In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999),   the Reserve Bank of India hereby makes the following amendments in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated 3rd May 2000), namely:-

(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India)  (second Amendment) Regulations, 2008.

(ii) Save as otherwise provided in these Regulations, the provisions of these Regulations shall come into force from the date of their publication in the Official Gazette. 

 (A) for clause  (ii) ,  the following clause shall be substituted and shall be deemed to have been substituted with effect from  the 1st day of May 2007, namely:-

 “(ii)     ‘Capital’ means equity shares, preference shares and convertible debentures

(B)  after clause (iia),  the following new clause shall be inserted and shall be deemed to have been inserted with effect from the 1st day of May 2007, namely :-

"(iib) "preference shares"  mean  compulsorily and mandatorily convertible preference shares."

(C) after clause (iib) as so inserted ,  the following new clause shall be inserted and shall be deemed to have been inserted with effect from the 8th day of June, 2007, namely :-

"(iic) "debenture"  means  compulsorily and mandatorily convertible debenture"

3. Amendment of Regulation 5

In the principal Regulations, in Regulation 5, for sub-regulation 6 the following new sub-regulation shall be substituted and shall be deemed to have been substituted with effect from the 31st day of December 2007, namely;

“ 6. A registered Foreign Institutional Investor (FII) having valid approval under the Foreign Exchange Regulation Act, 1973 or under the  Foreign Exchange Management Act, 1999 may trade in all exchange traded derivative contracts approved by RBI/SEBI subject to the limits and margin requirement prescribed by RBI/SEBI as well as the stipulations regarding collateral securities as  directed   by the Reserve Bank from time to time”.

In the principal Regulations, for Regulation 6B, the following shall be substituted, namely :-

“ 6B . A company issuing rights shares or bonus shares in terms of these Regulations shall report to the Reserve Bank in form FC-GPR as stipulated in Paragraph 9 (1)(B) of Schedule 1 to these  Regulations.”

5. Amendment of Regulation 10

In the principal Regulations, in Regulation 10, in sub-Regulation A,  after clause (b), before the Explanation, the following new clause  shall be inserted and shall be deemed to have been inserted with effect from  10th day of February, 2006, namely:-

"(c) any security by way of sale, shall make an application to the Reserve Bank  for its approval if,

6. Amendment of Schedule 1

In the principal Regulations, in Schedule 1,

"(2) If the person purchasing the shares under this Scheme pro­poses to be a collaborator or proposes to acquire the entire share­holding of a new Indian company, he should obtain prior permis­sion of Central Government if he has, as on January 12, 2005, an existing joint venture or technology transfer/trademark agreement in the same field as that of such Indian company.”

" Provided that no prior permission of Central Government shall be required for investments to be made by Venture Capital Funds registered with SEBI; investments by multinational financial institutions; or where in the existing joint-venture investment by either of the parties is less than 3%; or where the existing joint venture/ collaboration is defunct or sick or for  transfer of shares of an Indian company engaged in Information Technology sector or in the mining sector, if the existing joint venture or technology transfer/trade mark agreement of the person to whom the shares are to be  transferred are also in the Information Technology sector or in the mining sector for same area/mineral”.

"(1)  An Indian company, not engaged in any activity/sector mentioned in Annex A to this schedule, may issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed in Annex B to this schedule, in accordance with the Entry Routes specified therein and the provisions of Foreign Direct Investment Policy, as notified by the Ministry of Commerce & Industry, Government of India, from time to time.

Provided that the shares or convertible debentures are not being issued by the Indian company with a view to acquire existing shares of any Indian company.

Explanation: A company which proposes to embark on expansion  programme to undertake activities or manufacture items included in

¹This Regulation is given retrospective effect from 12th  day of January, 2005, that is, from the date on which Press Note No. 1 (2005 Series) was issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

Annex B to this Schedule may issue shares or debentures out of fresh capital proposed to be issued by it for the purpose of financing expansion programme, up to the extent indicated in Annex B, subject to compliance with the provisions of this paragraph."²

(a) is engaged or proposes to engage, in any activity given in Annex A (A) to this schedule; or

(b) falls under the FIPB route as stipulated under the column "Entry Route" in Annex B to this schedule; or

(c) proposes to issue shares to a person resident outside India against considerations other than inward remittance i.e. against royalty/ lumpsum feedue for payment;or

(d) proposes to issue shares to a person resident outside India, on or after 28th day of November 2003, against External Commercial Borrowings(ECBs){excluding those deemed as ECBs} received in convertible foreign currency ”.³

² This amendment is given retrospective effect  from 10th day of February, 2006, that is, from the date on which Press Note No. 4 (2006 Series) was issued by  Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

³ This amendment is given retrospective effect from 29th day of November 2003, that is, from the date on which Press Note 5(2003) was issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

"4B. An Indian company may sponsor an issue of ADRs/GDRs with an overseas depository against shares held by its shareholders at a price to be determined under the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and the reporting requirements as directed by Reserve Bank, from time to time."

"6. Issue price of ADRs/ GDRs

The pricing of ADRs/GDRs to be issued to a person resident outside India shall be determined under the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India from time to time.”

(i) in sub-paragraph (1),

(a) in clause (A), for the  word  “report”,  the words “report in form specified in Annex C to this schedule” shall be substituted

(b) in clause (B), for sub. clause (d), for the words  and figure “ In accordance with paragraph 9”, the words and figure “ in accordance with paragraph 8” shall be substituted.

(ii) after clause (B), at the end, the following new clause (C), shall be inserted, namely;-

" C) the amount of consideration received by Indian company as advance against equity shall  be reported to the Regional Office of the Reserve Bank under whose jurisdiction the Registered Office of the Company operates in the form  specified in “Annex C ” within 30 days of receipt thereof."

xi) for Annexure A and Annexure B,  “Annex A” and ‘Annex B’ respectively to these regulations  shall be substituted.

xii) Annexure C and Annexure D shall be renamed as "Form DR" and "Form DR-Quarterly", respectively.

xiii) Annexure E shall be omitted.

xiv) for ‘Form FC-GPR’,  “Annex D ” to these regulations   shall be substituted. 

7.  Amendment of Schedule 4

In the principal Regulations, in Schedule 4, in paragraph 2, for the provisos, the   following provisos shall be substituted, namely:-

“Provided that the person to whom the shares are being transferred, shall obtain prior permission of the Central Government to acquire the shares if he has, as on 12th day of January 2005, an existing joint venture or technology transfer/trademark agreement in the same field as that of the company of which the shares or convertible debentures to be acquired by him.

Provided further that no prior permission of Central Government shall be required for:

(a) transfer of shares to multinational financial institutions such as Asian Development Bank (ADB), International Finance Corporation (IFC), Commonwealth Development Corporation (CDC), Deutsche Entwicklungs Gescelscchaft (DEG).

(b) transfer of shares of an Indian company engaged in Information Technology sector or in the mining sector,  if the existing joint venture or technology transfer/trade mark agreement of the person to whom the shares are to be  transferred are also in the Information Technology sector or in the mining sector for same area/mineral.

(c) investments to be made by Venture Capital Funds registered with SEBI; investments by multinational financial institutions or where in the existing joint-venture investment by either of the parties is less than 3%; or where the existing joint venture/ collaboration is defunct or sick.”

8. Amendments of Schedule 5

In the principal Regulations, in Schedule 5,

(i) for  paragraph 1, the following new paragraph  shall be substituted, namely:-
 
“1. Permission to Foreign Institutional Investors for purchase of securities -

 A registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by an Indian company and units of domestic mutual funds, Security Receipts issued by Asset Reconstruction Companies and Perpetual Debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital (the definitions of Tier I capital  and Tier II capital will be the same as clarified by Reserve Bank, Department of Banking Operations and Development  and modified from time to time); subject to the limits prescribed by RBI and SEBI from time to time; either directly from the issuer of such securities or through a registered stock broker on a recognised Stock Exchange in India:

Provided that;

i) the FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30;

ii) if the FII desires to invest up to 100 per cent in dated Government Securities including Treasury Bills, listed non-convertible debentures/ bonds issued by an Indian company, it shall form a 100% debt fund and get such fund registered with SEBI;

iii) The total holding by a single FII in each tranche of scheme of Security Receipts shall not exceed 10 per cent of the issue and the total holdings of all FIIs put together shall not exceed 49 percent of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies; and

iv) The investment by all FIIs in Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 49 per cent of each issue, and investment by individual FII should not exceed the limit of 10 per cent of each issue. The investment by FIIs in Debt capital instruments (Tier II) shall be within the limits stipulated by SEBI for FII investment in corporate debt.

Provided further that FIIs may offer such securities as permitted by the Reserve Bank from time to time as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts as specified in sub-Regulation 6.”

(ii) in paragraph 2,  for sub-paragraph (1) the following shall be substituted and shall be deemed to have been substituted with effect from the 25th day of January 2006, namely :-

“1A.   A Non-resident Indian may, without limit, purchase on repatriation basis,

 i) Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds;

ii)   bonds issued by a public sector undertaking (PSU) in India;

iii) shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance  with the terms and conditions stipulated in the notice inviting bids.

1B.  A Non-resident Indian may purchase on repatriation basis perpetual debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital, as stipulated by Reserve Bank from time to time. The investments by all NRIs in Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 24 per cent of each issue and investments by a single NRI should not exceed 5 percent of each issue. Investment by NRIs in Debt capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.  "

(Salim Gangadharan)

  Chief General Manager-in-Charge

Foot Note: The Principal Regulations were published in the Official Gazette vide G.S.R.No. 406 (E) dated May 8, 2000 in Part II, Section 3, sub-section (i) and subsequently amended as under:

G.S.R.No. 158(E) dated 02.03.2001
G.S.R.No. 175(E) dated 13.03.2001
G.S.R.No. 182(E) dated 14.03.2001
G.S.R.No.     4(E) dated 02.01.2002
G.S.R.No. 574(E) dated 19.08.2002
G.S.R.No. 223(E) dated 18.03.2003
G.S.R.No. 225(E) dated 18.03.2003
G.S.R.No. 558(E) dated 22.07.2003
G.S.R.No. 835(E) dated 23.10.2003
G.S.R.No. 899(E) dated 22.11.2003
G.S.R.No.   12(E) dated 07.01.2004
G.S.R.No. 278(E) dated 23.04.2004
G.S.R.No. 454(E) dated 16.07.2004
G.S.R.No. 625(E) dated 21.09.2004
G.S.R.No. 799(E) dated 08.12.2004
G.S.R.No. 201(E) dated 01.04.2005
G.S.R.No. 202(E) dated 01.04.2005
G.S.R.No.  504(E) dated 25.07.2005
G.S.R.No.  505(E) dated 25.07.2005
G.S.R.No.  513(E) dated 29.07.2005
G.S.R.No.  738(E) dated 22.12.2005
G.S.R.No.    29(E) dated 19.01.2006
G.S.R.No.  413(E) dated 11.07.2006
G.S.R.No.  712(E) dated 14.11.2007
G.S.R.No.  713(E) dated 14.11.2007
G.S.R.No.  737(E) dated 29.11.2007
G.S.R.No.  575(E) dated 05.08.2008