recognized Stock Exchange A non resident including a Non Resident Indian may acquire shares of a listed Indian company on the stock exchange through a registered broker un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocation 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 resident outside India, other than to the citizens of Pakistan. Citizens of Bangladesh can invest with the prior approval of the FIPB. The face value of the shares to be allotted under the scheme to the non-resident employees should not exceed 5 per cent of the paid-up capital of the issuing company. Shares under ESOPs can be issued directly or through a Trust subject to the condition that the scheme has been drawn in terms of the relevant regulations issued by the SEBI. 8. E. Conversion of ECB / L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods /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 Government route, subject to compliance with the following conditions: a) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred. b) Verification and certification of the pre-incorporation / pre-operative expenses by the statutory auditor. c) Payments being made by the foreign investor to the company directly or through the bank account opened by the foreign investor, as provided under FEMA regulations. (as amended vide AP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 securities shall not be issued or transferred to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue or transfer of such securities to domestic investors under the relevant regulations framed under FEMA, 1999. The issue of depository receipts as per DR Scheme 2014 shall be reported to the Reserve Bank by the domestic custodian as per the reporting guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 held on repatriation basis, the sale of security has been made in accordance with the prescribed guidelines and NOC / tax clearance certificate from the Income Tax Department has been produced. 12. Remittance on winding up/liquidation of Companies AD Category - I banks have been allowed to remit winding up proceeds of companies in India, which are under liquidation, subject to payment of applicable taxes.Liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 extended to the non-resident investor / non-resident promoter of the Indian company or its overseas group company, subject to the following : loan is availed of only from an overseas bank; loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly in India; overseas investment should not result in any capital inflow into India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign 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 with these guidelines within a period of six months or such extended time as considered appropriate by RBI, in consultation with Government of India. A. Definitions 1 (i) Ownership and Control Company Owned by resident Indian citizens shall be an Indian company if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entities into the Indian company would be counted towards 'Direct foreign investment'. (ii) Counting of indirect foreign Investment: The entire indirect foreign investment by the investing company into the other Indian Company would be considered for the purpose of computation of indirect foreign investment. However, as an excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Provided that, in case of a combination of all or any of the entities mentioned in sub-clauses (aa) and (ab) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company. (E) If a declaration is made by persons as per section 187C of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment 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 time will be taken into account. E. Downstream investment by an Indian company which is not owned and/or controlled by resident entity/ies. 6. (i) Downstream investment by an Indian company, which is not owned and/ or controlled by resident entity/ies, into another Indian company, would be in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign 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 accordance/ compliance with the relevant sectoral conditions on entry route, conditionalities and caps. (e) The FDI recipient Indian company at the first level which is responsible for ensuring compliance with the FDI conditionalities like no indirect foreign investment in prohib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity 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 with Board approved policy subject to the following: a) the AD Category - I bank while granting permission to NRI for investment under PIS shall allow them to operate the scheme as per the terms and conditions at Annex A b) the AD Category - I b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebentures 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 relevant provisions of the extant Foreign Exchange Management Act, 1999 regulations and the Foreign Direct Investment Policy, as amended from time to to time have been complied with. B. NRIs (a) NRIs are allowed to invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 any AD Category - I bank for permission to open a single designated account (NRE/NRO account) under the PIS for routing investments. Payment for purchase of shares and/or debentures on repatriation basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vereign 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 Securities (placed as margins by the FIIs for their transactions in the cash segment of the market) shall not be allowed between the cash and the derivative segments of the marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 designated account. The onus of reporting of RFPI and NRI transactions is on the designated custodian/AD bank, depository participant as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Institutional Investor (FII) or Sub-Account of an FII or Foreign Venture Capital Investor (FVCI). Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 any permitted currency (freely convertible) directly into single non- in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 convertible debentures issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 a VCF th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an also invest 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the following guidelines shall be 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 securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident entities to the domestic debt raised through issue of INR bonds/ 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 billi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each issue. Investments by all NRIs in Rupee denominated Perpetual Debt instruments (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 Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, QFIs would be the eligible class non- resident investors which will be investing in IDFs. (ii) Eligible non-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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing shares / convertible debentures / preference shares/ warrants under the FDI Scheme, should report the details of the amount 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 For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion would be reckoned as a contravention under FEMA and could attract penal provisions. (b) Form FC-GPR has to be duly filled up and 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 ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout the transactions should certify the form FC-TRS as being in order. (v) The AD bank branch should submit two copies of the Form FC-TRS received from their 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Reporting of FII investments under Portfolio Investment Scheme (PIS) (i) FII reporting: The AD Category - I banks have to ensure that the FIIs registered 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 / mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and seek prior approval of Reserve Bank, for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered broker under PIS; and (iii) Any charges on account of sale/ purchase of shares or convertible debentures under PIS. f) The permissible credits and debits in the NRO(PIS) account for routing PIS transactions will be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank from whom the PIS account is being transferred should i) issue no objection certificate to the new designated branch / AD bank ii) furnish the list of all the existing holding as also the dates of reporting the transaction in LEC(NRI) to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and a valuation certificate to that effect shall be issued by a Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government. In case of transfer of capital contribution/profit share from a resident to a non-resident, the transfer 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the definition of person resident in India , as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999. (ii) The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any. (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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. No. FEMA.202/2009-RB November 10,2009 31 No. FEMA.205/2010-RB April 7,2010 32. No. FEMA.224/2012-RB March 07, 2012 33. No. FEMA.229/2012-RB April 23, 2012 34. No. FEMA.230/2012-RB May 29, 2012 35. No. FEMA.242/2012-RB October 19, 2012 36. No. FEMA.255/2013-RB January 19, 2013 37. No. FEMA.266/2013-RB March 05, 2013 38. No. FEMA.272/2013-RB March 26, 2013 39 No. FEMA.278/2013-RB June 07,2013 40. No. FEMA.279/2013-RB July 10, 2013 41. No. FEMA.285/2013-RB August 30, 2013 42. No. FEMA.291/2013-RB October 4, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.P.DIR(Series) Circular No.75 February 3, 2003 13. A.P.DIR(Series) Circular No.88 March 27, 2003 14. A.P.DIR(Series) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .( DIR Series) Circular No. 62 May 24, 2007 47. A.P.( DIR Series) Circular No. 65 May 31, 2007 48. A.P.( DIR Series) Circular No. 73 June 8, 2007 49. A.P.( DIR Series) Circular No. 74 June 8, 2007 50. A.P.( DIR Series) Circular No. 2 July 19, 2007 51. A.P.( DIR Series) Circular No. 20 December 14, 2007 52. A.P.( DIR Series) Circular No. 22 December 19, 2007 53. A.P.( DIR Series) Circular No. 23 December 31, 2007 54. A.P.( DIR Series) Circular No. 40 April 28, 2008 55. A.P.( DIR Series) Circular No. 41 April 28, 2008 56. A.P.( DIR Series) Circular No. 44 May 30, 2008 57. A.P.( DIR Series) Circular No. 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 2014 114. A.P. (Dir Series) Cricular No. 94 January 16,2014 115. A.P.(Dir Series) Circular No. 99 January 29, 2014 116. A.P.(DIR Seres) Circular No. 102 February 11, 2014 117. A.P.(DIR Series) Circular No.104 February 14, 2014 118. A.P.(DIR Series) Circular No. 107 February 20, 2014 119. A.P.(DIR Series) Circluar No. 112 March 25, 2014 120. A.P.(DIR Series) Circular No. 118 April 7, 2014 121. A.P.(DIR Series) Circular No. 123 April 16, 2014 122. A.P. (DIR Series) Circular No. 124 April 21, 2014 123. A.P. (DIR Series) Circular No. 127 May 2, 2014 124. A.P. (DIR Series) Circular No. 140 June 6, 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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