Friday, January 26, 2018

Changes in Consolidated FDI Policy 2017


Changes in Consolidated FDI Policy 2017

Department of Industrial Policy & Promotion release consolidated Foreign Direct Investment (“FDI”) Policy every year, with amendment to bring in line with the RBI guidelines and FEMA regulation and based on the requirement from Corporate, towards ease of doing business and encouraging Foreign Investor at large, to invest in Indian Corporate.




Last year, Consolidated FDI Policy came into effective from August 28, 2017 and will be effective till the next Consolidated FDI Policy come into force for 2018. To bring in line with RBI guidelines and as amendments required, DIPP released Press Note No. 1 (2018) dated January 23, 2018, amending few important clauses in the Consolidated FDI Policy 2017.

 Following are the brief summary of few important amendments:

Prohibition of restrictive conditions regarding audit firm
Within the FDI in Investee Companies, if Investor Company is intending to call for Joint Audit, whereby one of the auditor should not be forming part of the same audit network. Hence, this will increase the Corporate Governance check on bring brands, where the Foreign Investor will have stake and decision making power.

100% FDI is allowed in NBFC
Investment by Foreign Investor in NBFC will no longer require Government approval. 100% FDI is permitted in NBFC Companies under automatic route as against approval route.
Activity / Sector
Administrative Ministry Department
Application involving instruments from Countries of Concern falling under automatic route sectors/activities, requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, as amended from time to time
Department of Industrial Policy and Promotion
Cases pertaining to Government approval route sectors/activities requiring security clearance as per the extant FEMA 20, FDI Policy and security guidelines, as amended from time to time
Nodal Administrative Ministries / Departments


FOREIGN INVESTMENT IS ALLOWED IN AIR-INDIA NOW

Existing policy allowed foreign airlines to invest in the Indian aviation companies up to 49% of capital, operating scheduled and non-scheduled air transport services, subject to the approval from Government. This policy was not allowed to M/s. Air India Limited. However, the restriction is removed from M/s. Air India Limited with the amendment.



100% FDI IS ALLOWED IN THE REAL ESTATE BROKING SERVICES

100% FDI is allowed in the real estate broking services (which does not tantamount to be real estate business) 

AMENDMENT IN SINGLE BRAND RETAIL TRADING :

(i)
100% FDI permitted
(ii)
Product should sold out in single brand at international market as well
(iii)
Single Brand means brand used during the manufacturing process
(iv)
Sourcing of 30% of value of goods purchased by the Indian business, should be from domestic market, after FDI above 51%. These are mandatory requirement and duty of statutory auditor to check the accounting system to ensure the procurement is done from the domestic market.

EXPANSION OF ISSUE OF EQUITY SHARES FOR PRODUCTS IMPORTED

In addition to the existing conditions for conversion/issue of equity shares for sector(s) under automatic route, issue of equity shares are allowed as against import of capital goods, machinery, equipments, and pre-operative expenses, subject to the approval from Government and filing of FC-GPR as per RBI reporting norms.


Courtesy : Mr Ashish Baid 

Monday, December 11, 2017

THERE IS A STRONG NECESSITY OF UNIFORMITY BETWEEN FEMA AND COMPANIES ACT ,2013.


MY REQUEST HAS BEEN ACCEPTED BY RBI AND NOW FEMA PROVISION FOR ALLOTMENT OF SHARES ARE MADE IN LINE WITH COMPANIES ACT 2013


For details ,please click the following link:




I POINTED OUT EARLIER MY POST, THAT THERE IS A CONTRADICTION BETWEEN COMPANIES ACT AND FEMA FOR THE NUMBER OF DAYS WITHIN WHICH ALLOTTMENT OF SHARES HAVE TO BE MADE

I PLEADED THAT THERE IS A STRONG NECESSITY OF UNIFORMITY BETWEEN FEMA AND COMPANIES ACT ,2013.

Will the Government of India through the Ministry of Commerce and Industry will amend the Industrial policy issued in June 2016 by making amendment as “shares have to be allotted within 60 days of receipt of inward remittance by the non-resident investor.

This will go long way to remove the confusions and misunderstandings as regards to number of days within which the shares have to be allotted

Now , The Reserve Bank of India has clarified the query in relation to time limit of Allotment of Shares for the Foreign Direct Investment received by the company through notification no. FEMA 20(R)/2017-RB dated 07 November 2017.


As per this notification, Capital Instruments such as Equity, CCPs, CCDs shall be issued by the Indian company to the Investors making foreign direct investment within sixty (60) days from the date of receipt of the consideration.


Now , FEMA and Companies Act 2013 stresses that shares shall have to be allotted within 60 days of the receipt of consideration.


Friday, November 3, 2017

Now, You have to compound the offence under FEMA for not filing the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year.

Now, You have to compound the offence under FEMA for not filing the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year.


Earlier, there is no provision under FEMA for mandatory filing of the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year.

Now, it has been made the filing of the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year as mandatory.

If you fail to file FLA with RBI on or before July 15th Every year, you have to contravene the same with the Regional RBI.

The Relevant circular is reproduced below:


BI/2016-17/220 A.P. (DIR Series) Circular No. 29 February 02, 2017

To
All Category- I Authorised Dealer Banks
Madam / Sir,
Foreign Exchange Management Act, 1999 (FEMA)
Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -
Compounding of Contraventions under FEMA, 1999

Attention of all the Authorised Dealer Category - I (AD Category - I) banks and their constituents is invited to A.P. (DIR Series) Circular No. 117 and 36 dated April 4, 2014 and October 16, 2014 respectively, and the Foreign Exchange (Compounding Proceedings) Rules, 2000 notified by the Government of India vide G.S.R.No.383 (E) dated 3rd May 2000, as amended from time to time, regarding delegation of powers to the Regional Offices of the Reserve Bank of India to compound the contraventions of FEMA.

2. In partial modification thereof, it has been decided to delegate further powers to Regional Offices as under:

FEMA Regulation
Brief Description of Contravention
Delay in filing the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies which have received Foreign Direct Investment in the previous year(s) including the current year

3. The powers to compound the contraventions at Paragraph 2 above have also been delegated to all Regional Offices (except Kochi and Panaji) without any limit on the amount of contravention.

4. Kochi and Panaji Regional offices can compound the above contraventions for amount of contravention below Rupees One hundred lakh (Rs.1,00,00,000/-) only. The contraventions of Rupees One hundred lakh (Rs.1,00,00,000/) or more under the jurisdiction of Kochi and Panaji Regional Offices will continue to be compounded at Central Office as hitherto.

5. Accordingly, applications for compounding the above contraventions as at Paragraph 2, up to the amount of contravention stated in paragraph 3 and 4 may be submitted by the concerned entities to the respective Regional Offices under whose jurisdiction they fall. For all other contraventions, applications may continue to be submitted to Foreign Exchange Department, 5th floor, Amar Building, Sir P.M.Road, Fort, Mumbai - 400001.

6. The above modifications will come into force with immediate effect. All other instructions on compounding shall remain unchanged. This provision is being clarified in Para 3 and 7.4 of the Master Direction on Compounding of Contraventions under FEMA, 1999.

7. Authorised Dealers may bring the contents of this circular to the notice of their constituents and customers concerned.

8. The directions contained in this circular have been issued under Sections 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully,
(Shekhar Bhatnagar)
Chief General Manager-in-Charge


Thursday, November 2, 2017

RBI Levies a Whooping Fine of Rs 241.16 Crores on Essar Oil Limited.

RBI Levies a Whooping Fine of Rs 241.16 Crores  on Essar Oil Limited.
RBI levied a fine of Rs.241.16  crores on Essar Oil Limited for not reporting GDR subscription amount of Rs.1500 crores in 2014-15 within period of 180 days of the issue
In the

Reserve Bank of India
In the matter of

M/s Essar Oil Limited

(Applicant)


C.A No 675/2016 dated 28 April ,2017

Issue 

Company received GDR subscription amount of Rs.1500 crores in 2014-15 but reported to RBI after a delay of over one year and also allotment was made after a delay of over one year against prescribed period of 180days.  RBI passed compounding order on 28.4.2017 for penalty of Rs.241.16 crores,

Order

 In exercise of the powers conferred under section 15(1) of the Foreign Exchange Management Act, 1999 and the Regulations/Rules/Notifications/Orders made thereunder, pass the following.

1.    The applicant has filed the compounding application dated December 20, 2016 (received at the Reserve Bank on December 26, 2016) for compounding of contraventions of the provisions of the Foreign Exchange Management Act, 1999 (the FEMA) and the regulations issued thereunder. The contraventions sought to be compounded are (i) the equity instruments were issued to the foreign investor, beyond 180 days of the receipt of the inward remittance and (ii) delay in reporting receipt of foreign inward remittance towards subscription to equity, in terms of



paragraphs 8 and 9(1)(A) respectively, of Schedule 1 to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 as amended from time to time (hereinafter referred to as Notification No. FEMA 20/2000-RB).

2.    The relevant facts of the case are as follows: The applicant company was incorporated on September 12, 1989 under the Companies Act, 1956 and is engaged in the business to engage in exploration of oil and gas onshore and offshore, in India and elsewhere and to tap oil and gas reserves and processing and marketing of oil, gas in India or elsewherever found. The applicant received foreign inward remittance from M/s Essar Energy Holding Limited, Mauritius towards GDR (Global Depository Receipts) issues and reported the same to the Reserve Bank as indicated below.

Sr.
No.
Amount of Foreign Inward remittance
(INR)
Date of receipt
Date of reporting to RBI
1.
839,16,76,740.00
30.06.2014
28.07.2014
2.
193,98,92,000.00
05.12.2014
05.01.2015
3.
213,23,19,650.00
12.12.2014
05.01.2015
4.
254,13,88,250.00
09.01.2015
19.05.2016
Total
1500,52,76,640.00


The applicant stated that the company could not proceed with the proposed GDR issue due to certain clarifications raised by SEBI for previous GDR issues as well as due to changes in DR (Depository Receipts) guidelines issued by Government of India. The applicant further stated that the company approached Reserve Bank of India, Central Office, on May 11, 2016 for refund of advance and receiving it back towards issuance of equity.
The applicant reported receipt of remittance to the Reserve Bank with a delay of 1 year 3 months and 11 days approximately beyond the stipulated time of 30 days in respect of remittances recorded at serial no.4 above. Whereas, in terms of paragraph 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB, an Indian company issuing shares or convertible debentures in accordance with these Regulations should report foreign inward remittances to the



Reserve Bank of India as per the prescribed procedure not later than 30 days from the date of receipt of the amount of consideration.

3.    The allotment of shares made on February 10, 2017 amounting to Rs.1500,52,76,640/- was made after 180 days of receipt of remittances with the approval of Reserve Bank. The company approached Reserve Bank of India, Mumbai Regional Office, on January 03, 2017 for specific approval to issue shares against the advances received as above. The Reserve Bank vide letter dated January 17, 2017 accorded approval for issuance of shares and the transaction was completed on February 10, 2017 with a delay ranging from 1 year 5 months 24 days to 2 years and 3 days approximately. Whereas in terms of paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB, and as amended from time to time, if the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE/FCNR(B) account, the amount of consideration so received shall be refunded to the person concerned by outward remittance through normal banking channels or by credit to his NRE/ FCNR(B) account, as the case may be; provided further that the Reserve Bank may, on an application made to it and for sufficient reasons permit an Indian company to refund the amount of consideration received towards issue of security, if such  amount is outstanding beyond a period of 180 days from the date of receipt. The amendment in paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB was introduced by issue of Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) (Third Amendment) Regulations, 2007 notified vide Notification No. FEMA 170/2007-RB dated 13th November 2007 in the official Gazette of the Government of India.


4.    It is noted that the company received advance remittances as detailed in para 2 above towards GDR issue. However the company neither issued GDR/Shares nor refunded the amount to the overseas remitter. The company approached Reserve Bank of India, Central Office, only on May 11, 2016 with a delay ranging from 1 year 4 months and 2 days to 1 year 10 months and 11 days approximately from the date.



of receipt of remittances. It is further noted that the company has retained the funds in the intervening period.

5.     The applicant was given an opportunity for personal hearing vide the Reserve Bank's letter No. FED.MRO.CEFA/2016-17 dated April 07, 2017 for further submission in person and/or producing documents, if any, in support of the application. The applicant appeared for personal hearing on April 12, 2017 during which Mr. Prahalad Pandit, General Manager, Essar Group and Mr. C.M. Bhatt, Vice President, Finance represented the applicant. The representatives of the applicant admitted the contraventions for which compounding has been sought. During the personal hearing, it was submitted that the delay was inadvertent and unintentional. They requested that in view thereof, the matter may be viewed leniently. The application for compounding is, therefore, being considered on the basis of the averments made in the application as well as other documents and submissions submitted along with the application.

6.    I have given my careful consideration to the documents on record and submissions made by the applicant during the personal hearing and thereafter. Accordingly, I hold that the applicant has contravened the following FEMA provisions issued in terms of:
(a)      Paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB since the shares were issued beyond 180 days from the date of receipt of the inward remittance. The contravention relates to an amount of Rs. 1500,52,76,640/- and the duration of the contravention is ranging from 1 year 5 months and 24 days to 2 years and 3 days approximately.
(b)    Paragraph 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB due to the delay in reporting of receipt of foreign inward remittance towards subscription towards shares as detailed in paragraph no. 2 above. The contravention relates to an amount of Rs. 254,13,88,250/- and the duration of contravention is 1 year 3 months and 11 days approximately.



7.    In terms of section 13 of the FEMA, any person contravening any provision of the Act shall be liable to a penalty up to thrice the sum involved in such contraventions upon adjudication. The applicant has received remittances as detailed in paragraph 2 above as advance against GDR issue. However the company neither issued the GDR/Shares nor refunded the amount. The entire remittances (Rs 1500,52,76,640/-) were retained by the applicant. The applicant approached Reserve Bank of India, Central Office, only on May 11, 2016 with a delay ranging from 1 year 4 months 2 days to 1 year 10 months and 11 days approximately with the request to return the advance and receive it back for issuance of equity shares. It is deemed that undue gain have accrued to the applicant for the intervening period where the advances were retained without due reckoning under schedule I, FEMA 20/2000-RB. With a view to neutralize such undue gains to the applicant, the base rates of State Bank of India have been notionally applied to determine the rate of interest that  would have been payable if the applicant had sourced such advances through domestic borrowings. Therefore, taking into account the relevant facts and circumstances of the case as stated in the foregoing paragraphs, I am persuaded to take a view that undue gains made by the applicant require to be neutralized and I consider that an amount of Rs. 241,16,30,941/- (Rupees Two Hundred Forty One Crore Sixteen Lakh Thirty Thousand Nine Hundred Forty One only), incorporating the impact of neutralization as above, will meet the ends of justice.

8.    Accordingly, I compound the admitted contraventions namely, the contravention of paragraphs 8 and 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB by the applicant as stated above on the facts discussed above in terms of the Foreign Exchange (Compounding Proceedings) Rules, 2000 on payment of an amount of Rs. 241,16,30,941/- (Rupees Two Hundred Forty One Crore Sixteen Lakh Thirty Thousand Nine Hundred Forty One only) which shall be deposited by the applicant with the Reserve Bank of India, Foreign Exchange Department, Mumbai Regional Office, Main Building, 3rd floor, Shahid Bhagat Singh Marg, Fort, Mumbai- 400001 by a demand draft drawn in favour of the "Reserve Bank of India" and payable at “Mumbai” within a period of 15 days from the date of this order. In case of



failure to deposit the compounded amount within the above mentioned period, Rule 10 of the Foreign Exchange (Compounding Proceedings) Rules, 2000 dated May 3, 2000 shall apply.

9.    The above order is passed only in respect of contraventions of Para 8 and 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB and does not restrict the right of any other authority to proceed against the Company for any other violations/contraventions noticed at any point of time.
The application is disposed of accordingly.


Date: April 28, 2017

Compounding Authority Sd/-

(Gautam Prasad Borah)
Chief General Manager


Saturday, April 29, 2017

Tata-DoCoMo case: Delhi HC okays $1.18-billion damages, Rejects RBI's plea

Tata-DoCoMo case: Delhi HC okays $1.18-billion damages, Rejects RBI's plea

Upholds settlement to realise London Court of International Arbitration's award in favour of DoCoMo

Tata-DoCoMo case


FACTS OF THE CASE

Signalling an end to a long-drawn regulatory tussle, the Delhi High Court (HC) on Friday upheld a settlement agreement between Tata Sons and NTT DoCoMo to realise the $1.18-billion London Court of International Arbitration (LCIA) award in favour of the Japanese telecom giant. 
Tata-DoCoMo case


This is a significant development as the DoCoMo settlement is learnt to have been priority for the new Tata Sons chairman, N Chandrasekaran. 

The Tata Teleservices-DoCoMo joint venture (JV) was scripted in 2008 when Ratan Tata was the chairman of the group.
Tata-DoCoMo case

Rejecting the Reserve Bank of India (RBI) intervention in the enforcement proceedings, Justice S Muralidhar pronounced the verdict after coming to the conclusion that there was nothing contrary to any provision of Indian law in the February 2017 settlement plan submitted by the two companies to resolve their dispute. 

“It appears to be a well-settled legal position that parties to a suit, or as in this case, an award, may enter into a settlement even at the stage of execution of the decree or award,” said Justice Muralidhar in a single-Bench judgment. 
Tata-DoCoMo case


Honouring the International Covenants

Friday’s decision held that the issue of an Indian company honouring its commitment under a contract with a foreign entity would have a bearing on its goodwill and reputation in the international arena and have an indubitable impact on strategic relationships between countries. 

It also concluded that a third party (the RBI) could not be allowed to oppose the compromise arrived at between the two companies in such a manner.
Tata-DoCoMo case
Grounds for RBIs Objection

The RBI had opposed the enforcement of the LCIA award in the high court, saying it was void in law, as it had failed to consider the existent regulatory prohibitions and would effectively allow something that could not be done directly to be done in an indirect manner. 

According to the RBI, the award was in violation of Regulation 9 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (as amended in 2013), which prohibited the transfer or sale of shares at a price exceeding the market price of shares arrived at by any international valuation methodology. The banking regulator had also said that the award was in violation of Section 6 of the Foreign Exchange Management Act, 1999, which empowers the RBI to prohibit, restrict or regulate the transfer of any security by a person outside India. 

Stating that the award had allowed a restricted capital account transaction in the garb of a breach of contract, the RBI had claimed that the award (and the settlement agreement) was against the fundamental policy of India and incapable of enforcement in any circumstance. The lawyer for the RBI had also highlighted its apprehensions of the issue becoming a dangerous precedent for similar cases in the future, if the award was eventually enforced.

DoCoMo’s lawyer, senior advocate Kapil Sibal, had opposed the RBI stance by highlighting that the banking regulator could not object to civil proceedings between two private parties for the enforcement of a valid international arbitration award. After initially opposing the enforcement, Tata’s counsel, senior advocate Darius Khambata, had also supported the enforcement in line with their joint settlement agreement and said that the realisation of the award would send a strong signal for future foreign direct investments to come into India.

However , if you go through my earlier blog posting on the heading
“Enforcement of a foreign arbitral award cannot be made in India if it opposes the provisions of FEMA” 


The same Delhi High Court has given a different analysis and findings.

More comments on the contradictions in the above mentioned cases are always welcome.