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Consolidated FDI Policy

FEMA - Circular 1 of 2015 - Dated:- 12-5-2015 - Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion Circular of 2015 Subject: The is attached. 2. This Circular will take effect from May 12, 2015. (Atul Chaturvedi) Joint Secretary to the Government of India D/o IPP F. No. 5(1)/2015-FC-1 Dated the 12th May, 2015 Copy forwarded to: 1. Press Information Officer, Press Information Bureau- for giving wide publicity to the above circular. 2. NIC, DIPP .....

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ed from portfolio investment, has the connotation of establishing a 'lasting interest' in an enterprise that is resident in an economy other than that of the investor. 1.1.2 The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily comprehensible. This framework is embodied in the Circular on , which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum. The Departme .....

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specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc. 1.1.3 The present consolidation subsumes and supersedes all Press Notes/Press Releases/Clarifications/Circulars issued by DIPP, which were in force as on May 11, .....

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ess Notes/Press Releases/Clarifications/Circulars, anything done or any action taken or purported to have been done or taken under the rescinded Press Notes/Press Releases/Clarifications/Circulars prior to May 12, 2015, shall, in so far as it is not inconsistent with those Press Notes/Press Releases/Clarifications/Circulars, be deemed to have been done or taken under the corresponding provisions of this circular and shall be valid and effective. Chapter 2: Definitions 2.1 Definitions 2.1.1 ' .....

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person authorized as an authorized dealer under sub-section (1) of section 10 of FEMA. 2.1.4 'Authorized Person' means an authorized dealer, money changer, offshore banking unit or any other person for the time being authorized under sub-section (a) of section 10 of FEMA to deal in foreign exchange or foreign securities. 2.1.5 'Capital' means equity shares; fully, compulsorily & mandatorily convertible preference shares; fully, compulsorily & mandatorily convertible deben .....

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hall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. 2.1.8 'Depository Receipt' (DR) means a negotiable security issued outside India by a Depository bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. DRs are traded .....

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at least sixty percent by non-resident Indians and includes overseas trust in which not less than sixty percent beneficial interest is held by non-resident Indians directly or indirectly but irrevocably and which was in existence on the date of commencement of the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003 (the Regulations) and immediately prior to such commencement was eligible to undertake transactions pursuant to the .....

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ssuing company in any manner, either in whole, or in part. 2.1.11 'FDI' means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (Original notification is available at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174 Subsequent amendment notifications are available at http://rbi.org.in/Scripts/BS_Fe .....

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(SEBI) (Foreign Institutional Investor) Regulations 1995. 2.1.15 'Foreign Portfolio Investor'(FPI) means a person registered in accordance with the provisions of Securities and Exchange Board of India (SEBI) (Foreign Portfolio Investors) Regulations, 2014, as amended from time to time. 2.1.16 'Foreign Venture Capital Investor' (FVCI) means an investor incorporated and established outside India, which is registered under the Securities and Exchange Board of India (Foreign Venture .....

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s which, directly or indirectly, are in a position to: (i) exercise twenty-six percent or more of voting rights in other enterprise; or (ii) appoint more than fifty percent of members of board of directors in the other enterprise. 2.1.19 'Holding Company' would have the same meaning as defined in Companies Act, as applicable. 2.1.20 'Indian Company' means a company incorporated in India under the Companies Act, as applicable. 2.1.21 'Indian Venture Capital Undertaking' (I .....

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Indian company/(ies), directly or indirectly, other than for trading of such holdings/securities. 2.1.23 'Investment on repatriable basis' means investment, the sale proceeds of which, net of taxes, are eligible to be repatriated out of India and the expression 'investment on non-repatriable basis' shall be construed accordingly. 2.1.24 'Joint Venture' (JV) means an Indian entity incorporated in accordance with the laws and regulations in India in whose capital a non-res .....

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by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and / or Indian companies, which are ultimately owned and controlled by resident Indian citizens; 2.1.29 'Person' includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub-cla .....

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) or (ii). 2.1.31 'Person resident in India' means- (i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include- (A) A person who has gone out of India or who stays outside India, in either case- (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention .....

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a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India. 2.1.32 'Person resident outside India' means a person who is not a Person resident in India. 2.1.33 'Portfolio Investment Scheme' means the Portfolio Investment Scheme referred to in Schedules 2, 2A & 3 of FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. 2.1.34 'A Qualified Foreign Investor' (QFI) .....

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in line with the definition of 'person resident in India' as per FEMA, 1999, read in conjunction with the Indian Citizenship Act, 1955. 2.1.38 'SEBI' means the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992. 2.1.39 'SEZ' means a Special Economic Zone as defined in Special Economic Zone Act, 2005. 2.1.40 'SIA' means Secretariat of Industrial Assistance in DIPP, Ministry of Commerce & Industry, Gover .....

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rd of India (Venture Capital Fund) Regulations, 1996, which (i) has a dedicated pool of capital; (ii) raised in the manner specified under the Regulations; and (iii) invests in accordance with the Regulations. Chapter 3: General Conditions on FDI 3.1 Who Can Invest in India? 3.1.1 A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only und .....

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nt shall be paid only by way of inward remittance in free foreign exchange through normal banking channels. 3.1.3 OCBs have been derecognized as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government route; and with the pr .....

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on by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI. The aggregate FII/FPI/QFI investment, in the FDI and Portfolio Investment Scheme, should be within the above caps. (ii) An Indian company which has issued shares to FIIs/FPIs under the FDI Policy for which the payment has been received directly into company's account should report these figures separately under item no. 5 of Form FC-GPR (Annex-1). (iii) A d .....

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registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges. 3.1.6 A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an Indian Venture Capital Undertaking (IVCU) and may also set up a domestic asset management company to manage the fund. All such investments can be made under the automatic route in terms of Schedule 6 to Notification No. FEMA 20. A SEBI registered FVCI can invest in a domestic venture capital fund .....

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VCF, units of schemes/funds set up by a VCF) by way of private arrangement/purchase from a third party also, subject to terms and conditions as stipulated in Schedule 6 of Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to time. It is also being clarified that SEBI registered FVCIs would also be allowed to invest in securities on a recognized stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000, as amended from time to time, as well as the ter .....

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e equity shares by way of right shares, bonus shares or equity shares on account of stock split/consolidation or equity shares on account of amalgamation, demerger or such corporate actions subject to the prescribed investment limits. QFIs are allowed to sell the equity shares so acquired subject to the relevant SEBI guidelines. 3.1.7.2 The individual and aggregate investment limits for the QFls shall be 5% and 10% respectively of the paid up capital of an Indian company. These limits shall be w .....

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s can issue capital against FDI. 3.2.2 FDI in Partnership Firm/Proprietary Concern (i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis provided; (a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers/Authorized banks. (b) The firm or proprietary concern is not engaged in any agricultural/plantation or real .....

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cation and seek prior approval of Reserve Bank for making investment in 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. (iv) 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 or print media. 3.2.3 FDI in Venture Capital Fund (VCF) FVCIs are allowed to invest in Indian .....

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an NRI) can invest in such domestic VCF under the automatic route of FDI Scheme, subject to the pricing guidelines, reporting requirements, mode of payment, minimum capitalization norms, etc. 3.2.4 FDI in Trusts FDI in Trusts other than VCF is not permitted. 3.2.5 FDI in Limited Liability Partnerships (LLPs) FDI in LLPs is permitted, subject to the following conditions: (a) FDI will be allowed, through the Government approval route, only in LLPs operating in sectors/activities where 100% FDI is .....

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ell as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. (d) LLPs with FDI will not be eligible to make any downstream investments. (e) Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank. (f) Invest .....

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applicable and not any other body, such as an LLP or a trust. (h) For such LLPs, the designated partner "resident in India", as defined under the 'Explanation' to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident in India", as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999. (i) The designated partners will be responsible for compliance with all the above conditions and also liable for all p .....

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nvertible debentures and fully, compulsorily and mandatorily convertible preference shares subject to pricing guidelines/valuation norms prescribed under FEMA Regulations. The price/conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. 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 instruments, in accordance with the extant FEMA regulations [a .....

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ve from the date of allotment of such capital instruments. (b) After the lock-in period and subject to FDI Policy provisions, if any, the non-resident investor exercising option/right shall be eligible to exit without any assured return, as per pricing/valuation guidelines issued by RBI from time to time. 3.3.2 Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are c .....

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as FDI and counted towards FDI. 3.3.4 Issue of Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts(DRs) (a) FCCBs/DRs may be issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and DR Scheme 2014 respectively, as per the guidelines issued by the Government of India there under from time to time. (b) DRs are foreign currency denominated instruments issued by a foreign Depositor .....

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d by the Government of India thereunder from time to time. (d) A person 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. (e) 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 .....

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be reported to the Reserve Bank by the domestic custodian as per the reporting guidelines for DR Scheme 2014. 3.3.5 (i) Two-way Fungibility Scheme: A limited two-way Fungibility scheme has been put in place by the Government of India for ADRs/GDRs. Under this Scheme, a stock broker in India, registered with SEBI, can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors. Re-issuance of ADRs/GDRs would be permitt .....

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ered their Rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADRs/GDRs. 3.4 Issue/Transfer of Shares 3.4.1 The capital instruments should be issued within 180 days from the date of receipt of the inward remittance received through normal banking channels including escrow account opened and maintained for the purpose or by debit to the NRE/FCNR .....

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r FEMA and would attract penal provisions. In exceptional cases, refund of the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the RBI, on the merits of the case. 3.4.2 Issue price of shares Price of shares issued to persons resident outside India under the FDI Policy, shall not be less than- a. the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company are listed on any recognised stoc .....

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allotment. However, where non-residents (including NRIs) are making investments in an Indian company in compliance with the provisions of the Companies Act, as applicable, by way of subscription to its Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme. 3.4.3 Foreign Currency Account Indian companies which are eligible to issue shares to persons resident outside India under the FDI Policy may be allowed to retain the .....

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non- residents/NRIs for acquisition of shares by way of transfer subject to the following: (a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs). Government approval is not required for transfer of shares in the investee company from one non-resident to another non-resident in sectors which are under automatic route. In addition, approval of Government .....

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ia through a stock broker registered with stock exchange or a merchant banker registered with SEBI. (e) A person resident in India can transfer by way of sale, shares/ convertible debentures (including transfer of subscriber's shares), of an Indian company under private arrangement to a person resident outside India, subject to the guidelines given in para 3.4.5.2 and Annex-2. (f) General permission is also available for transfer of shares/convertible debentures, by way of sale under private .....

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of the company. (h) The Form FC-TRS should be submitted to the AD Category-I Bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India. However, in cases where the NR investor, including an NRI, acquires shares on the stock exchanges under the FDI scheme, the investee company would have to file form FC-TRS with the AD Category-I bank. (ii) The sale co .....

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ubmitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS. (iii) A person resident outside India including a Non-Resident Indian investor who has already acquired and continues to hold the control in accordance with the SEBI (Substantial Acquisition of Shares and Takeover) Regulations can acquire shares of a listed Indian company on the stock exchange through a registered broker under FDI scheme provided that the original and resultant investments .....

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ovisions of the Companies Act, as applicable will be applicable. AD Category-I banks have also been permitted to open and maintain, without prior approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and conditions specified by RBI. SEBI authorised Depository Participants .....

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n certain cases for transfer of capital instruments 3.4.5.1 Except cases mentioned in paragraph 3.4.5.2 below, the following cases require prior approval of RBI: (i) Transfer of capital instruments from resident to non-residents by way of sale where : (a) Transfer is at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time and the transaction does not fall under the exception given in para 3.4.5.2. (b) Transfer of capital instruments by the non-reside .....

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transfer of capital instruments by way of gift, the documents mentioned in Annex-3 should be enclosed. Reserve Bank considers the following factors while processing such applications: (a) The proposed transferee (donee) is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated 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 .....

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pee equivalent of USD 50,000 during the financial year. (f) Such other conditions as stipulated by Reserve Bank in public interest from time to time. (iii) Transfer of shares from NRI to non-resident. 3.4.5.2 In the following cases, approval of RBI is not required: A. Transfer of shares from a Non-Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that: i. The original and resultant investment are in line with the extant FDI policy and FE .....

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nes as indicated above is attached to the form FC-TRS to be filed with the AD bank. B. Transfer of shares from Resident to Non-Resident: (i) where the transfer of shares requires the prior approval of the Government conveyed through FIPB as per the extant FDI policy provided that: (a) the requisite approval of the FIPB has been obtained; and (b) the transfer of shares adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time. ( .....

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rements, documentation etc.; (b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/SEBI SAST); and (c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank. (iv) where the investee company is in the .....

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ndian companies have been granted general permission for conversion of External Commercial Borrowings (ECB) (excluding those deemed as ECB) in convertible foreign currency into equity shares/fully compulsorily and mandatorily convertible preference shares, subject to the following conditions and reporting requirements: (a) The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government approval for foreign equity in the company; (b) The foreign equ .....

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available for issue of shares/preference shares against lump sum technical know-how fee, royalty due for payment, subject to entry route, sectoral cap and pricing guidelines (as per the provision of para 3.4.2 above) and compliance with applicable tax laws. Further, issue of equity shares against any other funds payable by the investee company, remittance of which does not require prior permission of the Government of India or Reserve Bank of India under FEMA, 1999 or any rules/ regulations fra .....

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lt in accordance with extant guidelines; (II) The issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes. (iii) Issue of equity shares under the FDI policy is allowed under the Government route for the following: (I) import of capital goods/ machinery/ equipment (excluding second-hand machinery), subject to compliance with the following conditions: (a) Any import of capital goods/m .....

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pre-incorporation expenses (including payments of rent etc.), 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 should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under FEMA Regulations. (d .....

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issue Rights/Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap, if any. However, such issue of bonus/rights shares has to be in accordance with other laws/statutes like the Companies Act, as applicable, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (in case of listed companies), etc. The offer on right basis to the persons resident outside India shall be: (a) in the case of shares of a company listed on a recognized stock exchange in .....

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r permission from RBI. As such, entitlement of rights share is not automatically available to erstwhile OCBs. However bonus shares can be issued to erstwhile OCBs without the approval of RBI. 3.5.3 Additional allocation of rights share by residents to non-residents Existing non-resident shareholders are allowed to apply for issue of additional shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares over and above their r .....

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companies undergoing merger/demerger/amalgamation. Once the scheme of merger or demerger 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 transfer .....

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s for the ADR/GDR holders, by way of distribution as bonus from its general reserves under a Scheme of Arrangement approved by a Court in India under the provisions of the Companies Act, as applicable, subject to no-objection from the Income Tax Authorities. 3.5.5 Issue of shares under Employees Stock Option Scheme (ESOPs) (i) Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned sub .....

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under the scheme to the non-resident employees does not exceed 5 per cent of the paid-up capital of the issuing company. (ii) Unlisted companies have to follow the provisions of the Companies Act, as applicable. The Indian company can issue ESOPs to employees who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to the citizens of Bangladesh with the prior approval of the FIPB. Subject to this, Government approval is not required for issue of ESOPs in sector .....

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the shares will have to be made by a Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Government conveyed through Foreign Investment Promotion Board (FIPB) will also be a prerequisite for investment by swap of shares. 3.5.7 Pledge of Shares (A) A person being a promoter of a company registered in India (borrowing company), which has raised external commercial borrowings, may pledge .....

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lender and the borrower, (ii) there exists a security clause in the Loan Agreement requiring the borrower to create charge on financial securities, and (iii) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank: and the said pledge would be subject to the following conditions: (a) the period of such pledge shall be co-terminus with the maturity of the underlying ECB; (b) in case of invocation of pledge, transfer shall be in accordance with the extant FDI Policy and dire .....

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should be in accordance with the FDI policy in vogue at the time of creation of pledge; (ii) 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; (iii) the Indian company has to follow the relevant SEBI disclosure norms; and (iv) pledge of shares in favour of the lender (bank) would be subject to Section 19 of the Banking Regulation Act, 1949. (C) Non-residents holding shar .....

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w into India; (iv) in case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and (v) submission of a declaration/annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proceeds will be / have been utilized for the declared purpose. 3.6 Entry Routes for Investment 3.6.1 Investments can be made by non-residents in the equity shares/fully, compulsorily and mandator .....

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or establishment of Indian companies/ transfer of ownership or control of Indian companies, from resident Indian citizens to non-resident entities, in sectors with caps In sectors/activities with caps, including inter-alia defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecommunications and satellites, Government approval/FIPB ap .....

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on-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc. or (iv) The ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-r .....

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pulsorily convertible preference shares/debentures, regardless of whether the said investments have been made under Schedule 1, 2, 2A, 3, 6 and 8 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. 3.7 Caps on Investments 3.7.1 Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy. The caps in various sector(s) are detailed in Chapter 6 of this Circul .....

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re required to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/local laws/regulations. 3.10 Foreign Investment into/downstream Investment by Indian Companies 3.10.1 The Guidelines for calculation of total foreign investment, both direct and indirect in an Indian company, at every stage of investment, including downstream investment, have been detailed in Paragraph 4.1. 3.10.2 For the purpose of this chapter, (i) 'Downstream investment' means ind .....

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regardless of its ownership or control): 3.10.3.1 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 paragraph 6.2.18.8 of this Circular. 3.10.3.2 Those companies, whic .....

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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. 3.10.4 Downstream investment by an Indian company which is not owned and/or controlled by resident entity/ies 3.10.4.1 Downstream investment by an Indian company, which is not owned and/or controlled by resident entity/ies, into another Indian company, would be in acc .....

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anism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign investment. However, their 'strategic downstream investment' shall count towards indirect foreign investment. For this purpose, 'strategic downstream investments' would mean investment by these banking companies in their subsidiaries, joint ventures and associates. 3.10.4.2 Downstream investments by Indian companies will be subject to the following condition .....

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greement, if any; (iii) Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines; (iv) For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not leverage funds from the domestic market. This would, however, not preclude downstream companies, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are per .....

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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. 4.1.2 For the purpose of computation of indirect foreign investment, foreign investment in an Indian company shall include all types of foreign investments i.e. FDI; investment by FIIs (holding as on March 31); FPIs (holding as on March 31); QFIs (holding as on March 31); .....

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any (i) Counting of direct foreign investment All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment. (ii) Counting of indirect foreign investment (a) The foreign investment through the investing Indian company would not be considered for calculation of the indirect foreign investment in case of Indian companies which are 'owned and controlled' by resident Indian citizens and/or Indian Companies which are owned and controlled .....

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e operating-cum-investing/ investing company. This exception is made since the downstream investment of a 100% owned subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company. This exception, however, is strictly for those cases where the entire capital of the downstream subsidiary is owned by the holding company. Illustration To illustrate, if the indirect foreign investment is being calculat .....

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in Company X, the indirect foreign investment in Company X would be taken as 80%; (III) where Company X is a wholly owned subsidiary of Company Y (i.e. Company Y owns 100% shares of Company X), then only 75% would be treated as indirect foreign equity and the balance 25% would be treated as resident held equity. The indirect foreign equity in Company X would be computed in the ratio of 75:25 in the total investment of Company Y in Company X. (iii) The total foreign investment would be the sum t .....

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where Government approval is required for foreign investment and in cases where there are any inter-se agreements between/amongst shareholders which have an effect on the appointment of the Board of Directors or on the exercise of voting rights or of creating voting rights disproportionate to shareholding or any incidental matter thereof, such agreements will have to be informed to the approving authority. The approving authority will consider such inter-se agreements for determining ownership .....

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citizens 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 or Section 2 (72) of the Companies Act, 2013, as the case may be. The term 'largest Indian shareholder', used in this clause, will include an .....

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the purpose of this Clause, "Indian company" shall be a company which must have a resident Indian or a relative as defined under Section 2 (77) of Companies Act, 2013/ 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 (I) and (II) of clause 4.1.3(v)(d)(A) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managi .....

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tors, except in sectors where it is specified in a statute or rule there under. The above methodology of determining direct and indirect foreign investment therefore does not apply to the Insurance Sector which will continue to be governed by the relevant Regulation. 4.1.5 Any foreign investment already made in accordance with the guidelines in existence prior to February 13, 2009 (date of issue of Press Note 2 of 2009) would not require any modification to conform to these guidelines. All other .....

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ce, Ministry of Commerce & Industry (iv) Secretary to Government, Economic Relations, Ministry of External Affairs (v) Secretary to Government, Ministry of Overseas Indian Affairs. 5.1.2 The Board would be able to co-opt other Secretaries to the Central Government and top officials of financial institutions, banks and professional experts of Industry and Commerce, as and when necessary. 5.2 Levels of Approvals for Cases under Government Route 5.2.1 The Minister of Finance who is in-charge of .....

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al 5.3.1 Companies may not require fresh prior approval of the Government i.e. Minister-in-charge of FIPB/CCEA for bringing in additional foreign investment into the same entity, in the following cases: (i) Entities the activities of which had earlier required prior approval of FIPB/CCFI/CCEA and which had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such activities/sectors have been placed under automatic route; (ii) Entit .....

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obtained earlier for the initial/original foreign investment due to requirements of Press Note 18/1998 or Press Note 1 of 2005 and prior approval of the Government under the FDI policy is not required for any other reason/purpose. (iv) Additional foreign investment into the same entity within an approved foreign equity percentage/or into a wholly owned subsidiary. 5.4 Online Filing of Applications for FIPB/Government's Approval 5.4.1 Guidelines for e-filing of applications, filing of amendme .....

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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 para 6.2). Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities. 6.2 Permitted Sectors In the foll .....

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ceived by the company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement. Agriculture 6.2.1 Agriculture & Animal Husbandry Sector/Activity % of Equity/ FDI Cap Entry Route (a) Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions; 100% Automatic ( .....

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aterial the company shall comply with safety requirements in accordance with laws enacted under the Environment (Protection) Act on the genetically modified organisms. (ii) Any import of genetically modified materials if required shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation) Act, 1992. (iii) The company shall comply with any other Law, Regulation or Policy governing genetically modified material in force from time to time. .....

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lture, cultivation of vegetables and mushrooms is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where micro-climatic conditions are regulated anthropogenically. (ii) In case of Animal Husbandry, scope of the term 'under controlled conditio .....

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s where micro-climate is controlled through advanced technologies like incubators, ventilation systems etc. (iii) In the case of pisciculture and aquaculture, scope of the term 'under controlled conditions' covers - (a) Aquariums (b) Hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control. (iv) In the case of apiculture, scope of the term 'under controlled conditions' covers- (a) Production of .....

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d use change. Mining and Petroleum & Natural Gas 6.2.3 Mining Sector/Activity % of Equity/ FDI Cap Entry Route 6.2.3.1 Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957. 100% Automatic 6.2.3.2 100% Automatic Coal & Lignite (1) Coal & Lignite mining for captive consumption by power projects, iron & steel .....

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ng and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities 100% Government 6.2.3.3.1 Mining and mineral separation of titanium bearing minerals & ores, its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation Act 1957). 6.2.3.3.2 Other Conditions India has large reserves of beach sand minerals in the coastal stretches around the country. Titanium bearing minerals viz. .....

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sector. Vide Resolution No. 8/1(1)/97-PSU/1422, dated 6th October 1998, issued by the Department of Atomic Energy, laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI) was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon). Vide Notification No. S.O.61(E), dated 18.1.2006, the Department of Atomic Energy re-notified the list of "prescribed substances& .....

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uring the mineral separation shall be carried out in accordance with regulations framed by the Atomic Energy Regulatory Board such as Atomic Energy (Radiation Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987. (ii) FDI will not be allowed in mining of "prescribed substances" listed in the Notification No. S.O. 61(E), dated 18.1.2006, issued by the Department of Atomic Energy. Clarification: (1) For titanium bearing ores such as Ilmenite, Le .....

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ransfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i) (A) above shall be deemed to be fulfilled. 6.2.4 Petroleum & Natural Gas Sector/Activity % of Equity/ FDI Cap Entry Route 6.2.4.1 Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market stu .....

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f items reserved for production in Micro and Small Enterprises (MSEs) 6.2.5.1 FDI in MSEs (as defined under Micro, Small And Medium Enterprises Development Act, 2006 (MSMED, Act 2006)) will be subject to the sectoral caps, entry routes and other relevant sectoral regulations. Any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector would require Government route where foreign investment is more than 24% in the capital. Such an .....

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cement of commercial production and in accordance with the provisions of section 11 of the Industries (Development & Regulation) Act, 1951. 6.2.6 Defence Sector/Activity % of Equity/ FDI Cap Entry Route 6.2.6.1 Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951 49% Government route up to 49% Above 49% to Cabinet Committee on Security (CCS) on case to case basis, wherever it is likely to result in access to modern and 'state-of-art .....

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of Security by Persons Resident Outside India) Regulations. (ii) Portfolio investment by FPIs/FIIs/NRIs/QFIs and investments by FVCIs together will not exceed 24% of the total equity of the investee/joint venture company. Portfolio investments will be under automatic route. 6.2.6.2 Other Conditions (i) Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence and .....

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(v) Full particulars of the Directors and the Chief Executives should be furnished along with the applications. (vi) The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections and .....

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e purchase guarantee for products to be manufactured. However, the planned acquisition programme for such equipment and overall requirements would be made available to the extent possible. (ix) Investee/joint venture company should be structured to be self-sufficient in areas of product design and development. The investee/joint venture company along with manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India. (x) Import of .....

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ided by the licensee to the Government nominated quality assurance agency under appropriate confidentiality clause. The nominated quality assurance agency would inspect the finished product and would conduct surveillance and audit of the Quality Assurance Procedures of the licensee. Self-certification would be permitted by the Ministry of Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission would be for a fixed .....

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sale of the items to any other entity, the Licensee shall take prior permission from the Department of Defence Production, Ministry of Defence. (xv) All applications seeking permission of the Government for FDI in defence would be made to the Secretariat of Foreign Investment Promotion Board (FIPB) in the Department of Economic Affairs. (xvi) Applications for FDI up to 49% will follow the existing procedure with proposals involving inflows in excess of ₹ 2000 crore being approved by Cabin .....

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by CCS will not require further approval of the Cabinet Committee on Economic Affairs (CCEA). (xix) Government decision on applications for FDI in defence industry sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgement. (xx) For the proposal seeking Government approval for foreign investment beyond 49%, applicant should be Indian company/foreign investor. Further condition at para (iii) above will not apply on such proposals. Services Sector 6.2.7 .....

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ITS) 6.2.7.1.2 49% Automatic Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)) 6.2.7.2 Broadcasting Content Services Sector/Activity % of Equity/FDI Cap Entry Route 6.2.7.2.1 Terrestrial Broadcasting FM (FM Radio), subject to such terms and conditions, as specified from time to time, by Ministry of Information & Broadcasting, for grant of permission for setting up of FM Radio stations 26% Government .....

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es will be subject to relevant regulations and such terms and conditions, as may be specified from time to time, by the Ministry of Information and Broadcasting. 6.2.7.5 The foreign investment (FI) limit in companies engaged in the aforestated activities shall include, in addition to FDI, investment by Foreign Institutional Investors (FIIs), Foreign Portfolio Investors (FPIs), Qualified Foreign Investors(QFIs), Non-Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Dep .....

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f Security Officer should be resident Indian citizens. Security Clearance of Personnel (iii) The Company, all Directors on the Board of Directors and such key executives like Managing Director/Chief Executive Officer, Chief Financial Officer (CFO), Chief Security Officer (CSO), Chief Technical Officer (CTO), Chief Operating Officer (COO), shareholders who individually hold 10% or more paid-up capital in the company and any other category, as may be specified by the Ministry of Information and Br .....

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to be obtained. It shall be obligatory on the part of the company to also take prior permission from the Ministry of Information and Broadcasting before effecting any change in the Board of Directors. (iv) The Company shall be required to obtain security clearance of all foreign personnel likely to be deployed for more than 60 days in a year by way of appointment, contract, and consultancy or in any other capacity for installation, maintenance, operation or any other services prior to their depl .....

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g denied or withdrawn for any reasons whatsoever, the permission holder/licensee will ensure that the concerned person resigns or his services terminated forthwith after receiving such directives from the Government, failing which the permission/license granted shall be revoked and the company shall be disqualified to hold any such Permission/license in future for a period of five years. Infrastructure/Network/Software related requirement (vii) The officers/officials of the licensee companies de .....

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ed by relevant law. (x) The Company must provide traceable identity of their subscribers. Monitoring, Inspection and Submission of Information (xi) The Company should ensure that necessary provision (hardware/software) is available in their equipment for doing the lawful interception and monitoring from a centralized location as and when required by Government. (xii) The company, at its own costs, shall, on demand by the government or its authorized representative, provide the necessary equipmen .....

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company will, if required by the Government or its authorized representative, provide necessary facilities for continuous monitoring for any particular aspect of the company's activities and operations. Continuous monitoring, however, will be confined only to security related aspects, including screening of objectionable content. (xiv) The inspection will ordinarily be carried out by the Government of India, Ministry of Information & Broadcasting or its authorized representative after re .....

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s, estimates, returns or such other relevant information and at such periodic intervals or such times as may be required. (xvii) The service providers should familiarize/train designated officials or the Government or officials of TRAI or its authorized representative(s) in respect of relevant operations/features of their systems. National Security Conditions (xviii) It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive area from the National Security .....

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shall not import or utilize any equipment, which are identified as unlawful and/or render network security vulnerable. Other Conditions (xx) Licensor reserves the right to modify these conditions or incorporate new conditions considered necessary in the interest of national security and public interest or for proper provision of broadcasting services. (xxi) Licensee will ensure that broadcasting service installation carried out by it should not become a safety hazard and is not in contravention .....

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nes, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news. (ii) Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information & Broadcasting on 4.12.2008. Sector/Activity % of Equity/FDI Cap Entry Route 6.2.8.3 Publishing/printing of scientific and technical magazines/specialty journals/ peri .....

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aken only by an entity incorporated or registered in India under the provisions of the Companies Act, as applicable. (iii) Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time. 6.2.9 Civil Aviation 6.2.9.1 The Civil Avia .....

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section 2 of the Aircraft Act, 1934; (ii) "Aerodrome" means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto; (iii) "Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such .....

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raft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis; (vii) "Scheduled air transport service" means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public; (viii) "Non-Scheduled air transport service" .....

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es as specified by the Ministry of Civil Aviation through the Aeronautical Information Circulars from time to time, and (iii) any other activity specified by the Central Government to be a part of either ramp handling or traffic handling. 6.2.9.2 Airports Sector/Activity % of Equity/FDI Cap Entry Route (a) Greenfield projects 100% Automatic (b) Existing projects 100% Automatic up to 74% Government route beyond 74% 6.2.9.3 Air Transport Services Sector/Activity % of Equity/FDI Cap Entry Route (1) .....

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irlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above. (c) Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. Such investment would be subject to the following conditions: (i) It would be made under the Government approval route. (ii) The 49 .....

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and at least two-thirds of the Directors of which are citizens of India; and (c) the substantial ownership and effective control of which is vested in Indian nationals. (v) All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and (vi) All technical equipment that might be imported into India as a result of such investment shall require clearance fr .....

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Other services under Civil Aviation sector Sector/Activity % of Equity/FDI Cap Entry Route (1) Ground Handling Services subject to sectoral regulations and security clearance 74% (100% for NRIs) Automatic up to 49% Government route beyond 49% and up to 74% (2) Maintenance and Repair organizations; flying training institutes; and technical training institutions. 100% Automatic 6.2.10 Courier services Sector/Activity % of Equity/FDI Cap Entry Route Courier services for carrying packages, parcels a .....

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ons, recreational facilities, city and regional level infrastructure, townships) 100% Automatic 6.2.11.2 Investment will be subject to the following conditions: (A) Minimum area to be developed under each project would be as under: (i) In case of development of serviced plots, no minimum land area requirement. (ii) In case of construction-development projects, a minimum floor area of 20,000 sq. meter. (B) Investee company will be required to bring minimum FDI of US$ 5 million within six months o .....

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rainage and sewerage. (ii) The Government may, in view of facts and circumstances of a case, permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project. These proposals will be considered by FIPB on case to case basis inter-alia with specific reference to Note (i). (D) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, .....

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ll necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/Municipal/Local Body concerned. (G) The State Government/Municipal/Local Body concerned, which approves the building/development plans, will monitor compliance of th .....

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refrom 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. (ii) The conditions at (A) to (C) above, will not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs. (iii) The conditions at (A) and (B) above, will also not apply to investee/joint ve .....

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e project will be determined as per the local bye-laws/rules and other regulations of State Governments. (vii) Project using at least 40% of the FAR/FSI for dwelling unit of floor area of not more than 140 square meter will be considered as Affordable Housing Project for the purpose of FDI policy in Construction Development Sector. Out of the total FAR/FSI reserved for Affordable Housing, at least one-fourth should be for houses of floor area of not more than 60 square meter. (viii) It is clarif .....

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ble to all the allottee units for the purposes of industrial activity. (ii) "Infrastructure" refers to facilities required for functioning of units located in the Industrial Park and includes roads (including approach roads), railway line/sidings including electrified railway lines and connectivities to the main railway line, water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power, air conditioning. (iii) "Common Facilit .....

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ter, ambulance and other safety services, training facilities and such other facilities meant for common use of the units located in the Industrial Park. (iv) "Allocable area" in the Industrial Park means- (a) in the case of plots of developed land- the net site area available for allocation to the units, excluding the area for common facilities. (b) in the case of built up space- the floor area and built up space utilized for providing common facilities. (c) in the case of a combinati .....

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io-technology, pharmaceutical sciences/life sciences, natural sciences and engineering; business and management consultancy activities; and architectural, engineering and other technical activities. 6.2.12.2 FDI in Industrial Parks would not be subject to the conditionalities applicable for construction development projects etc. spelt out in para 6.2.11 above, provided the Industrial Parks meet with the under-mentioned conditions: (i) it would comprise of a minimum of 10 units and no single unit .....

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ecurity Agencies 49% Government 6.2.15 Telecom Services Sector/Activity % of Equity/FDI Cap Entry Route Telecom Services (including Telecom Infrastructure Providers Category-I) All telecom services including Telecom Infrastructure Providers Category-I, viz. Basic, Cellular, United Access Services, Unified License (Access Services), Unified License, National/International Long Distance, Commercial V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services .....

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ied by the Department of Telecommunications (DoT) from time to time, except "Other Service Providers", which are allowed 100% FDI on the automatic route. 6.2.16 Trading Sector/Activity % of Equity/FDI Cap Entry Route 6.2.16.1 Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs) 100% Automatic 6.2.16.1.1 Definition: Cash & Carry Wholesale trading/Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional .....

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lk imports with ex-port/ex-bonded warehouse business sales and B2B e-Commerce. 6.2.16.1.2 Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT): (a) For undertaking WT, requisite licenses/registration/permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local Self-Government Body under that State Government should be obtained. (b) Except in case of sales to Government, sales made by the wholesaler w .....

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the entity/person holding the license/registration certificate/membership certificate, as the case may be, is itself/himself/herself engaged in a business involving commercial activity; or (Ill) Entities holding permits/license etc. for undertaking retail trade (like tehbazari and similar license for hawkers) from Government Authorities/Local Self Government Bodies; or (IV) Institutions having certificate of incorporation or registration as a society or registration as public trust for their sel .....

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ertaken as per normal business practice, including extending credit facilities subject to applicable regulations. (f) A Wholesale/Cash & carry trader cannot open retail shops to sell to the consumer directly. 6.2.16.2 E-commerce activities Sector/Activity % of Equity/FDI Cap Entry Route E-commerce activities 100% Automatic 6.2.16.2.1 E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to .....

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lity of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices. (2) FDI in Single Brand product retail trading would be subject to the following conditions: (a) Products to be sold should be of a 'Single Brand' only. (b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or .....

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with this condition will rest with the Indian entity carrying out single-brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing/franchise/sub-licence agreement, specifically indicating compliance with the above condition. The requisite evidence should be filed with the RBI for the automatic route and SIA/FIPB for cases involving approval. (e) In respect of proposals involving FDI beyond .....

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the goods purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of FDI for the purpose of carrying out single-brand product retail trading. (f) Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in .....

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ries to be sold under 'Single Brand' would require a fresh approval of the Government. In case of FDI up to 49%, the list of products/product categories proposed to be sold except food products would be provided to the RBI. (4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval. 6.2.16.4 Multi Brand Retail Trading .....

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tranche of US $ 100 million, shall be invested in 'back-end infrastructure' within three years, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc. Expenditure on land cost a .....

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e time of installation, without providing for depreciation. The 'small industry' status would be reckoned only at the time of first engagement with the retailer, and such industry shall continue to qualify as a 'small industry' for this purpose, even if it outgrows the said investment of US $ 2.00 million during the course of its relationship with the said retailer. Sourcing from agricultural co-operatives and farmers co-operatives would also be considered in this category. The p .....

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s shall maintain accounts, duly certified by statutory auditors. (vi) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for req .....

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tes/Union Territories which have conveyed their agreement is at (2) below. Such agreement, in future, to permit establishment of retail outlets under this policy, would be conveyed to the Government of India through the Department of Industrial Policy & Promotion and additions would be made to the list at (2) below accordingly. The establishment of the retail sales outlets will be in compliance of applicable State/Union Territory laws/regulations, such as the Shops and Establishments Act etc .....

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Assam 3. Delhi 4. Haryana 5. Himachal Pradesh 6. Jammu & Kashmir 7. Karnataka 8. Maharashtra 9. Manipur 10. Rajasthan 11. Uttarakhand 12. Daman & Diu and Dadra and Nagar Haveli (Union Territories) 6.2.17 Railway Infrastructure Sector/Activity % of Equity/FDI Cap Entry Route Railway Infrastructure Construction, operation and maintenance of the following: (i) Suburban corridor projects through PPP, (ii) High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including .....

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ng FDI is subject to sectoral guidelines of Ministry of Railways. (ii) Proposals involving FDI beyond 49% in sensitive areas from security point of view, will be brought by the Ministry of Railways before the Cabinet Committee on Security (CCS) for consideration on a case to case basis. Financial Services 6.2.18 Foreign investment in other financial services, other than those indicated below, would require prior approval of the Government. 6.2.18.1 Asset Reconstruction Companies Sector/Activity .....

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s (ARCs) registered with Reserve Bank, up to 49% on the automatic route, and beyond 49% on the Government route. (ii) No sponsor may hold more than 50% of the shareholding in an ARC either by way of FDI or by routing it through an FII/FPI controlled by the single sponsor. (iii) The total shareholding of an individual FII/FPI shall be below 10% of the total paid-up capital. (iv) FIIs/FPIs can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs/FPIs can invest u .....

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ing- Private Sector 74% including investment by FIIs/FPIs Automatic up to 49% Government route beyond 49% and up to 74%. 6.2.18.2.2 Other Conditions (1) This 74% limit will include investment under the Portfolio Investment Scheme (PIS) by FIIs/FPIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs, and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from existing shareholders. (2) The aggregate foreign investment in a private bank from all s .....

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of FIIs/FPIs, as hitherto, individual FII/FPI holding is restricted to below 10 per cent of the total paid-up capital, aggregate limit for all FIIs/FPIs/QFIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body. (a) Thus, the FII/FPI/QFI investment limit will continue to be within 49 per cent of .....

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n to that effect in the General Body. (c) Applications for foreign direct investment in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority of India (IRDAI) in order to ensure that the 49 per cent limit of foreign shareholding applicable for the insurance sector is not being breached. (d) Transfer of shares under FDI from residents to non-res .....

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will apply to non-resident investors as well. (ii) Setting up of a subsidiary by foreign banks (a) Foreign banks will be permitted to either have branches or subsidiaries but not both. (b) Foreign banks regulated by banking supervisory authority in the home country and meeting Reserve Bank's licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India. (c) A foreign bank may operate in India through only one of the three .....

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the paid capital of the private sector bank is held by residents at all times consistent with para (i) (b) above. (e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks. (f) Guidelines for setting up a wholly-owned subsidiary of a foreign bank will be issued separately by RBI. (g) All applications by a foreign bank for setting up a subsidiary or for conversion of their existing branches to subsid .....

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ngs) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks. 20% (FDI and Portfolio Investment) Government 6.2.18.4 Commodity Exchanges 6.2.18.4.1 (1) Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market. With a view to infuse globally acceptable best practices, modern management skills and latest techn .....

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er Section 6 of the Forward Contracts (Regulation) Act, 1952 (iii) "Association" means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative. (iv) "Forward contract" means a contract for the delivery of goods and which is not a ready delivery contract. (v) "Commodity derivative" means- a contract for delivery of goods, which is not a .....

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be limited to 23% and Investment under FDI Scheme limited to 26% ] Automatic 6.2.18.4.3 Other Conditions (1) FII/FPI purchases shall be restricted to secondary market only. (2) No non-resident investor/entity, including persons acting in concert, will hold more than 5% of the equity in these companies. (3) Foreign investment in commodity exchanges will be subject to the guidelines of the Central Government/Forward Markets Commission (FMC) from time to time. 6.2.18.5 Credit Information Companies .....

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xchanges, within the overall limit of 74% for foreign investment. (4) Such FII/FPI investment would be permitted subject to the conditions that: (a) A single entity should directly or indirectly hold below 10% equity. (b) Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and (c) FIIs/FPIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding. 6.2.18.6 Infrastructure Company in the Securities Market Sect .....

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ance Company (ii) Insurance Brokers (iii) Third Party Administrators (iv) Surveyors and Loss Assessors (v) Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) 49% {FDI+FPI(FII,QFI)+NRI +FVCI+DR} Automatic up to 26% Government route beyond 26% and up to 49% 6.2.18.7.2 Other Conditions (a) No Indian insurance company shall allow the aggregate holdings by way of total foreign investment in its equity shares by foreig .....

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necessary license from the Insurance Regulatory & Development Authority of India for undertaking insurance activities. (d) An Indian insurance company shall ensure that its ownership and control remains at all times in the hands of resident Indian entities referred to in Notification No. G.S.R 115 (E), dated 19th February, 2015. (e) Foreign portfolio investment in an Indian insurance company shall be governed by the provisions contained in sub-regulations (2), (2A), (3) and (8) of regulation .....

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mediaries appointed under the provisions of the Insurance Regulatory and Development Authority Act,1999 (41 of 1999): (h) Provided that where an entity like a bank, whose primary business is outside the insurance area, is allowed by the Insurance Regulatory and Development Authority of India to function as an insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply, subject to the condition that the revenues of such entities from their primary .....

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9;, 'Indian Company', 'Indian Control of an Indian Insurance Company', 'Indian Ownership', 'Non-resident Entity', 'Public Financial Institution', 'Resident Indian Citizen', 'Total Foreign Investment' will have the same meaning as provided in Notification No. G.S.R 115 (E), dated 19th February, 2015. 6.2.18.8 Non-Banking Finance Companies (NBFC) Sector/Activity % of Equity/ FDI Cap Entry Route 6.2.18.8.1 Foreign investment in NBFC is allowed .....

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Automatic 6.2.18.8.2 Other Conditions (1) Investment would be subject to the following minimum capitalisation norms: (i) US $ 0.5 million for foreign capital up to 51% to be brought upfront. (ii) US $ 5 million for foreign capital more than 51% and up to 75% to be brought upfront. (iii) US $ 50 million for foreign capital more than 75% out of which US $ 7.5 million to be brought upfront and the balance in 24 months. (iv) NBFCs (i) having foreign investment more than 75% and up to 100%, and (ii) .....

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ject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below. (vi) Non- Fund based activities: US $0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the following condition: It would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating c .....

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. (ii) Leasing & Finance covers only financial leases and not operating leases. FDI in operating leases is permitted up to 100% on the automatic route. (2)The NBFC will have to comply with the guidelines of the relevant regulator/s, as applicable. Others 6.2.19 Pharmaceuticals Sector/Activity % of Equity/ FDI Cap Entry Route 6.2.19.1 Greenfield 100% Automatic 6.2.19.2 Brownfield 100% Government 6.2.19.3 Other Conditions (i) 'Non-compete' clause would not be allowed except in special .....

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icable to greenfield as well as brownfield projects of this industry. ii. Medical device means- a. any instrument, apparatus, appliance, implant, material or other article, whether used alone or in combination, including the software, intended by its manufacturer to be used specially for human beings or animals for one or more of the specific purposes of- (aa) diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder; (ab) diagnosis, monitoring, treatment, alleviatio .....

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nstrument, apparatus, appliance, material or other article; c. a device which is reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system whether used alone or in combination thereof intended to be used for examination and providing information for medical or diagnostic purposes by means of in vitro examination of specimens derived from the human body or animals. iii. The definition of medical device at Note (ii) above would be subject to the amendm .....

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ident investor/entity, including persons acting in concert, will hold more than 5% of the equity in these companies; and (iv) The foreign investment would be in compliance with SEBI Regulations; other applicable laws/regulations; security and other conditionalities. Chapter 7: Remittance, Reporting and Violation 7.1 Remittance and Repatriation 7.1.1 Remittance of sale proceeds/Remittance on winding up/Liquidation of Companies: (i) Sale proceeds of shares and securities and their remittance is &# .....

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. (iii) 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. Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act, , as applicable. AD Category-I banks shall allow the remittance provided the applicant submits: a. .....

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ourt in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance. 7.1.2 Repatriation of Dividend Dividends are freely repatriable without any restrictions (net after Tax deduction at source or Dividend Distribution Tax, if any, as the case may be). The repatriation is governed by the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time. 7.1.3 Repatriation of Interes .....

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should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank not later than 30 days from the date of receipt in the Advance Reporting Form enclosed as Annex-5. (ii) Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares/convertible debentures, 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 (enclo .....

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basis and shares issued under ESOP)/fully, mandatorily & compulsorily convertible debentures/fully, mandatorily & compulsorily convertible preference shares, the Indian company has to file Form FC-GPR, enclosed in Annex-1, not later than 30 days from the date of issue of shares. (ii) Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorized Dealer of the company, who will forward it to the Reserve Bank. The fol .....

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of consideration. Note: For companies with paid up capital with less than ₹ 5 crore, the above mentioned certificate can be given by a practicing company secretary. (b) 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 Category-I bank to the Regional Office concer .....

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olio investments/reinvested earnings/other capital in the Indian company made during the previous years (i.e. the information submitted by 15th July will pertain to all the investments made in the previous years up to March 31). The details of the investments to be reported would include all foreign investments made into the company which is outstanding as on the balance sheet date. The details of overseas investments in the company both under direct/portfolio investment may be separately indica .....

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FC-TRS should be submitted to the AD Category-I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India. However, in cases where the NR investor, including an NRI, acquires shares on the stock exchanges under the FDI scheme, the investee company would have to file form FC-TRS with the AD Category-I bank. The AD Category-I bank, would forward the sam .....

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cs and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai- 400 051, within seven working days from the close of month to which it relates. The words "ECB wholly converted to equity" shall be clearly indicated on top of the Form ECB-2. Once reported, filing of Form ECB-2 in the subsequent months is not necessary. (ii) In case of partial conversion of ECB, the company shall report the converted portion in Form FC-GPR to the Regional Office concerned as wel .....

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n 30 days of close of the issue/ program. 7.3 Adherence to Guidelines/Orders and Consequences of Violation FDI is a capital account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA. Reserve Bank of India administers the FEMA and Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA. The Directorate takes up investigation in any contravention of FEMA. 7.3.1 Penalties (i) If a person violates/contr .....

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p to two lakh Rupees where the amount is not quantifiable, and where such contraventions is a continuing one, further penalty which may extend to five thousand Rupees for every day after the first day during which the contraventions continues. (ii) Where a person committing a contravention of any provisions of this Act or of any rule, direction or order made there under is a company (company means any body corporate and includes a firm or other association of individuals as defined in the Compan .....

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any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government. 7.3.2 Adjudication and Appeals (i) For the purpose of adjudication of any contravention of FEMA, the Ministry of Finance as per the provisions contained in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 appoints officers of the Central Government as the Adjudicating Authorities for holding an enquiry in the .....

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r the Foreign Exchange (Compounding Proceedings) Rules 2000, the Central Government may appoint 'Compounding Authority' an officer either from Enforcement Directorate or Reserve Bank of India for any person contravening any provisions of the FEMA. The Compounding Authorities are authorized to compound the amount involved in the contravention to the Act made by the person. No contravention shall be compounded unless the amount involved in such contravention is quantifiable. Any second or .....

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ate of application made to the Compounding Authority. Compounding Authority shall issue order specifying the provisions of the Act or of the rules, directions, requisitions or orders made there under in respect of which contravention has taken place along with details of the alleged contraventions. ANNEX - 2 Terms and conditions for Transfer of Shares/Convertible Debentures, by way of Sale, from a Person Resident in India to a Person Resident Outside India and from a Person Resident Outside Indi .....

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or buyer, (d) Authorised Dealer bank (AD) branch and (e) Indian company, for recording the transfer of ownership in its books. 2. Pricing Guidelines 2.1 The under noted pricing guidelines are applicable to the following types of transactions: i. Transfer of shares by way of sale under private arrangement by a person resident in India to a person resident outside India. ii. Transfer of shares by way of sale under private arrangement by a person resident outside India to a person resident in India .....

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hange in India ,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, (b) not listed on a recognized stock exchange in India, shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per any internati .....

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ice at which the transfer of shares can be made from a resident to a non-resident as given at para 2.2 above. 2.4 After the lock-in period, as applicable above, and subject to FDI Policy provisions, if any, in this regard, the non-resident investor exercising option/right in shares or convertible debentures issued under FDI Scheme shall be eligible to exit without any assured return, as per pricing/valuation guidelines issued by RBI from time to time. 3. Responsibilities / Obligations of the par .....

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res purchased by a person resident outside India shall be remitted to India through normal banking channels. In case the buyer is a FII,FPI, payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is a NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts. However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR (B .....

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o payment of taxes. 4.3 The sale proceeds of shares (net of taxes) sold by an OCB may be remitted outside India directly if the shares were held on repatriation basis and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of OCBs whose accounts have been blocked by Reserve Bank. 5. Documentation Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), the AD .....

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record. ii. Where Consent Letter has been signed by their duly appointed agent, the Power of Attorney Document executed by the seller/buyer authorizing the agent to purchase/sell shares. iii. The shareholding pattern of the investee company after the acquisition of shares by a person resident outside India showing equity participation of residents and non-residents category-wise (i.e. NRIs/OCBs/foreign nationals/incorporated non-resident entities/FIIs,FPIs) and its percentage of paid up capital .....

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FII/sub account to the effect that the individual FII/ Sub account ceiling as prescribed by SEBI has not been breached, till it gets registered as FPI. 5.2 For sale of shares by a person resident outside India i. Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e. number of shares to be transferred, the name of the investee company whose shares are being transferred and the price at which shares are being transferred. ii. Where .....

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value of shares from a Chartered Accountant. v. No Objection / Tax Clearance Certificate from Income Tax authority/Chartered Account. vi. Undertaking from the buyer to the effect that the Pricing Guidelines have been adhered to. 6. Reporting requirements 6.1 Reporting of transfer of shares between residents and non-residents and vice versa is to be done in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category-I bank, within 60 days from the date of receipt of the amount of conside .....

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transactions are put through smoothly. The ADs may also designate a nodal office to coordinate the work at these branches and also ensure the reporting of these transactions to the Reserve Bank. 6.2 When the transfer is on private arrangement basis, on settlement of the transactions, 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 rece .....

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ived/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 in turn submit a consolidated monthly statement in respect of all the transactions reported by their branches together with copies of the FC-TRS Forms received from their branches to Foreign Exchange Department, Reserve Bank, Foreign Investment .....

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ivate arrangement. 6.7 On receipt of statements from the AD, the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be. Annex- 3 Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift i. Name and address of the transferor (donor) and the transferee (donee). ii. Relationship between the transferor and the transferee. iii. Reasons for .....

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ies & Exchange Board of India or as per any internationally accepted pricing methodology on arm's length basis for listed companies and unlisted companies, respectively. vii. Certificate from the concerned Indian company certifying that the proposed transfer of shares/convertible debentures by way of gift from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the .....

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or warrants that donee is aware of the liability as regards calls in arrear and consequences thereof. ANNEX- 4 Definition of "relative" as given in Section 2 (77) of Companies Act, 2013 "Relative", with reference to any person, means any one who is related to another, if- (a) they are members of a Hindu undivided family ; (b) they are husband and wife ; or (c) one person is related to the other in such manner as may be prescribed. ANNEX - 6 Know Your Customer (KYC) Form in re .....

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