TMI BlogMaster Direction – Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad (Updated as on June 24, 2021)X X X X Extracts X X X X X X X X Extracts X X X X ..... ry framework and published through amendment notifications. 2. Within the contours of the Regulations, Reserve Bank of India also issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/ constituents with a view to implementing the regulations framed. 3. Instructions issued on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad have been compiled in this Master Direction. The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in the Appendix. Reporting instructions can be found in Master Direction on Reporting ( Master Direction No. 18 dated January 1, 2016 ) 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Restructuring of the balance sheet of the overseas entity involving write off of capital and receivables B.13 Acquisition of a foreign company through bidding or tender procedure B.14 Obligations of Indian Party B.15 Transfer by way of sale of shares of a JV / WOS B.16 Transfer by way of sale of shares of a JV / WOS involving write off of the investment (or financial commitment) B.17 Pledge of shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and Step Down Subsidiary (SDS) B.18 Rollover of guarantees B.19 Creation of charge on domestic and foreign assets B.20 Overseas Direct Investments by resident individuals B.21 Hedging of overseas direct investments B.22 Opening of Foreign Currency Account abroad by an Indian Party SECTION C - Other investments in foreign securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Joint Ventures are perceived as a medium of economic and business co-operation between India and other countries. Transfer of technology and skill, sharing of results of R D, access to wider global market, promotion of brand image, generation of employment and utilisation of raw materials available in India and in the host country are other significant benefits arising out of such overseas investments (or financial commitment). They are also important drivers of foreign trade through increased exports of plant and machinery and goods and services from India and also a source of foreign exchange earnings by way of dividend earnings, royalty, technical know-how fee and other entitlements on such investments (or financial commitment). (2) In keeping with the spirit of liberalisation, which has become the hallmark of economic policy in general, and Foreign Exchange regulations in particular, the Reserve Bank has been progressively relaxing the rules and simplifying the procedures both for current account as well as capital account transactions. A.2 Statutory Basis (1) Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank to specify, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Note: Sponsor contribution from an Indian Party to an Alternative Investment Fund (AIF) set up in an overseas jurisdiction, including International Financial Services Centres (IFSCs) in India, as per the laws of the host jurisdiction; shall be treated as Direct Investment outside India [(ea) Domestic Depository shall have the same meaning as assigned to it in the Companies (Issue of Indian Depository Receipts) Rules, 2004; (eb) Eligible Company means a Company eligible to issue Indian Depository Receipts under rule 4 of the Companies (Issue of Indian Depository Receipts) Rules, 2004;] (f) Financial Commitment means the amount of direct investment by way of contribution to equity, loan and 100 per cent of the amount of guarantees and 50 per cent of the performance guarantees issued by an Indian Party to or on behalf of its overseas Joint Venture Company or Wholly Owned Subsidiary; (g) Foreign Currency Convertible Bond (FCCB) means a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency; (h) Global Depository Receipt (GDR) means a security issued by a bank or a deposit ..... 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(r) Agricultural operations means agricultural operations as defined in the 'National Bank for Agriculture and Rural Development Act, 1981'; (s) Foreign Currency Exchangeable Bond means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an issuing company and subscribed to by a person who is a resident outside India in foreign currency and exchangeable into equity share of offered company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments; (t) Issuing company means a company registered under the Companies Act, 1956 (1 of 1956) and eligible to issue Foreign Currency Exchangeable Bond under these regulations; (u) Offered company means a company registered under the Companies Act, 1956 (1 of 1956) and whose equity share/s is/are offered in exchange of the Foreign Currency Exchangeable Bond; (v) Promoter group has the same meaning as defined in the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000;] (w) Words and expressions used but not defined in these Regulations sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ventures (JV) / Wholly Owned Subsidiaries (WOS), the Indian Party should approach an Authorised Dealer Category - I bank with an application in Form ODI (Master Document on Reporting) and prescribed enclosures / documents for effecting such remittances. (3) The total financial commitment of the Indian Party in all the Joint Ventures / Wholly Owned Subsidiaries shall comprise of the following: 100% of the amount of equity shares and/ or Compulsorily Convertible Preference Shares (CCPS); 100% of the amount of other preference shares; 100% of the amount of loan; 100% of the amount of guarantee (other than performance guarantee) issued by the Indian Party; 100% of the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of the Indian Party provided the bank guarantee is backed by a counter guarantee / collateral by the Indian Party. 50% of the amount of performance guarantee issued by the Indian Party provided that if the outflow on account of invocation of performance guarantee results in the breach of the limit of the financial commitment in force, prior permission of the Reserve Bank is to be obtained before executing remittance beyond th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantees issued by banks in India in favour of WOS / JV outside India would be subject to prudential norms issued by the Reserve Bank of India (Department of Banking Regulation) from time to time. b) The Indian Party should not be on the Reserve Bank s Exporters' caution list / list of defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau (India) Ltd. (CIBIL) / or any other credit information company as approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body. c) All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian Party. d) In case of partial / full acquisition of an existing foreign company, where the investment is more than USD 5 million, valuation of the shares of the company shall be made by a Category I Merchant Banker registered with SEBI or an Investment Banker / Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and, in all other cases by a Chartered Accountant or a Certified Public Accountant. e) In cases of investment by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diligence report in other cases. (5) Investments / financial commitments in Nepal are permitted only in Indian Rupees. Investments / financial commitments in Bhutan are permitted in Indian Rupees as well as in freely convertible currencies. All dues receivable on investments (or financial commitment) made in freely convertible currencies, as well as their sale / winding up proceeds are required to be repatriated to India in freely convertible currencies only. (6) 2 Investments / financial commitments by an Indian Party are not permitted in an overseas entity located in the countries identified by the Financial Action Task Force (FATF) as non co-operative countries and territories as per list available on FATF website www.fatf-gafi.org or as notified by the Reserve Bank of India from time to time. 3 Investments / financial commitments in Pakistan by Indian Parties are permissible under the approval route. B.1.1 Investment (or financial commitment) through Special Purpose Vehicle (SPV) under Automatic Route Investments (or financial commitment) in JV/WOS abroad by Indian Parties through the medium of a Special Purpose Vehicle (SPV) are also permitted under the Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and maintenance of submarine cable systems under the Automatic Route (1) Indian Parties are also permitted to participate in a consortium with other international operators to construct and maintain submarine cable systems on co-ownership basis under the automatic route. Accordingly, AD Category - I banks may allow remittances by Indian companies for overseas direct investment, after ensuring that the Indian company has obtained necessary licence from the Department of Telecommunication, Ministry of Telecommunication Information Technology, Government of India to establish, install, operate and maintain International Long Distance Services and also by obtaining a certified copy of the Board Resolution approving such investment. (2) Accordingly, these transactions may be reported by the Indian Parties investing in the consortium to the AD Category-I banks in Form ODI for enabling online submission of the same by the AD Category-I banks to the Reserve Bank for allotment of Unique Identification Number. B.4 Method of Funding (1) Investment (or financial commitment) in an overseas JV / WOS may be funded out of one or more of the following sources: drawal of fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor activities; has earned net profit during the preceding three financial years from the financial services activities; has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity; and has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India. (2) Any additional investment (or financial commitment) by an existing JV/WOS or its step down subsidiary in the financial services sector is also required to comply with the above conditions. (3) Regulated entities in the financial sector making investments (or financial commitment) in any activity overseas are required to comply with the above guidelines. Unregulated entities in financial services sector in India may invest in non-financial sector activities subject to compliance with provisions of Regulation 6 of the Notification ibid. Trading in commodities exchanges overseas and setting up JV/WOS for trading in overseas exchanges will be reckoned as financial services activity and require clearance from SEBI. B.7 Investment in equity of companies registered overseas / rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in equity and equity linked instruments of off-shore Venture Capital Undertakings, subject to an overall limit of USD 4 1500 million. Accordingly, Mutual Funds / Venture Capital Funds / Alternative Investment Funds desirous of availing of this facility may approach SEBI for necessary permission. (5) General permission is available to the above categories of investors for sale of securities so acquired. (6) Investments made by Venture Capital Fund (VCF) / Alternate Investment Fund (AIF), may be reported in the online application. 5 B.8 Approval of the Reserve Bank (1) Prior approval of the Reserve Bank would be required in all other cases of direct investment (or financial commitment) abroad. For this purpose, application together with necessary documents should be submitted in Form ODI through their Authorised Dealer Category I banks. (2) Reserve Bank would, inter alia, take into account the following factors while considering such applications: Prima facie viability of the JV / WOS outside India; Contribution to external trade and other benefits which will accrue to India through such investment (or financial commitment); Financial position and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation or 200 per cent of the net owned funds of the proprietorship concern/ unregistered partnership firm in India, whichever is lower. (2) Registered Trusts and Societies engaged in manufacturing/ educational/ hospital sector are allowed to make investment (or financial commitment) in the same sector(s) in a JV/WOS outside India, with the prior approval of the Reserve Bank. Eligibility Criteria: (a) Trust i) The Trust should be registered under the Indian Trust Act, 1882; ii) The Trust deed permits the proposed investment overseas; iii) The proposed investment should be approved by the trustee/s; iv) The AD Category I bank is satisfied that the Trust is KYC (Know Your Customer) compliant and is engaged in a bonafide activity; v) The Trust has been in existence at least for a period of three years; vi) The Trust has not come under the adverse notice of any Regulatory / Enforcement agency like the Directorate of Enforcement, Central Bureau of Investigation (CBI), etc. (b) Society i) The Society should be registered under the Societies Registration Act, 1860. ii) The Memorandum of Association and rules and regulations permit the Society to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her receivables, such as, loans, royalty, technical knowhow fees and management fees in respect of the JV /WOS, even while such JV /WOS continues to function as under: Listed Indian companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Automatic Route; and Unlisted companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Approval Route. The write-off / restructuring have to be reported to the Reserve Bank through the designated AD Category-I bank within 30 days of write-off/ restructuring. The write-off / restructuring is subject to the condition that the Indian Party should submit the following documents for scrutiny along with the applications to the designated AD Category I bank under the Automatic as well as the Approval Routes: a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up by the Indian Party; and b) Projections for the next five years indicating benefit accruing to the Indian company consequent to such write off / restructuring. B.13 Acquisition of a for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Resident Individuals and self-certification may be accepted; c. in case multiple IPs / RIs have invested in the same overseas JV / WOS, the obligation to submit APR shall lie with the IP / RI having maximum stake in the JV / WOS. Alternatively, the IPs / RIs holding stake in the overseas JV / WOS may mutually agree to assign the responsibility for APR submission to a designated entity which may acknowledge its obligation to submit the APR in terms of Regulation 15 (iii) of Notification, ibid, by furnishing an appropriate undertaking to the AD bank; (2) Reporting requirements including submission of Annual Performance Report are also applicable for investors in unincorporated entities in the oil sector. (3) Where the law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS, the Annual Performance Report (APR) may be submitted by the Indian Party based on the un-audited annual accounts of the JV / WOS provided: a. 7 The Statutory Auditors of the Indian Party certify that law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS and the figures in the APR are as per the un-audited accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Report together with the audited accounts for that year has been submitted to the Reserve Bank; the Indian Party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory authority in India. (2) The Indian Party is required to submit details of such disinvestment through its designated AD category-I bank within 30 days from the date of disinvestment. B.16 Transfer by way of sale of shares of a JV / WOS involving write off of the investment (or financial commitment) (1) Indian Party may disinvest, without prior approval of the Reserve Bank, in any of the under noted cases where the amount repatriated after disinvestment is less than the original amount invested: in case where the JV / WOS is listed in the overseas stock exchange; in cases where the Indian Party is listed on a stock exchange in India and has a net worth of not less than ₹ 100 crore; where the Indian Party is an unlisted company and the investment (or financial commitment) in the overseas venture does not exceed USD 10 million. and where the Indian Party is a listed company with net worth of less than ₹ 100 crore but investment (or financial commitment) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assets [including the assets of its group company, sister concern or associate company in India, promoter and / or director] in favour of an overseas lender as security for availing of the fund based and/or non-fund based facility for its Joint Venture (JV) or Wholly Owned Subsidiary (WOS) or Step Down Subsidiary (SDS) outside India subject to the terms and conditions prescribed under Regulation 18A of the Notification and A.P. (DIR Series) Circular No.54 dated December 29, 2014. (2) An Indian Party may create charge (by way of mortgage, pledge, hypothecation or otherwise) on the assets of its overseas JV or WOS or SDS in favour of an AD bank in India as security for availing of the fund based and/or non-fund based facility for itself or its JV or WOS or SDS outside India subject to the terms and conditions prescribed under Regulation 18A of the Notification and A.P. (DIR Series) Circular No.54 dated December 29, 2014. B.20 Overseas Direct Investments by resident individuals With effect from August 05, 2013, a resident individual (single or in association with another resident individual or with an Indian Party as defined in the Notification) satisfying the criteria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and / or other entitlements from the subsidiary shall be repatriated to India within 30 days from the date of credit. VI. The Indian party should submit the details of debits and credits in the account on yearly basis to the designated AD bank with a certificate from the Statutory Auditors of the Indian party certifying that the account was maintained as per the host country laws and the extant FEMA regulations / provisions as applicable. VII. The account so opened shall be closed immediately or within 30 days from the date of disinvestment from JV / WOS or cessation thereof. SECTION C - Other investments in foreign securities C.1 Permission for purchase/ acquisition of foreign securities in certain cases (1) General permission has been granted to a person resident in India who is an individual to acquire foreign securities as a gift from any person resident outside India; to acquire shares under cashless Employees Stock Option Programme (ESOP) issued by a company outside India, provided it does not involve any remittance from India; to acquire shares by way of inheritance from a person whether resident in or outside India; to purchase equity sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it represents qualification shares for becoming a director of a company outside India to the extent prescribed as per the law of the host country where the company is located provided it does not exceed the limit prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition; part / full consideration of professional services rendered to the foreign company or in lieu of Director s remuneration. The limit of acquiring such shares in terms of value is restricted to the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition; rights shares provided that the rights shares are being issued by virtue of holding shares in accordance with the provisions of law for the time being in force; purchase of shares of a JV / WOS abroad of the Indian promoter company by the employees/directors of Indian promoter company which is engaged in the field of software where the consideration for purchase does not exceed the ceiling as stipulated by Reserve Bank from time to time; the shares so acquired do not exceed 5 per cent of the paid-up capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to acquire, hold, pledge and transfer the foreign sovereign securities, offered as collateral by FIIs; ii) to remit the proceeds arising from corporate action, if any, on such foreign sovereign securities; and iii) to liquidate such foreign sovereign securities if the need arises. Clearing Corporations shall report, on a monthly basis, the balances of foreign sovereign securities, held by them as non-cash collaterals of their clearing members to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai. The report should be submitted by the 10th of the following month to which it relates. PART - II Operational Instructions to Authorised Dealer Banks 1. Designated branches An eligible Indian Party making investment (or financial commitment) in a Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India is required to route all its transactions relating to the investment (or financial commitment) through one branch of an AD Category I bank designated by it in terms of clause (v) of sub regulation 2 of Regulation 6 of the Notification ibid. All communication from the Indian Parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) The reporting system for overseas investment (or financial commitment) has been revised and incorporated in the FED Master Direction No. 18/2015-16 dated January 1, 2016. (2) With effect from March 2, 2010 online reporting of the ODI forms has been operationalised in a phased manner. The system enables online generation of the Unique Identification Number (UIN), acknowledgment of remittance/s (or financial commitment), filing of the Annual Performance Reports (APRs), disinvestment report and easy accessibility to data at the AD level for reference purposes. The online reporting would be required to be made by the Centralized Unit/Nodal Office of AD Category - I banks. The Overseas Investment Application is hosted on the Reserve Bank's Website at https://oid.rbi.org.in and a link has been made available for accessing the Application on the main page of the website. AD Category I banks would be responsible for the validity of the information reported online. The application for overseas investment (or financial commitment) under the approval route would continue to be submitted to the Reserve Bank in physical form as hitherto, in addition to the online repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed while computing the limit of financial commitment prescribed in terms of Regulation 6 of the Notification ibid. Further, in cases where the export proceeds are being capitalised in accordance with the provisions of Regulation 11, the AD Category I banks are required to obtain a custom certified copy of the invoice as required under Regulation 12(2) and forward it to the Reserve Bank together with the revised form ODI. Capitalisation of export proceeds or other entitlements, which are overdue, would require prior approval of the Reserve Bank for which the Indian Parties should make an application in form ODI to the Reserve Bank for consideration. 5. Allotment of Unique Identification Number (UIN) The Unique Identification Number allotted to each JV or WOS abroad, is required to be quoted in all correspondence with the Reserve Bank. AD Category I banks may allow investment (or financial commitment) in an overseas concern set up by an Indian Party, in terms of Regulation 6 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, only after the Reserve Bank has allotted necessary Unique Identification Number to the overseas project. 6. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winning the bid, AD banks may remit the acquisition value after obtaining Form A2 duly filled in and report such remittance (including the amount initially remitted towards EMD) to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI. AD Category I banks, while permitting remittance towards EMD should advise the Indian Party that in case they are not successful in the bid, they should ensure that the amount remitted is repatriated in accordance with Foreign Exchange Management (Realisation, repatriation and surrender of foreign exchange) Regulations, 2015 (cf. Notification No. FEMA 9 (R)/2015-RB dated December 29, 2015), as amended from time to time (ii) In cases where an Indian Party, after being successful in the bid / tender decides not to proceed further with the investment, AD banks should submit full details of remittance allowed towards EMD / invoked bid bond guarantee, to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001. (iii) In case the Indian Party is successful in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Notification No. FEMA 173/2007-RB December 19, 2007 7. Notification No. FEMA 180/2008-RB September 5, 2008 8. Notification No. FEMA 181/2008-RB October 1, 2008 9. Notification No. FEMA 184/2009-RB January 20, 2009 10. Notification No. FEMA 188/2009-RB February 3, 2009 11. Notification No. FEMA 196/2009-RB July 28, 2009 12. Notification No. FEMA 225/2012-RB March 7, 2012 13. Notification No. FEMA 231/2012-RB May 30, 2012 14. Notification No. FEMA 249/2012-RB November 22, 2012 15. Notification No. FEMA 263/2013-RB March 5, 2013 16. Notification No. FEMA 277/2013-RB May 8, 2013 17. Notification No. FEMA 283/2013-RB August 14, 2013 18. Notification No. FEMA 299/2014-RB March 24, 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. A.P. (DIR Series) Circular No. 34 April 3, 2008 21. A.P (DIR Series) Circular No. 48 June 3, 2008 22. A.P. (DIR Series) Circular No. 53 June 27, 2008 23. A.P. (DIR Series) Circular No. 7 August 13, 2008 24. A.P. (DIR Series) Circular No.14 September 5, 2008 25. A.P (DIR Series) Circular No. 5 July 22, 2009 26. A.P. (DIR Series) Circular No. 36 February 24, 2010 27. A.P (DIR Series) Circular No. 45 April 1, 2010 28. A.P (DIR Series) Circular No. 69 May 27, 2011 29. A.P (DIR Series) Circular No. 73 June 29, 2011 30. A.P (DIR Series) Circular No. 96 March 28, 2012 31. A.P (DIR Series) Circular No. 97 March 28, 2012 32. A.P (DIR Series) Circular No. 101 April 2, 2012 33. A.P (DIR S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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