Important Amendments in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2018

Important Amendments in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2018

The following are some of the important amendments made by RBI recently.

1.Prior Approval is needed for FDIs in investing companies investing in NBFCs not registered with the Reserve Bank and in core investment companies 

 Foreign Investment in investing companies not registered as Non-Banking Financial Companies with the Reserve Bank and in core investment companies (CICs), both engaged in the activity of investing in the capital of other Indian entities, will require prior Government approval.

2.100% Automatic Route for FDIs in NBFCs registered with RBI

Foreign investment in investing companies registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank, will be under 100% automatic route.

3.Joint Audit in case Foreign Investor Prefers

Wherever the person resident outside India who has made foreign investment specifies a particular auditor/ audit firm having international network for the audit of the Indian investee company, then audit of such investee company shall be carried out as joint audit wherein one of the auditors is not part of the same network.”

OFFERING FOLLOWING SERVICES AS PRACTICING COMPANY SECRETARY

For details , Please click the following link:

https://rvseckarcompanylaw.blogspot.com/2018/04/corporate-compliance-services-r-v.html

4.FDIs in Airlines is now Restricted to 49% (other than NRIs) under Automatic route

(a) (i) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (ii) Regional Air Transport Service

100%

Automatic up to 49% Government route beyond 49% (Automatic up to 100% for NRIs and OCIs)

5.Foreign investment in M/s Air India Limited shall be subject to the following conditions:

    i.        Foreign investment in M/s Air India Ltd., including that of foreign airline(s), shall not exceed 49% either directly or indirectly.

  ii.        Substantial ownership and effective control of M/s Air India Ltd. shall continue to be vested in Indian Nationals.”

6.100% FDIs are Allowed in Real Estate Broking Business

Real estate broking services shall be excluded from the definition of “real estate business” and 100% foreign investment is allowed in real estate broking services under automatic route.”

_{7.FDI in Single Brand Retailing}

“(i) Single brand retail trading entity shall be permitted to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1st April of the year of the opening of first store, against the mandatory sourcing requirement of 30% of purchases from India. For this purpose, incremental sourcing shall mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year from India over the preceding financial year, by the non-resident entities undertaking single brand retail trading, either directly or through their group companies. After completion of this 5 years period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.”

_{8.Definition of Sourcing Norms}

“Sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having 'state-of-art' and 'cutting-edge' technology and where local sourcing is not possible. Thereafter, condition mentioned at 15.3.1(e) above will be applicable. A Committee under the Chairmanship of Secretary, DIPP, with representatives from NITI Aayog, concerned Administrative Ministry and independent technical expert(s) on the subject will examine the claim of applicants on the issue of the products being in the nature of ‘state-of-art’ and ‘cutting-edge’ technology where local sourcing is not possible and give recommendations for such relaxation.”

9.Definition of Medical Devises under Pharmaceuticals

“in-vitro diagnostic device which is a reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system, whether used alone or in combination thereof intended to be used for examination and providing information for medical or diagnostic purposes by means of examination of specimens derived from the human bodies or animals.”

10.Issue of Shares for the materials imported or pre-operative expenses incurred is under Automatic Route

(4) An Indian company may issue, subject to compliance with the conditions prescribed by the Central Government and/or the Reserve Bank from time to time, capital instruments to a person resident outside India, if the Indian investee company is engaged in an automatic route sector, against:

a.  Swap of capital instruments; or

b.  Import of capital goods/ machinery/ equipment (excluding second-hand machinery); or

c.  Pre-operative/ pre-incorporation expenses (including payments of rent etc.).

Provided Government approval shall be obtained if the Indian investee company is engaged in a sector under Government route. The applications for approval shall be made in the manner prescribed by the Central Government from time to time.

For full details , Please click the following link:

https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=11240

The Foreign Exchange Management (Cross Border Merger) Regulations, 2018

The Foreign Exchange Management (Cross Border Merger) Regulations, 2018

NO PRIOR APPROVAL IS REQUIRED FROM RBI IF CROSS BORDER MERGER IF IT IS IN COMPLIANCE WITH THE FEMA 389/ 2018-RB dated 20 March, 2018.

Section 234 of the Companies Act, 2013 (notified with effect from 13 April, 2017) provided for the cross border merger of Indian and foreign companies. Further, Companies (Compromises, Arrangements and Amalgamation) Rules, 2016, as amended by the Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 (Co. Rules) were issued. Section 234 provides for prior Reserve Bank of India (RBI) approval in case of cross border merger.

On 26 April, 2017, the RBI issued draft regulations relating to cross border mergers for comments from the public. The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 have now been notified vide notification no. FEMA 389/ 2018-RB dated 20 March, 2018 and are effective from the date of notification. As per the Regulations, merger transactions in compliance with these regulations shall be deemed to have been approved by RBI, and hence, no separate approval should be required. In other cases, merger transactions should require prior RBI approval.

The Cross Border Regulations, 2018 Makes International Merger And Acquisition Transactions More Flexible

The notification of FEMA regulations laying down the framework in relation to cross border mergers is an extremely positive development, which should facilitate international merger and acquisition transactions. Given that the guidelines deal with a new set of transactions, they are likely to evolve based on practical experience, as may be encountered in the due course of time.

The Salient Ingredients of the RBI Regulations are:

The Meaning of Inbound Merger

The resulting company (or transferee) is in India in case of inbound merger.

The Meaning of Outbound Merger

The resulting company (or transferee) is a foreign company in case of outbound merger.

Procedure to be followed by an Indian Company

 In an inbound merger, the Indian company can issue securities in compliance of pricing guidelines and within the limits of applicable sector cap and applicable regulations under Foreign Management Act, 1999 (FEMA).

Compliances under ECB Regulations

A period of two years is provided for compliance with External Commercial Borrowings (ECB) Regulations in respect of loans, borrowings or guarantees of the transferor company outside India.

Other Criteria

Further any asset not permitted to be acquired under FEMA needs to be disposed off twenty-four months immediately after merger.

Deemed Branch Office

 Offices of foreign company will be deemed to be branch office of Indian company post-merger.

Outbound Merger

The resident Indian is allowed to hold securities issued on the basis of fair market value and in terms of Liberalized Remittance Scheme (LRS) of RBI in the case of an outbound merger.

Foreign company can hold assets in India in subject to compliance of FEMA. Offices of Indian company post-merger will be deemed to be branches of the foreign company post-merger.

VALUATION

 Valuation of the Indian company and the foreign company to be conducted by Valuers who are members of a recognized professional body and further to be ensured that such valuation is in accordance with internationally accepted principles on accounting and valuation.

REPORTING TO RBI

 The resultant company and/or the companies involved in the cross border merger shall be required to furnish reports as may be prescribed by RBI.

CERTIFICATION

 A certificate from the Managing Director/Whole Time Director and Company Secretary, if available, of the company concerned ensuring compliance to these Regulations shall be furnished along with the application to be made to the NCLT for approval of the scheme.

Regulatory actions in respect of Non-Compliances under FEMA

 Regulatory actions, if any, with respect to non-compliance, contravention under FEMA shall be completed prior to merger by the companies involved in cross border merger.

Compensation

Compensation by the resultant company, to a holder of a security of the Indian company or the foreign company, as the case may be, may be paid, in accordance with the scheme sanctioned by the NCLT.