posted Apr 29, 2013, 4:58 AM by Administrator One
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Q.1. What is the
significance of overseas direct investments for the country and for the investor?
A. Joint
Ventures/Wholly Owned Subsidiaries abroad promote economic co-operation
between India and the host countries. They result in transfer of technology
and skills, sharing the results of Research & Development, access to the
global market, promotion of the brand image, generation of employment and
utilization raw materials available in India and the host country, increased
exports of plant and machinery and goods and services from India, foreign
exchange earnings through dividend earnings, royalty, technical know-how fee,
etc. Since globalization of trade is a two-way process, integration of the
Indian economy with the rest of the world with all its attendant benefits is
achieved through overseas investment. It is the reverse of Foreign Direct
Investment (FDI) i.e. Indian direct investment abroad.
Q.2. Where are the
guidelines pertaining to overseas direct investments available?
A. The guidelines have
been notified by the Reserve Bank of India vide Notification No. FEMA 120/RB-2004 dated July 7, 2004, as
amended from time to time, which can be accessed at the Reserve Bank’s
website http://www.rbi.org.in/scripts/Fema.aspx. A
Master Circular titled ‘Master Circular on Direct Investment by Residents in
Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad’, which is a
compendium of all notifications/circulars incorporating the developments, is
also available at the website http://www.rbi.org.in.
Q.3. Where can one get
clarifications pertaining to the guidelines on overseas investment?
A. Please see answer to
Q. 2 above. Any clarifications in respect of cases not covered by the
instructions may be obtained, giving full details of the case, from the
Central Office of the Reserve Bank at the following address:
The Chief General
Manager
Reserve Bank of India Foreign Exchange Department Overseas Investment Division Central Office Amar Building, 5th Floor Mumbai 400 001
or
Q.4. What are the
general permissions available to persons (individual) resident in India for
purchase / acquisition of securities abroad?
A. General permission
has been granted to persons (individual) resident in India for purchase /
acquisition of securities as under:
General permission is
also available to sell the shares so purchased or acquired.A resident Indian
can remit up to USD 200,000/- per financial year under
the Liberalised Remittance Scheme (LRS), for permitted current and capital
account transactions including purchase of securities.
Q.5. What is direct
investment outside India?
A. Direct investment
outside India means investments, either under the Automatic Route or the
Approval Route, by way of contribution to the capital or subscription to the
Memorandum of Association of a foreign entity, signifying a long-term
interest in the overseas entity (setting up / acquiring a Joint Venture (JV)
or a Wholly Owned Subsidiary (WOS).
Q.6. Does the
definition as given in Q.5 mean that one cannot acquire an existing company
either partially or wholly?
A. An eligible Indian entity
is free to acquire either a partial stake (JV) or the entire stake (WOS) in
an already existing entity overseas, provided the valuation is as per the
laid down norms. Please also see Q No. 16.
Q.7. Can overseas
direct investment be made in any activity?
A. An Indian Party can
make overseas direct investment in any bonafide activity (except those that
are specifically prohibited as stated in answer to Q. 9). However, for
undertaking activities in the financial services sector, certain additional
conditions as specified in Regulation 7 of the Notification should be adhered
to. Please refer answer to Q.25.
Q.8. Who are eligible
to make overseas direct investment under the Automatic Route? Who is an
“Indian Party”?
A. An Indian Party is
eligible to make overseas direct investment under the Automatic Route. An
Indian Party is 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 and any other entity in India as may be notified by the
Reserve Bank. When more than one such company, body or entity makes
investment in the foreign entity, such combination will also form an “Indian
Party”.
Q.9. What are the
prohibited activities for overseas direct investment?
A. Real estate as
defined in Regulation 2(p) of the Notification and banking business are the
prohibited sectors for overseas direct investment.
However, Indian banks
operating in India can set up JVs/WOSs abroad provided they obtain clearance
under the Banking Regulation Act, 1949, from the Department of Banking
Operations and Development (DBOD), CO, RBI.
Q.10. What exactly is
covered under the term real estate business?
A. Real estate business
means 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.
Q.11. What is the
Automatic Route?
A. Under the Automatic
Route, an Indian Party does not require any prior approval from the Reserve
Bank for making overseas direct investments in a JV/WOS abroad. The Indian
Party should approach an Authorized Dealer Category – I bank with an
application in Form ODI and the prescribed enclosures / documents for
effecting the remittances towards such investments. However, in case of
investment in the financial services sector, prior approval is required from
the regulatory authority concerned, both in India and abroad.
Q.12. What are the
limits and requirements for direct investment to be made under the Automatic
Route?
A. The criteria for
direct investment under the Automatic Route are as under:
Q.13. What is the
procedure to be followed by an Indian party to make direct investment in a
JV/WOS under the Automatic Route?
A. The Indian Party
intending to make a direct investment under the automatic route is required
to fill up form ODI duly supported by the documents listed therein, i.e.,
certified copy of the Board Resolution, Statutory Auditors certificate and
Valuation report (in case of acquisition of an existing company) as per the
valuation norms listed in answer to Q.16 and approach an Authorized Dealer
(designated Authorized Dealer) for making the investment/remittance.
Q.14. Where does one
find the Form ODI?
A. Form ODI is
available as an Annex to the ‘Master Circular on Direct Investment by
Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad’ dated
July 1, 2011’ available on the RBI website.
With effect from March
2, 2010, Authorized Dealers Category – I banks have to file Part I (Sections
A to D), II and III of form ODI on-line in the Overseas Investment
Application with the Reserve Bank for allotment of UIN, reporting of
subsequent remittances, filing of APRs, etc. AD Category –I banks would
continue to receive the ODI forms in physical form from the Indian Party.
Q.15. What is
‘financial commitment’?
A. Financial commitment
means the amount of direct investments outside India by an Indian Party -
(Note: The amount
and period of the guarantee should be specified upfront).
Q.16. What are the
valuation norms referred to in Q. 6 and Q. 13?
A. In case of partial /
full acquisition of an existing foreign company where the investment is more
than USD five million, share valuation of the company has to be done by a Category
I Merchant Banker registered with the Securities and Exchange Board of India
(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/ Certified Public Accountant.
However, in the case of
investment by acquisition of shares where the consideration is to be paid
fully or partly by issue of the Indian Party’s shares (swap of shares),
irrespective of the amount, the valuation will have to be done 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.
In case of additional
overseas direct investments by the Indian promoter to it’s WOS which is made
at premium or discount, the concept of valuation as indicated above shall be
applicable.
Q.17. Can one freely
creates a pledge/mortgage/hypothecation/charge on immovable/moveable property
or other financial assets of Indian party/group companies in favour of a non-
resident entity?
A. Prior permission of
the Reserve Bank is required for creating such a charge on immovable/moveable
property or other financial assets of the Indian parent / group companies.
Q.18. Are overseas
investments freely allowed in all the countries and are there any
restrictions regarding the currency of investment?
A. Investment in
Pakistan is prohibited. Investments in Nepal can be only in Indian Rupees.
Investments in Bhutan are allowed in Indian Rupees and in freely convertible
currencies.
Q.19. What is the
concept of a ‘designated Authorised Dealer’? Can there be more than one
‘designated Authorised Dealer’ for the same JV/WOS in case the JV/WOS has
more than one Indian promoter?
A. The Indian party is
to route all transactions in respect of a particular overseas JV/WOS only
through one branch of an Authorized Dealer. This branch would be the
‘designated Authorised Dealer’ in respect of that JV/WOS and all transactions
and communications relating to the investment in that particular JV/WOS are
to be reported only through this ‘designated’ branch of an Authorized Dealer.
In case the JV/WOS is being set up abroad by two or more Indian promoters,
then all Indian promoters collectively called the Indian party, would be
required to route all transactions in respect of that JV/WOS only through one
‘designated Authorised Dealer’.In case the Indian Party wants to switch over
to another AD, an application by way of a letter may be made to the Reserve
Bank after obtaining an NOC from the existing Authorized Dealer.
Q.20. What if one
Indian promoter has more than one JV in either the same country or in
different countries?
A. The Indian promoters
are free to designate different branches of the same Authorised Dealer or
branches of other Authorised Dealers for their separate JVs/WOSs. The only
requirement is that regardless of the number of promoters, one JV/WOS will
have only one ‘designated Authorised Dealer’ to route all its transactions.
Q.21. Is prior
registration with the Reserve Bank necessary for direct investments under the
Automatic Route?
A. No prior
registration with the Reserve Bank is necessary for making direct investments
under the automatic route. After the report of the first remittance /
investment in Form ODI is received by the Reserve Bank, a Unique
Identification Number (UIN) for that particular JV/WOS will be issued for the
purpose of taking on record the overseas direct investment with the objective
of maintaining a database for monitoring the outflows/inflows in respect of
the overseas entities. Subsequent investments in the same project can be made
only after allotment of the UIN.
Q.22. Does the
allotment of UIN by the Reserve Bank for direct investments under the
automatic route constitute an approval from the Reserve Bank?
A. No. The allotment of
UIN does not constitute an approval from the Reserve Bank for the investment
made/to be made in the JV/WOS. The issue of UIN only signifies taking on
record of the investment for maintaining the database. The onus of complying
with the provisions of FEMA regulations rests with the AD bank and / or the
Indian party.
Further, with effect
from June 01, 2012 an auto generated e-mail, giving the details of UIN
allotted to the JV / WOS under the automatic route, shall be treated as
confirmation of allotment of UIN, and no separate letter shall be issued by
the Reserve Bank to the Indian party and AD Category - I bank confirming the
allotment of UIN.
Q.23. What is the
Approval route? What is the procedure to be followed for investment proposed
to be made under the Approval Route?
A. Proposals not
covered by the conditions under the automatic route require the prior
approval of the Reserve Bank for which a specific application in form ODI
with the documents prescribed therein is required to be made through the
Authorized Dealer Category – I banks. Some of the proposals which require
prior approval are:
i) Overseas Investments
in the energy and natural resources sector exceeding 400% of the net worth of
the Indian companies as on the date of the last audited balance sheet;
ii) Investments in
Overseas Unincorporated entities in the oil sector by resident corporates
exceeding 400% of their net worth as on the date of the last audited balance
sheet, provided the proposal has been approved by the competent authority and
is duly supported by a certified copy of the Board Resolution approving such
investment. However, Navaratna Public Sector Undertakings, ONGC Videsh Ltd
and Oil India Ltd are allowed to invest in overseas unincorporated entities
in oil sector (i.e. for exploration and drilling for oil and natural gas,
etc.), which are duly approved by the Government of India, without any
limits, under the automatic route;
iii) Overseas
Investments by proprietorship concerns and unregistered partnership firms
satisfying certain eligibility criteria;
iv) Investments by
Registered Trusts / Societies (satisfying certain eligibility criteria)
engaged in the manufacturing / educational / hospital sector in the same sector
in a JV / WOS outside India;
Applications in Form
ODI- Part I may be forwarded through the designated Authorized Dealer
Category – I bank to:
The Chief General
Manager
Reserve Bank of India Foreign Exchange Department Overseas Investment Division Central Office Amar Building, 5th Floor Mumbai 400 001.
Q.24. What are the
parameters for considering proposals under the approval route?
A. Requests under the
approval route are considered by taking into account, inter alia, the prima
facie viability of the JV / WOS outside India, likely contribution to
external trade and other benefits that may accrue to India through such
investment, financial position and business track record of the Indian party
and the foreign entity, experience and expertise of the Indian party in the
same or related line of activity of the JV / WOS outside India, etc.
Q.25. a) Can any Indian
company make investment in a JV/WOS abroad in the financial services sector?
A. Only an Indian
company engaged in financial services sector activities can make investment
in a JV/WOS abroad in the financial services sector, provided it fulfills the
following additional conditions:
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.
b) Can an Indian
company in the financial services sector make investment in a JV/WOS abroad
in the non-financial services sector?
A. Regulated entities
engaged in financial services sector activities in India making investment in
non-financial services activities overseas are also required to comply with
the additional conditions mentioned in Q. 25 (a) above.
c) Can an Indian
company set up JV / WOS for trading in Overseas Commodities Exchanges?
A. Trading in Commodities
Exchanges overseas and setting up of JV / WOS for trading in Overseas
Commodities Exchanges will be reckoned as financial services activity and
will require clearance from the Forward Markets Commission (FMC). The FMC has
put in place guidelines for allowing FMC registered members of Commodity
Exchanges to undertake commodity related activities abroad. Indian entities
desirous of setting up of JV / WOS overseas for trading in overseas
commodities exchanges may, therefore, approach the FMC for regulatory
clearance.
Q.26. What are the
permissible sources for funding overseas direct investment?
A. Funding for overseas
direct investment can be made by one or more of the following sources:
In respect of (6) and
(7) above, the ceiling of 400 per cent of the net worth does not apply.
Q.27. Can an Indian
Party utilise the net worth of its Indian subsidiary / holding company for
investing in a JV/WOS abroad?
A. For the purpose of
reckoning net worth of an Indian party, the net worth of it’s holding company
(which holds at least 51% direct stake in the Indian Party) or its subsidiary
company (in which the Indian party holds at least 51% direct stake) may be
taken into account to the extent not availed of by the holding company or the
subsidiary independently and has furnished a letter of disclaimer in favour
of the Indian Party. However, this facility is not available to partnership
firms. Also the partnership firm’s net worth cannot be taken into account by
an incorporated entity.
Q.28. Can an Indian
Party capitalise the proceeds of the exports to its overseas JV / WOS?
A. Yes, an 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
realisation will require the prior approval of the Reserve Bank.
Indian software
exporters are permitted to receive 25 % 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 the prior approval of the Reserve Bank.
Q.29. Can an Indian
Party extend loan or guarantee to an overseas entity without any equity
participation in that entity?
A. i) No. Loan and
guarantee can be extended to an overseas entity only if there is already
existing equity participation by way of direct investment, within the overall
ceiling of 400% of the Indian party's net worth as on the date of the last
audited balance sheet.
However, based on the
business requirement of the Indian Party and legal requirement of the host
country in which JV/WOS is located, 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
In case, however, the
overseas entity is a first level step down operating subsidiary of the Indian
party, guarantee may be issued by the Indian party on behalf of such step
down operating subsidiary provided such guarantee is reckoned for the purpose
of computing the financial commitment of the Indian party.
In case, the overseas
entity is a second or subsequent level step down operating subsidiary of the
Indian party, guarantee may be issued by the Indian party on behalf of such
step down operating subsidiary with prior approval of the Reserve Bank
provided such Indian party holds direct or indirect stake of not less 51% in
the step down operating subsidiary and guarantee is reckoned for the purpose
of computing the financial commitment of the Indian party.
ii) Eligible Indian
entities are allowed to invest in overseas unincorporated entities in oil
sector (i.e. for exploration and drilling for oil and natural gas, etc.),
which are duly approved by the Government of India, without any limits, under
the automatic route.
iii) Eligible Indian
companies are allowed to participate in a consortium with other international
operators to construct and maintain submarine cable systems on co-ownership
basis under the automatic route.
Q.30. How are
Compulsorily Convertible Preference Shares (CCPS) to be treated
for the purpose of Overseas Direct Investment?
A. With effect from March
28, 2012, Compulsorily Convertible Preference Shares (CCPS) are treated at
par with equity shares and the Indian party is allowed to undertake financial
commitment based on the exposure to JV by way of CCPS.
Q.31. What is the
requirement for direct investment in an overseas concern by way of share
swap?
A. Direct investment
outside India in a JV/WOS by way of share swap arrangement can be made under
the automatic route provided the valuation norms prescribed i.e. valuation of
the shares is done by a Category I Merchant Banker registered with the SEBI
or an Investment Banker outside India registered with the appropriate
Regulatory Authority in the host country are satisfied, and the shares are
duly issued / transferred in the name of the Indian investing company.
Investors may also please note that all share swap transactions require the
prior approval of the Foreign Investment Promotion Board (FIPB) for the
inward leg of the investment.
Q.32. What are the
permitted activities that partnership firms can undertake through overseas
direct investment route?
A. Partnership firms
registered under the Indian Partnership Act, 1932 can make overseas direct
investments subject to the same terms and conditions as applicable to
corporate entities.
Q.33. Can the partners
hold shares of the overseas concerns for and on behalf of the firm?
A. Individual partners
can hold shares for and on behalf of the firm in an overseas JV/WOS, where
the entire funding for the investments has been done by the firm provided the
host country regulations or operational requirements warrant such holding.
Q.34. Are there any
restrictions for setting up of a second generation company? Can such step
down subsidiaries be set up under the Automatic Route?
A. There are no
restrictions on entities having JVs/WOSs abroad setting up second generation
operating companies (step-down subsidiaries) within the overall limits
applicable for investments under the Automatic Route. However, companies
wishing to set up step-down operating subsidiaries to undertake financial
sector activities will have to comply with the additional requirements for
direct investment in the financial services sector as indicated in Q 25 (a).
Q.35. Can an Indian
Party have a JV/WOS through a Special Purpose Vehicle (SPV) under the
Automatic Route?
A. Yes. Direct
investment through the medium of a SPV is permitted under the Automatic
Route, for the sole purpose of investment in JV/WOS overseas.
Q.36. Can an Indian
Party directly fund such step- down subsidiaries?
A. Where the JV/WOS has
been established through a SPV, all funding to the operating subsidiary
should be routed through the SPV only. However, in the case of guarantees to
be given to the first level step down operating subsidiary of the SPV, these
can be given directly by the Indian Party provided such exposures are within
the permissible financial commitment of the Indian Party.
Q.37. Can the shares of
a JV/WOS abroad be pledged for the purpose of financial assistance?
A. The shares of a
JV/WOS can be pledged by an Indian Party as a security for availing fund
based or non-fund based facility for itself or for the JV/WOS, from an
authorised dealer/ public financial institution in India or from an overseas
lender, provided the overseas lender is regulated and supervised as a bank
and the total financial commitments of the Indian entity remain within the
limit stipulated by the Reserve Bank for overseas investment from time to
time.
Q.38. What are the
obligations of the Indian party, which has made direct investment outside India?
A. An Indian Party will
have to comply with the following: -
Q.39. Is it mandatory
to furnish Annual Performance Reports (APR) of the overseas JV/WOS based on
its audited financial statements?
A.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:
Q.40. What are the
penalties for non-submission of Annual Performance Reports (APRs)?
A. Delayed submission/
non-submission of APRs entail penal measures, as prescribed under FEMA 1999,
against the defaulting Indian Party.
Q.41. Can a resident
individual in India acquire/sell foreign securities without prior approval of
the Reserve Bank?
A. Please see answer to
Q.4 also.
Resident individuals
can acquire/sell foreign securities without prior approval in the following
cases: -
Q.42. Can Indian
corporates invest overseas other than by way of direct investment?
A. Yes. Listed Indian
companies can invest up to 50 % of their net worth as on the date of the last
audited Balance Sheet in overseas companies, listed on a recognized stock
exchange, or in the rated debt securities issued by such companies.
Q.43. Can a resident
individual acquire shares of a foreign company in his capacity as Director?
A. Yes, Reserve Bank
has given General Permission to a resident individual to acquire foreign
securities to the extent of the minimum number of qualification shares
required to be held for holding the post of Director. Accordingly, resident
individuals are permitted to remit funds under general permission for
acquiring qualification shares for holding the post of a Director in the overseas
company to the extent prescribed as per the law of the host country where the
company is located and the limit of remittance for acquiring such
qualification shares shall be within the overall ceiling prescribed for the
resident individuals under the Liberalized Remittance Scheme (LRS) in force
at the time of acquisition.
Q.44. Can resident
individuals acquire shares from a foreign entity in lieu of the professional
services rendered by them or in lieu of Director’s remuneration under General
Permission?
A. Resident individuals
are allowed under General Permission to acquire shares of a foreign entity in
part / full consideration of professional services rendered to the foreign
company or in lieu of Director’s remuneration. The limit of acquiring such
shares in terms of value shall be within the overall ceiling prescribed for
the resident individuals under the Liberalized Remittance Scheme (LRS) in
force at the time of acquisition.
Q.45. Can a resident
individual subscribe to the rights issue of shares held by him?
A. Yes, a resident
individual may acquire foreign securities by way of rights shares issued by a
company incorporated outside India provided the existing shares were held in
accordance with the provisions of FEMA.
Q.46. Are there any relaxations
for individual employees/Directors of an Indian company engaged in the field
of software for acquisition of shares in their JV/WOS abroad?
A. General permission
is available for the individual employees/Directors of an Indian promoter
company engaged in the field of software for acquisition of shares of a
JV/WOS abroad provided:
Resident employees of
Indian companies in the knowledge based sectors including working directors
may purchase foreign securities under the ADR/GDR linked stock option scheme
provided that the consideration for purchase does not exceed the ceiling as
stipulated by RBI from time to time.
Q.47. What are the
avenues available to Indian Mutual Funds for investment abroad?
A. Indian Mutual Funds
registered with SEBI are permitted to invest within the overall cap of USD 7
billion in:
a) ADRs / GDRs of the
Indian and foreign companies;
b) equity of overseas
companies listed on recognized overseas stock exchanges; initial and follow
on public offerings for listing at recognized overseas stock exchanges;
c) foreign debt
securities- short term as well as long term with rating not below investment
grade - in the countries with fully convertible currencies;
d) money market
investments not below investment grade; repos where the counter party is not
below investment grade;
e) government
securities where countries are not rated below investment grade;
f) derivatives traded
on recognized stock exchanges overseas only for hedging and portfolio
balancing with underlying as securities;
g) short term deposits
with banks overseas where the issuer is rated not below investment grade; and
h) units / securities
issued by overseas Mutual Funds or Unit Trusts registered with overseas
regulators.
Q.48. What are the
investment opportunities for Domestic Venture Capital Funds?
A. Domestic Venture
Capital Funds registered with SEBI may invest in equity and equity linked
instruments of off-shore VCFs subject to an overall limit of USD 500 million.
Q.49. Is investment in
agriculture permitted?
A. Resident corporates
and partnership firms registered under the Indian Partnership Act, 1932 may
undertake agricultural operations including purchase of land incidental to
such activity either directly or through their overseas offices, provided:
Q.50. Can an Indian
party issue performance guarantee in favour of overseas JV/WOS?
A. Yes. Indian party is
permitted to issue performance guarantee and only 50 per cent of the amount
of the performance guarantees will be reckoned for the purpose of computing
financial commitment to its JV/WOS overseas which should be within 400 per
cent of the net worth of the Indian Party. Further, the time specified for
the completion of the contract will be the validity period of the related
performance guarantee. In cases where invocation of the performance guarantee
breach the ceiling for the financial exposure of 400 per cent of the net
worth of the Indian Party, the Indian Party is required to seek prior
approval of the Reserve Bank before remitting funds from India, on account of
such invocation.
Q.51. Can an Indian
party issue corporate guarantee on behalf of its second generation subsidiary
abroad?
A. Indian party is
permitted to issue of corporate guarantee on behalf of second generation or
subsequent level step down operating subsidiaries and such requests are
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.
Q.52. Can individual
indirect promoters of the Indian Party issue personal guarantee to an
overseas lender on behalf of the JV/WOS under general permission?
A. With effect from
March 28, 2012, issuance of personal guarantee by the promoters of the Indian
Party as presently allowed under the General Permission has also been
extended to the indirect resident individual promoters of the Indian Party
with same stipulations as in the case of personal guarantee by the direct
promoters
Q.53. (a) What are the
different modes of disinvestments from the JV / WOS abroad
A. Disinvestment by the
Indian party from its JV / WOS abroad may be by way of transfer / sale of
equity shares to a non-resident / resident or by way of liquidation / merger
/ amalgamation of the JV / WOS abroad.
(b) Can an Indian Party
disinvest in case where write off is not involved?
A. Yes. The Indian
Party can disinvest in cases where write off is not involved without prior
approval from Reserve Bank subject to the following:
(c) In case of
disinvestment of stake in overseas JV/WOS, can an Indian party disinvest with
write off of part of investment?
A. Indian Party may
disinvest without prior approval of the Reserve Bank, in the under noted
cases, where the amount repatriated on disinvestment is less than the amount
of the original investment:
i) in cases where the
JV / WOS is listed in the overseas stock exchange;
ii) 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;
iii) where the Indian
Party is an unlisted company and the investment in the overseas JV / WOS does
not exceed USD 10 million and
iv) 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.
(d) Are there any pre-conditions/compliances
subject to which such write off at the time of disinvestment is permitted ?
A. Yes. Please refer to
part B of Q 49.
Q.54. Whether
restructuring of the balance sheet of the JV / WOS abroad involving write-off
of capital and receivables is allowed
A. Indian company which
has set up WOS abroad or has at least 51% 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 continue to function subject to the following:
(i) Listed Indian
companies are permitted to write off capital and other receivables up to 25%
of the equity investment in the JV /WOS under the Automatic Route; and
(ii) Unlisted companies
are permitted to write off capital and other receivables up to 25% of the
equity investment in the JV /WOS with prior approval of the Reserve Bank.
The write-off /
restructuring have to be reported to the Reserve Bank through the designated
AD bank within 30 days of write-off / restructuring. The write-off /
restructuring is subject to the condition that the Indian Party should submit
the following documents for scrutiny along with the applications to the
designated AD Category – I bank under the Automatic as well as the Approval
Routes:
a) A certified copy of
the balance sheet showing the loss in the overseas WOS/JV set up by the
Indian Party; and
b) Projections for the
next five years indicating benefit accruing to the Indian company consequent
to such write off / restructuring.
Q.55. Can an Indian
Party open/maintain an account in Foreign currency abroad?
A. With effect from
April 2, 2012, an Indian party is allowed to open, hold and maintain Foreign
Currency Account (FCA) abroad for the purpose of overseas direct investments
wherever the host country regulation stipulate the same subject to certain
terms and conditions.
Q. 56 Can open ended
corporate guarantees be extended by an India party on behalf of its overseas
subsidiary?
Q. 57 Can a loan given
to an overseas venture be converted into equity? If yes what are the
reporting requirements?
Ans: Yes, a loan can be
converted into equity and reported to RBI by a letter.
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