FEMA requires observation of its provisions in letter and spirit and if any contravention may land in penalties on the erring company and individuals. There are various conditions and stipulations in case of FDI , ODI , investment by individuals in foreign shares , purchase of assets in foreign countries , extending guarantees , availing ECBs , supplier's credit . In this column , I will discuss all intricacies and complications involving the interpretation of FEMA Act provisions in detail.
Sunday, March 24, 2013
PROCEDURE FOR CONVERSION OF ECB INTO EQUITY
CONVERSION OF ECB INTO EQUITY
Conversion of ECB into equity is
permitted subject to the following conditions:
(a) The activity of the company
is covered under the Automatic Route for Foreign Direct Investment or
Government (FIPB) approval for foreign equity participation has been obtained
by the company, wherever applicable.
(b) The foreign equity holding
after such conversion of debt into equity is within the sectoral cap, if any,
(c) Pricing of shares is as per the pricing guidelines issued
under FEMA, 1999 in the case of listed/ unlisted companies.
(ii) Conversion of ECB may be
reported to the Reserve Bank as follows:
(a) Borrowers are required to
report full conversion of outstanding ECB into equity in the form FC-GPR to the
Regional Office concerned of the Reserve Bank as well as in form ECB-2
submitted to the DSIM, RBI within seven working days from the close of month to
which it relates. The words "ECB wholly converted to equity" should
be clearly indicated on top of the ECB-2 form. Once reported, filing of ECB-2
in the subsequent months is not necessary.
(b) In case of partial conversion of outstanding ECB into equity, borrowers
are required to report the converted portion in form FC-GPR to the Regional
Office concerned as well as in form ECB-2 clearly differentiating the converted
portion from the unconverted portion. The words "ECB partially converted
to equity" should be indicated on top of the ECB-2 form. In subsequent
months, the outstanding portion of ECB should be reported in ECB-2 form to
Following requirements have to be taken into account:
1.Consent letter from the ECB lenders for the conversion into equity
2. Board Resolution for the conversion
3.Reporting the Conversion to DSIM in ECB-2 Return