RBI/2007-08/17 Master
Circular No.1/2007-08 July
2, 2007 To, All
Banks Authorised to Deal in Foreign Exchange Madam
/ Sir, Master
Circular on Direct Investment by Residents in Joint Venture (JV)/ Wholly
Owned Subsidiary (WOS) abroad Direct
investments by residents in Joint Venture (JV) and Wholly Owned Subsidiary (WOS)
abroad are being allowed, in terms of clause (a) of sub-section (3) of section
6 of the Foreign Exchange Management Act 1999, (42 of 1999) read with Notification
No. GSR 757 (E) dated November 19, 2004 and FEMA Notification 120/RB-2004 dated
July 7, 2004 as amended from time to time. 2. This
Master Circular consolidates the existing instructions on
the subject of "Direct Investment by Residents in Joint Venture (JV) /
Wholly Owned Subsidiary (WOS) abroad' at one place. The list of underlying
circulars/notifications is furnished in Appendix. 3. This
Master Circular is issued with a sunset clause of one year. This circular will
stand withdrawn on July 01, 2008 and be replaced by an updated Master Circular
on the subject. Yours
faithfully,
(Salim Gangadharan) Chief General Manager
INDEX A.1
Introduction A.2
Statutory basis A.3 Prohibitions A.4
General Permission Section
B - Direct Investment Outside India B.1
Automatic Route B.2 Method of Funding B.3
Capitalisation of exports and other dues B. 4. Investments
in Financial Services Sector B. 5 Investment in Equity of
Companies Registered Overseas / Rated Debt Instruments (i)
Corporates (ii) Individuals (iii)
Investment by Mutual Funds B.6
Approval of the Reserve Bank B.7 Overseas Investments by
Proprietorship Concerns B. 8 Post investment changes/additional
investment in existing JV / WOS B.9 Acquisition of a foreign
company through bidding or tender procedure B.10 Obligations
of Indian Entity B.11 Transfer by way of sale of shares
of a JV / WOS B.12 Pledge of Shares B.13
Hedging of Overseas Direct Investments SECTION
C - Other Investments in Foreign Securities C.1
Permission for purchase / acquisition of foreign securities in certain cases C.2
Transfer of a foreign security by a person resident in India C.3
General permission in certain cases PART
- II Operational
Instructions to Authorised Dealer Banks Designated
branches General
procedural instructions Investments
under Regulation 11 of Notification No. FEMA 120/2004-RB dated July 7, 2004 Allotment
of Unique Identification Number Investment
by way of share swap Investments
under Regulation 9 of Notification No. FEMA 120/2004-RB dated July 7, 2004 Purchase
of foreign securities under ADR / GDR linked Stock Option Scheme Remittance
towards Earnest Money Deposit or Issue of Bid Bond Guarantee Transfer
by way of sale of shares of a JV / WOS outside India Annex
– A ESOP
Reporting Annex
–B
Form
ODI Part I - IV REPORTING
OF REMITTANCES Appendix PART
– I
Section
A - General |
A.1
Introduction |
Overseas
investments in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been
recognised as important avenues for promoting global business by Indian entrepreneurs.
Joint ventures are perceived as a medium of economic 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. They are
also important drivers of foreign trade through increased exports of plant and
machinery and goods 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. 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 its rules and simplifying the procedures
both for current account as well as capital account transactions. |
A.2
Statutory basis |
Section
6 of the Foreign Exchange Management Act provides powers to the Reserve Bank to
specify, in consultation with the Central Government the classes of permissible
Capital Account transactions and limits upto which exchange is admissible for
such transactions. Section 6(3) of the aforesaid Act provides powers to the Reserve
Bank to prohibit, restrict or regulate various transactions referred to in the
sub-clauses of that sub-section, by making Regulations. In
exercise of the above powers, the Reserve Bank has in super session of earlier
Notification No.FEMA19/RB-2000 dated 3rd May 2000 and amendments thereto, issued
Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations,
2004 vide Notification No. FEMA 120/RB-2004 dated July 7, 2004 (as amended vide
Notification No. FEMA 132/2005-RB dated 31st March 2005, Notification No. FEMA
135/2005-RB dated 17th May 2005, Notification No. FEMA 139/2005-RB
dated 11th August 2005 and Notification No. FEMA 150/2006-RB dated
21st August 2006) (hereinafter referred to as ‘the Notification’).
The Notification seeks to regulate acquisition and transfer of a foreign security
by a person resident in India i.e. investment by Indian entities in overseas joint
ventures and wholly owned subsidiaries as also investment by a person resident
in India in shares and securities issued outside India.
|
A.3
Prohibitions
|
Indian
parties are prohibited from making investment in a foreign entity engaged in real
estate (as defined in Reg 2(p) of FEMA120) or banking business.
|
A.4
General Permission
|
In
terms of Regulation 4 of the Notification, general permission has been granted
to residents for purchase / acquisition of securities in the following manner:
- out
of funds held in RFC account; and
- as
bonus shares on existing holding of foreign currency shares.
- when
not permanently resident in India, out of their
foreign currency resources outside India. General
permission is also available to sell the shares so purchased or acquired. | |
Section
B - Direct Investment Outside India | B.1
Automatic Route |
In
terms of Regulation 6 of the Notification, an Indian party has been permitted
to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries
(WOS), as under: -not
exceeding 300 per cent of the net worth of the Indian party (corporates) as on
the date of the last audited balance sheet. -not
exceeding 200 per cent of the net worth of the Indian party (registered partnership
firms) as on the date of the last audited balance sheet. This
ceiling will not be applicable where the investment is made out of balances held
in Exchange Earners' Foreign Currency account of the Indian party or out of funds
raised through ADRs/GDRs. The Indian party should approach an Authorised Dealer
Category - I bank with an application in Form ODI and prescribed enclosures /
documents for effecting remittances towards such investments. The
above ceiling will include contribution to the capital of the overseas JV / WOS,
loan granted to the JV / WOS, and 100
per cent of guarantees
issued to or on behalf of the JV/WOS. Such investments are subject to the following
conditions: a)
The Indian entity may extend loan / guarantee to an overseas concern only in which
it has equity participation. Indian entities may offer any form of guarantee -
corporate or personal / primary or collateral / guarantee by the promoter company
/ guarantee by group company, sister concern or associate company in India; provided
that i)
All financial commitments including all forms of guarantees are within the overall
ceiling prescribed for overseas investment by the Indian party i.e. currently
within 300/200 per cent of the net worth of the Indian party, as the case may
be. ii)
No guarantee is 'open ended' i.e. the amount of the guarantee should be specified
upfront, and iii)
As in the case of corporate guarantees, all guarantees are required to be reported
to Reserve Bank, in Form ODI Part II. Guarantees issued by banks in India in favour
of WOSs / JVs outside India, would be outside this ceiling and would be subject
to prudential norms issued by Reserve Bank from time to time. 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 / The Credit
Information Bureau (India) Ltd (CIBIL) or under investigation by any investigation
/ enforcement agency or regulatory body.
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. In
case of partial / full acquisition of an existing foreign company, where the investment
is more than USD 5.00 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. However, in cases of investment by way of swap of shares, in
all cases irrespective of the amount, valuation of the shares will have to
be by a Category I Merchant Banker registered with SEBI or an Investment Banker
outside India registered with the appropriate regulatory authority in the host
country. Approval of the Foreign Investment Promotion Board (FIPB) will also be
a precondition. In
case of investment in overseas JV / WOS abroad by a registered Partnership firm,
where entire funding for such investment is done by the firm, it will be in order
for individual partners to hold shares for and on behalf of the firm in the overseas
JV / WOS if the host country regulations or operational requirements warrant such
holdings. An
Indian party is also permitted to acquire shares of a foreign company engaged
in a bonafide business activity, in exchange of ADRs/GDRs issued to the latter
in accordance with the Scheme for issue of Foreign Currency Convertible Bonds
and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the
guidelines issued there under from time to time by the Central Government, provided:
- ADRs/GDRs
are listed on any stock exchange outside India;
- The
ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh
equity shares issued by the Indian party;
- The
total holding in the Indian entity by persons resident outside India in the expanded
capital base, after the new ADR and/or GDR issue, does not exceed the sectoral
cap prescribed under the relevant regulations for such investment under FDI;
- Valuation
of the shares of the foreign company shall be
(i)
as per the recommendations of the Investment Banker if the shares are not listed
on any recognized stock exchange; or (ii)
based on the current market capitalisation of the foreign company arrived at on
the basis of monthly average price on any stock exchange abroad for the three
months preceding the month in which the acquisition is committed and over and
above, the premium, if any, as recommended by the Investment Banker in its due
diligence report in other cases. The
Indian Party is required to report such acquisition in form ODI to the AD Bank
for report to the Reserve Bank within a period of 30 days from the date of the
transaction. Note:
Investments in Nepal are permitted only in Indian rupees. Investments in Bhutan
are permitted in Indian Rupees as well as in freely convertible currencies. All
dues receivable on investments 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. The automatic route facility is not available
for investment in Pakistan.
|
B.2
Method of Funding
|
Investment
in an overseas JV / WOS may be funded out of one or more of the following sources:
- - drawal
of foreign exchange from an AD Bank in India;
ii) capitalisation of exports;
- swap
of shares (valuation as mentioned in para B.1 (d) above);
- utilisation
of proceeds of External Commercial
Borrowings (ECBs) / Foreign Currency Convertible
Bonds (FCCBs); - in
exchange of ADRs/GDRs issued in accordance with the scheme for issue of Foreign
Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism)
Scheme, 1993, and the guidelines issued there under from time to time by the Central
Government
vi)
balances held in EEFC account of the Indian party; and
- utilisation
of proceeds of foreign currency funds
raised through ADR / GDR issues In
respect of (vi) and (vii) above, the ceiling of 300/200 per cent (as applicable),
of net worth will not apply. However, in respect of investments in the financial
sector, they will be subject to compliance of Regulation 7 of the Notification
ibid, irrespective of the method of funding. |
B.3
Capitalisation of exports and other dues
|
- Indian
parties are also permitted to capitalise the payments due from the foreign entity
towards exports, fees, royalties or any other entitlements due from the foreign
entity for supplying technical know-how, consultancy, managerial and other services
within the ceilings applicable. Export proceeds remaining unrealised beyond a
period of six months from the date of export will require the prior approval of
the Reserve Bank before capitalisation.
- Indian
software exporters are permitted to receive 25 per cent of the value of their
exports to an overseas software
startup company in the
form of shares without entering into Joint Venture Agreements, with prior approval
of the Reserve Bank.
|
B.
4. Investments in Financial Services Sector
|
In
terms of Regulation 7 of the Notification, an Indian party seeking to make investment
in an entity engaged in the financial sector should also fulfill the following
additional conditions: - be
registered with the appropriate regulatory authority in India for
conducting
the financial sector activities; - have
earned net profit during the preceding three financial years from the financial
services activities;
- have
obtained approval for investment in financial sector activities abroad from regulatory
authorities concerned in India and abroad; and
- have
fulfilled the prudential norms relating to capital adequacy as prescribed by the
regulatory authority concerned in India.
A
step down subsidiary of JV / WOS investing in a financial services sector is also
required to comply with the above conditions. Regulated
entities in the financial sector making investments in any activity overseas are
required to comply with the above guidelines. It is clarified that unregulated
entities in the financial services sector in India may invest in non financial
sector activities subject to compliance with the provisions of Regulation 6 of
the Notification. It is further clarified that 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 the Forward Markets
Commission. |
B. 5 Investment
in Equity of Companies Registered Overseas / Rated Debt Instruments
|
(i)
Corporates Listed
Indian companies are permitted to invest abroad in companies, (a) listed on a
recognized stock exchange and (b) which has the share holding of at least 10 per
cent in an Indian company listed on a recognized stock exchange in India (as on
1st January of the year of the investment). They are also permitted to invest
in rated bonds / fixed income securities of such companies. Such investments shall
not exceed 35 per cent of the Indian company’s net worth as on the date of the
latest audited balance sheet. (ii)
Individuals Resident
individuals are permitted to invest in equity and in rated bonds / fixed income
securities of overseas companies as permitted in terms of the limits and conditions
specified under the Liberalised Remittance Scheme. (iii)
Investment by Mutual Funds Mutual
Funds are permitted to invest in ADRs / GDRs of the Indian and foreign companies,
rated debt instruments, equity of listed overseas companies, ETFs and overseas
mutual funds that make nominal investments (say, to the extent of 10 per cent
of net asset value) in unlisted overseas securities, within an overall cap USD
4 billion. Domestic Venture Capital Funds registered with SEBI may invest in equity
and equity linked instruments of off-shore Venture Capital Undertakings, subject
to an overall limit of USD 500 million. Accordingly, Mutual Funds/ Venture Capital
Funds desirous of availing of this facility may approach SEBI for necessary permission.
General
permission is available to the above categories of investors for sale of securities
so acquired. |
B.6
Approval of the Reserve Bank |
Prior approval
of the Reserve Bank would be required in all other cases of direct investment
abroad. For this purpose, application together with necessary documents should
be made in Form ODI
submitted through their
Authorised Dealer. 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;
- Financial
position and business track record of the Indian party and the foreign entity;
- Expertise
and experience of the Indian party in the same or related line of activity of
the JV / WOS outside India
|
B.7
Overseas Investments by Proprietorship Concerns
|
- With
a view to enabling recognized star exporters with a proven track record and a
consistently high export performance to reap the benefits of globalization and
liberalization, proprietorship concerns and unregistered partnership firms are
allowed to set up a JV / WOS outside India with prior approval of the Reserve
Bank subject to satisfying certain eligibility criteria. An application in form
ODI may be made to the Chief General Manager, Reserve Bank of India, Foreign Exchange
Department, Overseas Investment Division, Central Office, Amar Building 3rd Floor,
Fort, Mumbai 400 001, through the AD Banks. AD Banks may forward such investment
proposals, with their comments and recommendations, to the Reserve Bank for consideration.
Investments
by established proprietorship or unregistered partnership exporter firms will
be subject to the following criteria: i)
The Partnership / Proprietorship firm is a DGFT recognized Star Export House
(export exceeding Rs.15 crore) per annum. ii)
The AD bank is satisfied that the exporter is KYC (Know Your Customer) compliant,
is engaged in the proposed business and has turnover as indicated. iii)
Exporter has proven track record i.e. export outstanding does not exceed 10
per cent of the average export realization of preceding three financial years. iv)
The exporter has not come under adverse notice of any Government agency like Enforcement
Directorate, CBI and does not appear in the exporters' caution list of the Reserve
Bank or in the list of defaulters to the banking system in India. v)
The amount of investment outside India does not exceed 10 per cent of the average
of three financial years export realization or 200
per cent of the net
owned funds of the firm, whichever is lower. |
B.
8 Post investment changes/additional investment in existing JV / WOS
|
- A
JV / WOS set up by the Indian party as per the Regulations may diversify its activities
/ set up step down subsidiary / alter the shareholding pattern in the overseas
entity (subject to compliance of Regulation 7 in the case of financial services
sector companies) subject to the Indian party reporting to the AD Bank for onward
reporting to the Reserve Bank, the details of such decisions taken by the JV /
WOS within 30 days of the approval of those decisions by the competent authority
concerned of such JV / WOS in terms of local laws of the host country, and, include
the same in the Annual Performance Report (APR—Part III of ODI) required to be
forwarded annually to the AD Bank.
|
B.9
Acquisition of a foreign company through bidding or tender procedure
|
An
Indian party may remit earnest money deposit or issue a bid bond guarantee for
acquisition of a foreign company through bidding and tender procedure and also
make subsequent remittances through an AD Bank in accordance with the provisions
of Regulation 14 of the Notification. |
B.10
Obligations of Indian Entity
|
An
Indian party which has made direct investment abroad is under obligation to (a)
receive share certificate or any other document as an evidence of investment,
(b) repatriate to India the dues receivable from foreign entity and (c) submit
the documents / Annual Performance Report to the Reserve Bank, in accordance with
the provisions specified in Regulation 15 of the Notification. |
B.11
Transfer by way of sale of shares of a JV / WOS
|
Indian
parties may also disinvest without prior approval of the Reserve Bank, in the
under noted categories: - in
case where the JV / WOS is listed in the overseas stock exchange;
- in
cases where the Indian promoter company is listed on a stock exchange in India
and has a net worth of not less than Rs.100 crore;
- where
the Indian promoter is an unlisted company
and the investment in overseas venture does not exceed
USD 10 million. The
Indian entity is required to submit details of the disinvestment through its designated
Authorised Dealer bank within 30 days from the date of investment. An Indian
party, which does not satisfy the conditions laid down, shall have to apply to
the Reserve Bank for prior permission. |
B.12
Pledge of Shares
|
An
Indian party may pledge the shares of JV / WOS to an AD Bank or a public financial
institution in India for availing of any credit facility for itself or for the
JV / WOS abroad in terms of Regulation 18 of the Notification. Indian Parties
may also transfer by way of pledge, the shares held in overseas JV/WOS, to an
overseas lender, provided the lender is regulated and supervised as a bank and
the total financial commitments of the Indian Parties remain within the limit
stipulated by Reserve Bank for overseas investments, from time to time. |
B.13
Hedging of Overseas Direct Investments |
Resident
entities having overseas direct investments are permitted to hedge the exchange
risk arising out of such investments. AD Banks may enter into forward / option
contracts with resident entities who wish to hedge their overseas direct investments
(in equity and loan), subject to verification of such exposure. Cancellation of
such forward contracts may be permitted by AD – Category I banks and 50% of such
cancelled contracts may be allowed to be rebooked. If
a hedge becomes naked in part or full owing to shrinking of the market value of
the overseas direct investment, the hedge may continue to the original maturity.
Rollovers on the due date are permitted upto the extent of market value as on
that date. |
SECTION
C - Other Investments in Foreign Securities |
C.1
Permission for purchase / acquisition of foreign securities in certain cases |
General
permission has been granted to a person resident in India who is an individual
- a) to acquire foreign
securities as a gift from any person resident
outside India; orb)
to acquire shares under Cashless Employees Stock Option Scheme issued by a company
outside India, provided it does not involve any remittance from India; or c)
to acquire shares by way of inheritance from a person whether resident in or outside
India; d)
to purchase equity shares offered by a foreign company under its ESOP Schemes
if he is an employee, or, a director of an Indian office or branch of a foreign
company, or, of a subsidiary in India of a foreign company, or, an Indian company
in which foreign equity holding, either direct or through a holding company/Special
Purpose Vehicle (SPV), is not less than 51 per cent. AD Banks are permitted to
allow remittances for purchase of shares by eligible persons under this provision
irrespective of the method of operationalisation of the scheme i.e where the shares
under the scheme are offered directly by the issuing company or indirectly through
a trust / a Special Purpose Vehicle (SPV) / step down subsidiary, provided (i)
the company issuing the shares effectively, directly or indirectly, holds in the
Indian company, whose employees / directors are being offered shares, not less
than 51 per cent of its equity, (ii) the shares under the ESOP Scheme are offered
by the issuing company globally on uniform basis, and (iii) An Annual Return (Annex
A, Part II, item 11) is submitted by the Indian company to the Reserve Bank through
the AD Bank giving details of remittances / beneficiaries /etc. A
person resident in India may transfer by way of sale the shares acquired as stated
above provided that the proceeds thereof are repatriated immediately on receipt
thereof and in any case not later than 90 days from the date of sale of such securities. e)
Foreign companies are permitted to repurchase the shares issued to residents in
India under any ESOP Scheme provided (i) the shares were issued in accordance
with the Rules / Regulations framed under Foreign Exchange Management Act, 1999,
(ii) the shares are being repurchased in terms of the initial offer document and,
(iii) An annual return is submitted through the AD Bank giving details of remittances
/ beneficiaries, etc. f)
In all other cases, not covered by general or special permission, approval of
the Reserve Bank is required to be obtained before acquisition of a foreign security. |
C.2
Transfer of a foreign security by a person resident in India
|
The
shares acquired by persons resident in India in accordance with the provisions
of Foreign Exchange Management Act, 1999 or Rules or Regulations made thereunder
are allowed to be pledged for obtaining credit facilities in India from an AD
Bank / Public Financial Institution. |
C.3
General permission in certain cases
|
Residents
are permitted to acquire a foreign security, if it represents – a)
qualification shares for becoming a director of a company outside India provided
it does not exceed 1 per cent of the paid up capital of the overseas company and
the consideration for the acquisition does not exceed USD 20,000/- in a calendar
year; b)
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;
c) 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 USD 10,000 or its equivalent per employee
in a block of five calendar years; the shares so acquired do not exceed 5 per
cent of the paid-up capital of the JV / WOS outside India; and after allotment
of such shares, the percentage of shares held by the Indian promoter company,
together with shares allotted to its employees is not less than the percentage
of shares held by the Indian promoter company prior to such allotment; d)
purchase of foreign securities under ADR / GDR linked stock option schemes by
resident employees of Indian companies in the knowledge based sectors, including
working directors provided purchase consideration does not exceed USD 50,000 or
its equivalent in a block of five calendar years. |
PART
- II |
Operational
Instructions to Authorised Dealer
Banks |
Designated
branches
|
AD Banks
are required to designate select branches at different centres to undertake foreign
exchange transactions in connection with overseas direct investment under Regulation
6 of the Notification. An eligible Indian party making investment in a Joint Venture
(JV) / Wholly Owned Subsidiary (WOS) outside India, is required to route all its
transactions relating to the investment through only one branch of an AD Bank
designated by it. All communications from the Indian parties, to the Reserve Bank,
relating to the investment outside India should also be routed through the same
branch of the AD Bank that has been designated by the Indian investor for the
investment. The designated AD Bank while forwarding the request from their customers
to the Reserve Bank, shall also forward its comments / recommendations on the
request. However, the Indian party may designate different AD Banks / branches
of AD Banks for different JV / WOS outside India promoted by them. |
Investments
under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004
|
AD Banks
may allow investments up o the permissible limits on receipt of application in
form ODI together with form A-2, duly filled in, from the Indian party /parties
making investments in a JV/WOS abroad subject to their complying with the conditions
specified in Regulation 6 of Notification FEMA No.120/RB-2004 dated July 7, 2004
as amended from time to time. Investment in financial services should, however,
comply with additional norms stipulated at Regulation 7 ibid. While forwarding
the report of remittance in respect of investment in Financial Services Sector,
AD Banks
may certify that approval
from the concerned Regulatory Authorities in India and abroad have been obtained.
Before allowing the remittance AD banks are required to ensure that the necessary
documents, as prescribed in form ODI, have been submitted.
| General
procedural instructions
|
As
per the revised reporting system, all the earlier forms have been subsumed into
one form viz. ODI, comprising of four parts: Part
I - which includes the following: Section A – Details of the Indian Party
Section B – Details of Investment in New Project Section C - Details of Investment
in Existing Project Section D – Funding for JV / WOS Section E – Declaration
by the Indian Party Section F - Certificate by the Statutory Auditors of the
Indian Party Part
II - Reporting of Remittances Part III - Annual Performance Report (APR)
Part IV – Report on Closure / Disinvestment / Voluntary Liquidation / Winding
up of JV / WOS.
A new system has also been introduced for reporting Closure / Disinvestment /
Winding up / Voluntary Liquidation of the overseas JV / WOS under general permission
(Part IV of form ODI). Reporting in the revised form ODI has come into
effect from June 1, 2007. The form can also be downloaded from Reserve
Bank’s website www.rbi.org.in. It
is reiterated that the revised form is only a rationalisation of the reporting
procedure and there is no change or dilution in the existing eligibility criteria
/ documentation / limits. Eventually, these reports will be received on line
by Reserve Bank. Accordingly,
AD Category - I banks may take action as under: a) In cases of Automatic
Route – Parts I and II of form ODI should be submitted to The Chief General
Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment
Division, Amar Bldg. 3rd floor, Sir P. M. Road, Fort, Mumbai 400001. b)
In case of Approval Route – Part I of form ODI, along with the supporting
documents, is required to be submitted after scrutiny and with specific recommendations
by the designated AD Category - I bank, at the address mentioned above. In case
the proposal is approved, Part I will be returned by the Reserve Bank to the AD
Category - I bank. After effecting the remittance, the AD Category – I bank
should resubmit the same to the Reserve Bank along with Part II of form ODI. c)
In case of disinvestment / closure / winding up / voluntary liquidation under
the Automatic Route, in terms of A.
P. (Dir Series) Circular No. 29 dated March 27, 2006, a report should be submitted
by the designated AD Category - I bank, in Part IV of form ODI. In all other cases
of disinvestment, an application along with the necessary supporting documents
should be submitted to the Reserve Bank as per the existing procedure.
In cases where the investment is being made jointly by more than one Indian party,
form ODI is required to be signed jointly by all the investing entities and submitted
to the designated branch of the AD bank. AD banks should forward to the Reserve
Bank a consolidated form ODI indicating details of each party. The same procedure
should be followed where the investment is made out of the proceeds of ADR / GDR
issues of an Indian party in terms of Regulation 6(5) of the Notification. The
Reserve Bank would allot only one Unique Identification number to the overseas
project. (ii)
Clause (v) of sub-regulation (2) of Regulation 6 provides that all transactions
relating to investment in a JV / WOS are to be routed through only one designated
branch of an AD bank designated by the Indian party. For proper follow-up, the
AD bank is required to maintain party-wise record in respect of each JV / WOS
separately. (iii)
AD banks should allow remittance towards loan to the JV / WOS and / or issue guarantee
to / on behalf of the JV / WOS abroad only after ensuring that the Indian party
has an equity stake in the JV / WOS. |
Investments
under Regulation 11
of Notification No. FEMA 120/2004-RB dated July 7, 2004
|
In
terms of Regulation 11, Indian parties are permitted to make direct investment
in JV / WOS abroad by way of capitalisation of exports or other dues/entitlements
like royalties, technical know-how fees, consultancy fees, etc. In such cases
also, the Indian party is required to submit details of the capitalisation in
form ODI to the designated branch of the AD bank. Such investments by way of capitalisation
are also to be reckoned while computing the cap of 300 per cent (200 per cent
in case of registered partnership firms) prescribed in terms of Regulation 6.
Further, in cases where the export proceeds are being capitalised in accordance
with the provisions of Regulation 11, the AD 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 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. |
Allotment
of Unique Identification Number
|
On
receipt of the form ODI from the AD Bank, the Reserve Bank will allot a unique
identification number to each JV or WOS abroad, which is required to be quoted
in all correspondences with the Reserve Bank. AD Banks may allow additional investment
in an existing overseas concern set up by an Indian party, in terms of Regulation
6 only after the Reserve Bank has allotted necessary identification number to
the overseas project. |
Investment
by way of share swap
|
In
the case of investment by way of share swap, AD Banks are additionally required
to submit to the Reserve Bank the details of transactions such as number of shares
received / allotted, premium paid / received, brokerage paid / received etc.,
and also confirmation to the effect that the inward leg of transaction has been
approved by FIPB and the valuation has been done as per laid-down procedure and
that the overseas company’s shares are issued / transferred in the name of the
Indian investing company. AD Bank may also obtain an undertaking from the applicants
to the effect that future sale / transfer of shares so acquired by Non-Residents
in the Indian company shall be in accordance with the provisions of Notification
No. FEMA 20/2000-RB dated May 3, 2000 as amended from time to time. |
Investments
under Regulation 9 of
Notification No. FEMA 120/2004-RB dated July 7, 2004 |
In terms
of Regulation 9, investment in JV / WOS in certain cases requires prior approval
of the Reserve Bank. AD banks may allow remittances under these specific approvals
granted by the Reserve Bank and report the same to the Chief General Manager,
Foreign Exchange Department, Central Office, Overseas Investment Division, Amar
Building, 3rd floor, Mumbai 400 001 in form ODI.
|
Purchase
of foreign securities under ADR / GDR linked Stock Option Scheme |
AD
banks may make remittances upto USD 50,000 or its equivalent in a block of five
calendar years, without the prior approval of the Reserve Bank, for purchase of
foreign securities under the ADR / GDR linked ESOPs, after satisfying that the
issuing company has followed the relevant guidelines of SEBI / Government. |
Remittance
towards Earnest Money Deposit or Issue of Bid Bond Guarantee
|
(i) In
terms of Regulation 14 of the Notification, AD banks may, on being approached
by an Indian party which is eligible for investment under Regulation 6, allow
remittance towards Earnest Money Deposit (EMD) to the extent eligible after obtaining
Form A2 duly filled in or may issue bid bond guarantee on their behalf for participation
in bidding or tender procedure for acquisition of a company incorporated outside
India. On 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, 3rd floor,
Mumbai 400 001 in form ODI.
AD 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 & Surrender of Foreign Exchange) Regulations, 2000 (cf. Notification
No. FEMA 9/2000-RB dated 3rd May 2000). (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, 3rd floor, Mumbai 400 001. (iii)
In case the Indian party is successful in the bid, but the terms and conditions
of acquisition of a company outside India are not in conformity with the provisions
of Regulations in Part I, or different from those for which approval under sub-regulation
(3) was obtained, the Indian entity should obtain approval from the Reserve Bank
by submitting form ODI. |
Transfer
by way of sale of shares of a JV / WOS outside India
|
The
Indian party should report details of the disinvestment through the AD bank within
30 days of disinvestment in Part IV of the Form ODI as indicated in para 2 (c)
above . Sale proceeds of shares / securities shall be repatriated to India immediately
on receipt thereof and in any case not later than 90 days from the date of sale
of the shares / securities. |
ESOP
Reporting
Statement
of shares allotted to Indian employees / directors under ESOP
Schemes
for the year ended March ______________
(to
be submitted on the letterhead of the company through their AD bank) ________________________________________________________________
We,
M/s………………….., (Indian company) hereby declare that : a)
M/s ……………. (foreign company) has issued ………… shares to our employees under ESOP
Scheme during the year as under (i)
No. of shares allotted : (ii)
Number of employees/directors who accepted shares : (iii)
Amount remitted : b)
effective holding of the foreign company M/s ………… in the Indian company, as on
March 31, ______, is not less than 51% and c)
the information furnished above is true and correct to the best of our knowledge
and belief. Signature
of the Authorised Official : Name : Designation : Date : _____________________________________________________________
To, The
Chief General Manager Reserve
Bank of India Foreign
Exchange Department, Overseas
Investment Division, Central
Office, Amar Bldg., 3rd Floor, Sir.
P.M. Road, Fort, Mumbai 400 001.
Statement
of shares repurchased by the issuing company from Indian
employees / directors under ESOP Schemes for
the year ended March _______ (to
be submitted on the letterhead of the company through their AD bank)
We, M/s ……………………… (Indian
company) hereby declare that : a)
M/s ……………. (foreign company) has repurchased …….. shares issued to our employees
under ESOP Scheme during the year, (i)
Number of shares allotted : (ii)
Number of employees/directors who sold shares : (iii)
Amount of remittance (inward) : b)
effective holding of the foreign company M/s ………… in the Indian company, as on
March 31, ______, is not less than 51% and c)
the information furnished above is true and correct to the best of our knowledge
and belief. Signature
of the Authorised Official : Name : Designation : Date : _________________________________________________________________
To, The
Chief General Manager Reserve
Bank of India Foreign
Exchange Department, Overseas
Investment Division, Central
Office, Amar Bldg., 3rd Floor, Sir.
P.M. Road, Fort, Mumbai
400 001.
Appendix List
of Circulars/Notifications consolidated in the Master Circular Direct
Investment in Joint Ventures/ Wholly Owned Subsidiaries Abroad Notifications
issued
Sl.
No. | Circular
No. | Date |
1. |
AP
(DIR Series) Circular No.14 |
October
01, 2004 | 2. |
AP
(DIR Series) Circular No.32 |
February
09, 2005 | 3. |
AP
(DIR Series) Circular No.42 |
May 12,
2005 | 4.. |
AP
(DIR Series) Circular No.9 |
August
29, 2005 | 5. |
AP
(DIR Series) Circular No.29 |
March
27, 2006 | 6. |
AP
(DIR Series) Circular No.30 |
April
05, 2006 | 7 |
AP (DIR
Series) Circular No. 3 |
July
03, 2006 |
8 |
AP
(DIR Series) Circular No.6 |
September
06, 2006 | 9 |
AP
(DIR Series) Circular No. 11 |
November
16, 2006 | 10. |
AP
(DIR Series) Circular No. 41 |
April
20, 2007 | 11. |
AP
(DIR Series) Circular No. 49 |
April
30, 2007 | 12. |
AP
(DIR Series) Circular No. 50 |
May 04,
2007 | 13. |
AP
(DIR Series) Circular No.53 |
May 08,
2007 | 14. |
AP
(DIR Series) Circular No.68 |
June
01, 2007 | 15. |
AP
(DIR Series) Circular No. 72 |
June
08, 2007 | 16. |
AP
(DIR Series) Circular No.75 |
June
14, 2007 | 17 |
AP
(DIR Series) Circular No.76 |
June
19, 2007 | |