RBI 2013 14 11 Master Circular No 11 2013 14 July 01 2013 To All Authorised Dealer Category I banks 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 FEMA 120 RB 2004 dated July 7 2004 GSR 757 E dated November 19 2004 viz Foreign Exchange Management Transfer or Issue of Any Foreign Security Regulations 2004 as amended from time to time 2 This Master Circular consolidates the existing instructions on the subject of ldquo 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is furnished in the Appendix 3 This Master Circular is issued with a sunset clause of one year This circular will stand withdrawn on July 01 2014 and be replaced by an updated Master Circular on the subject Yours faithfully C D Srinivasan Chief General Manager INDEX Section A ndash General 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 Investment in unincorporated entities overseas under the Automatic Route B 3 Method of Funding B 4 Capitalisation of exports and other dues B 5 Investments in Financial Services Sector B 6 Investment in Equity of Companies Registered Overseas Rated Debt Instruments B 7 Approval of the Reserve Bank B 8 Investments in energy and natural resources sector B 9 Overseas Investments by Proprietorship Concerns B 10 Overseas investment by Registered Trust Society B 11 Post investment changes additional investment in existing JV WOS B 12 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 B 17 Pledge of Shares of JV WOS B 18 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 Pledge of a foreign security by a person resident in India C 3 General permission in certain cases Operational Instructions to Authorised Dealer Banks 1 Designated branches 2 Investments under Regulation 6 of Notification No FEMA 120 2004 RB dated July 7 2004 3 General procedural instructions 4 Investments under Regulation 11 of Notification No FEMA 120 2004 RB dated July 7 2004 5 Allotment of Unique Identification Number UIN 6 Investment by way of share swap 7 Investments under Regulation 9 of Notification No FEMA 120 2004 RB dated July 7 2004 8 Purchase of foreign securities under ADR GDR linked Stock Option Scheme 9 Remittance towards Earnest Money Deposit or Issue of Bid Bond Guarantee 10 Transfer by way of sale of shares of a JV WOS outside India 11 Verification of evidence of investment 12 Opening of Foreign Currency Account abroad by an Indian party Annex ndash A Annex ndash B Annex ndash C Appendix PART I Section A ndash General A 1 Introduction 1 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 and business co operation between India and other countries Transfer of technology and skill sharing of results of R and 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 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 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 consultation with the Government of India the classes of permissible capital account transactions and limits up to which foreign 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 2 In exercise of the above powers conferred under the Act the Reserve Bank has in supersession of the earlier Notification No FEMA19 RB 2000 dated 3rd May 2000 and subsequent 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 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 Overseas Investment can be made under two routes viz i Automatic Route outlined in paragraph B 1 and ii Approval Route outlined in paragraph B 7 A 3 Prohibitions Indian parties are prohibited from making investment in a foreign entity engaged in real estate meaning buying and selling of real estate or trading in Transferable Development Rights TDRs but does not include development of townships construction of residential commercial premises roads or bridges or banking business without the prior approval of the Reserve Bank Clarification An overseas entity having direct or indirect equity participation by an Indian party shall not offer financial products linked to Indian Rupee e g non deliverable trades involving foreign currency rupee exchange rates stock indices linked to Indian market etc without the specific approval of the Reserve Bank Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA 1999 A 4 General Permission In terms of Regulation 4 of the Notification general permission has been granted to persons residents in India for purchase acquisition of securities in the following manner out of the funds held in RFC account as bonus shares on existing holding of foreign currency shares and 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 1 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 not exceeding 400 per cent of the net worth as on the date of last audited balance sheet of the Indian party i e a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act 1932 making investment in a JV WOS abroad and includes any other entity in India excluding individuals as may be notified by the Reserve Bank 2 The ceiling of 400 per cent of net worth 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 Annex A and prescribed enclosures documents for effecting remittances towards such investments 3 The total financial commitment of the Indian party in all the Joint Ventures Wholly Owned Subsidiaries put together shall not exceed 400 of the net worth of the Indian party as on the date of the last audited balance sheet For the purpose of determining the total financial commitment within the limit of 400 as specified above the following shall be reckoned namely 100 of the amount of equity shares 100 of the amount of compulsorily and mandatorily convertible preference shares 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 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 the limit prescribed for the financial commitment Foot note Compulsorily Convertible Preference Shares CCPS shall be treated at par with equity shares 4 The investments are subject to the following conditions a The Indian party entity may extend loan guarantee only to an overseas JV WOS in which it has equity participation Proposals from the Indian party for undertaking financial commitment without equity contribution in JV WOS may be considered by the Reserve Bank under the approval route AD banks may forward the proposals from their constituents after ensuring that the laws of the host country permit incorporation of a company without equity participation by the Indian party Indian entities may offer any form of guarantee corporate or personal including the personal guarantee by the indirect resident individual promoters of the Indian Party primary or collateral guarantee by the promoter company guarantee by group company sister concern or associate company in India provided that 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 400 per cent of the net worth as on the date of the last audited balance sheet of the Indian party No guarantee should be open ended i e the amount and period of the guarantee should be specified upfront In the case of performance guarantee time specified for the completion of the contract shall be the validity period of the related performance guarantee In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 400 per cent of the net worth of the Indian Party the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India on account of such invocation As in the case of corporate guarantees all guarantees including performance guarantees and Bank Guarantees SBLC are required to be reported to the Reserve Bank in Form ODI Part II Guarantees issued by banks in India in favour of WOSs JVs outside India and would be subject to prudential norms issued by the Reserve Bank DBOD from time to time Note Specific approval of the Reserve Bank will be required for creating charge on immovable moveable property and other financial assets except pledge of shares of overseas JV WOS of the Indian party group companies in favour of a non resident entity within the overall limit fixed presently 400 for the financial commitment subject to submission of a lsquo No Objection rsquo by the Indian party and their group companies from their Indian lenders b The Indian party should not be on the Reserve Bank rsquo 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 swap of shares irrespective of the amount valuation of the shares will have to be made 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 prerequisite for investment by swap of shares f In case of investment in overseas JV WOS abroad by a registered Partnership firm where the 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 g An Indian party may 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 Government of India provided i ADRs GDRs are listed on any stock exchange outside India ii The ADR and or GDR issued for the purpose of acquisition is backed by underlying fresh equity shares issued by the Indian party iii 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 iv Valuation of the shares of the foreign company shall be a as per the recommendations of the Investment Banker if the shares are not listed on any recognized stock exchange or b 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 5 The Indian Party is required to report such acquisition in form ODI to the AD Bank for submission 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 Investments in Pakistan by Indian Parties are permissible under the approval route B 1 1 Issue of guarantee by an Indian Party to step down subsidiary of JV WOS a Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV WOS set up by their JV WOS operating as a Special Purpose Vehicle SPV under the Automatic Route subject to the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment It has been decided that irrespective of whether the direct subsidiary is an operating company or a SPV the Indian promoter entity may extend corporate guarantee on behalf of the first generation step down operating company under the Automatic Route within the prevailing limit for overseas direct investment Such guarantees will have to be reported to the Reserve Bank in Form ODI as hitherto through the designated AD Category ndash I bank concerned b Further the issuance of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route provided the Indian Party directly or indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued B 1 2 Investment through Special Purpose Vehicle SPV under Automatic Route i Investments in JV WOS abroad by Indian parties through the medium of a Special Purpose Vehicle SPV are also permitted under the Automatic Route in terms of Regulation 6 of the Notification subject to the conditions that the Indian party is not included in the Reserve Bank s caution list or is under investigation by the Directorate of Enforcement or included in the list of defaulters to the banking system circulated by the Reserve Bank any other Credit Information company as approved by the Reserve Bank Indian parties whose names appear in the Defaulters list require prior approval of the Reserve Bank for the investment ii Setting up of an SPV under the Automatic Route is permitted for the purpose of making a investment in JV WOS overseas B 2 Investment in unincorporated entities overseas under the Automatic Route 1 Investments in unincorporated incorporated entities overseas in the oil sector i e for exploration and drilling for oil and natural gas etc by Navaratna PSUs ONGC Videsh Ltd OVL and Oil India Ltd OIL may be permitted by AD Category I banks without any limit provided such investments are approved by the competent authority 2 Other Indian companies are also permitted under the Automatic Route to invest in unincorporated entities overseas in the oil sector up to 400 per cent of their net worth provided the proposal has been approved by the competent authority and is duly supported by certified copy of the Board resolution approving such investment Investment in excess of 400 per cent of the net worth of an Indian company shall require prior approval of the Reserve Bank 3 Indian companies 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 and 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 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 on line submission of the same by the AD Category I banks to the Reserve Bank for allotment of Unique Identification Number B 3 Method of Funding 1 Investment in an overseas JV WOS may be funded out of one or more of the following sources i drawal of foreign exchange from an AD bank in India ii capitalisation of exports iii swap of shares valuation as mentioned in para B 1 e above iv proceeds of External Commercial Borrowings ECBs Foreign Currency Convertible Bonds FCCBs v 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 thereunder from time to time by the Government of India vi balances held in EEFC account of the Indian party and vi proceeds of foreign currency funds raised through ADR GDR issues In respect of vi and vii above the ceiling of 400 per cent of the net worth will not apply However all investments made in the financial sector will be subject to compliance with Regulation 7 of the Notification irrespective of the method of funding 2 General permission has been granted to persons resident in India for purchase acquisition of securities in the following manner i out of funds held in RFC account ii as bonus shares on existing holding of foreign currency shares and iii when not permanently resident in India out of their foreign currency resources outside India para A 4 above B 4 Capitalisation of exports and other dues 1 Indian party is permitted to capitalise the payments due from the foreign entity towards exports fees royalties or any other dues from the foreign entity for supply of technical know how consultancy managerial and other services within the ceilings applicable Capitalisation of export proceeds remaining unrealised beyond the prescribed period of realization will require prior approval of the Reserve Bank 2 Indian software exporters are permitted to receive 25 per cent of the value of their exports to an overseas software start up company in the form of shares without entering into Joint Venture Agreements with prior approval of the Reserve Bank B 5 Investments in Financial Services Sector 1 In terms of Regulation 7 of the Notification an Indian party seeking to make investment in an entity outside India which is engaged in the financial sector should fulfill the following additional conditions i be registered with the regulatory authority in India for conducting the financial sector activities ii has earned net profit during the preceding three financial years from the financial services activities iii has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity and iv has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India 2 Any additional investment 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 in any activity overseas are required to comply with the above guidelines 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 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 6 Investment in Equity of Companies Registered Overseas Rated Debt Instruments 1 i Portfolio Investments by listed Indian companies Listed Indian companies are permitted to invest up to 50 per cent of their net worth as on the date of the last audited balance sheet in i shares and ii bonds fixed income securities rated not below investment grade by accredited registered credit rating agencies issued by listed overseas companies ii Investment by Mutual Funds Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap of USD 7 billion in i ADRs GDRs of the Indian and foreign companies ii equity of overseas companies listed on recognised stock exchanges overseas iii initial and follow on public offerings for listing at recognized stock exchanges overseas iv foreign debt securities in the countries with fully convertible currencies short term as well as long term debt instruments with rating not below investment grade by accredited registered credit agencies v money market instruments rated not below investment grade vi repos in the form of investment where the counterparty is rated not below investment grade The repos should not however involve any borrowing of funds by mutual funds vii government securities where the countries are rated notbelow investment grade viii derivatives traded on recognized stock exchanges overseasonly for hedging and portfolio balancing with underlying as securities ix short term deposits with banks overseas where the issuer is rated not below investment grade and x units securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in a aforesaid securities b Real Estate Investment Trusts REITS listed on recognized stock exchanges overseas or c unlisted overseas securities not exceeding 10 per cent of their net assets 2 A limited number of qualified Indian Mutual Funds are permitted to invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds as may be permitted by SEBI 3 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 4 General permission is available to the above categories of investors for sale of securities so acquired B 7 Approval of the Reserve Bank 1 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 submitted in Form ODI through their Authorised Dealer Category ndash 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 Financial position and business track record of the Indian party and the foreign entity and Expertise and experience of the Indian party in the same or related line of activity as of the JV WOS outside India B 8 Investments in energy and natural resources sector Reserve Bank will consider applications for investment in JV WOS overseas in the energy and natural resources sectors e g oil gas coal and mineral ores in excess of 400 per cent of the net worth of the Indian companies as on the date of the last audited balance sheet AD Category I banks may forward such applications from their constituents to the Reserve Bank as per the laid down procedure B 9 Overseas Investments by Proprietorship Concerns 1 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 JVs WOS outside India with the 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 5th Floor Fort Mumbai 400 001 through the AD Category I bank AD Category I banks may forward the applications to the Reserve Bank along with their comments and recommendations for consideration 2 Investments by established proprietorship or unregistered partnership exporter firms will be subject to the following conditions i The Partnership Proprietorship firm is a DGFT recognized Star Export House ii The AD Category ndash I bank is satisfied that the exporter is KYC Know Your Customer compliant and is engaged in the proposed business and meets the requirement as indicated at i above iii Exporter has proven track record i e overdue exports do 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 Directorate of Enforcement 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 export realization of the preceding three financial years or 200 per cent of the net owned funds of the firm whichever is lower B 10 Overseas investment by Registered Trust Society Registered Trusts and Societies engaged in manufacturing educational hospital sector are allowed to make investment in the same sector s in a JV WOS outside India with the prior approval of the Reserve Bank Trusts Societies satisfying the eligibility criteria as indicated below may submit the application s in Form ODI Part I through their AD Category I bank s to the Chief General Manager Reserve Bank of India Foreign Exchange Department Overseas Investment Division Central Office Amar Building 5th Floor Fort Mumbai 400 001 for consideration 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 ndash 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 make the proposed investment which should also be approved by the governing body council or a managing executive committee iii The AD Category I bank is satisfied that the Society is KYC Know Your Customer compliant and is engaged in a bonafide activity iv The Society has been in existence at least for a period of three years v The Society has not come under the adverse notice of any Regulatory Enforcement agency like the Directorate of Enforcement CBI etc In addition to the registration the AD Category ndash I bank should ensure that the special license permission has been obtained by the applicant in case the activities require special license permission either from the Ministry of Home Affairs Government of India or from the relevant local authority as the case may be B 11 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 of the Notification in the case of financial services sector companies The Indian party should report to the Reserve Bank through the AD Category I bank the details of such decisions within 30 days of the approval of those decisions by the competent authority of the JV WOS concerned in terms of local laws of the host country and include the same in the Annual Performance Report APR Part III of Form ODI required to be forwarded to the AD Category I bank B 12 Restructuring of the balance sheet of the overseas entity involving write off of capital and receivables In order to provide more operational flexibility to the Indian corporates the Indian promoters who have set up WOS abroad or have at least 51 per cent stake in an overseas JV may write off capital equity preference shares or other 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 ndash 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 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 Category I bank in accordance with the provisions of Regulation 14 of the Notification B 14 Obligations of Indian Party 1 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 The share certificate or any other document as evidence of investment has to be submitted to and retained by the designated AD Category I bank who is required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents A certificate to this effect should be submitted by the designated AD category ndash I bank to the Reserve Bank along with the APR Part III of Form ODI 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 The Statutory Auditors of the Indian party certify that lsquo The un audited annual accounts of the JV WOS reflect the true and fair picture of the affairs of the JV WOS rsquo and That the un audited annual accounts of the JV WOS has been adopted and ratified by the Board of the Indian party B 15 Transfer by way of sale of shares of a JV WOS 1 An Indian Party without prior approval of the Reserve Bank may transfer by way of sale to another Indian Party which complies with the provisions of Regulation 6 of FEMA Notification 120 RB 2004 dated July 7 2004 or to a person resident outside India any share or security held by it in a JV or WOS outside India subject to the following conditions i the sale does not result in any write off of the investment made ii the sale is effected through a stock exchange where the shares of the overseas JV WOS are listed iii if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement the share price is not less than the value certified by a Chartered Accountant Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV WOS iv the Indian party does not have any outstanding dues by way of dividend technical know how fees royalty consultancy commission or other entitlements and or export proceeds from the JV or WOS v the overseas concern has been in operation for at least one full year and the Annual Performance Report together with the audited accounts for that year has been submitted to the Reserve Bank vi 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 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 Rs 100 crore where the Indian Party is an unlisted company and the investment 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 Rs 100 crore but investment in an overseas JV WOS does not exceed USD 10 million 2 Such disinvestments shall be subject to the conditions listed at B 15 items ii to vi and B 15 2 3 An Indian Party which does not satisfy the conditions laid down above for undertaking any disinvestment in its JV WOS abroad shall have to apply to the Reserve Bank for prior permission B 17 Pledge of Shares of JV WOS An Indian party may pledge the shares of JV WOS to an AD Category ndash I 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 party 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 party remain within the limit stipulated by the Reserve Bank for overseas investments from time to time B 18 Hedging of Overseas Direct Investments 1 Resident entities having overseas direct investments are permitted to hedge the foreign exchange rate risk arising out of such investments AD Category I 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 2 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 up to 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 1 General permission has been granted to a person resident in India who is an individual ndash 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 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....................
More...