General Permission for acquisition of shares by employees/directors of an Indian software company in their foreign JV /WOS?

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 :

1. the consideration for purchase does not exceed USD 10,000 or its equivalent per employee in a block of five calendar years;
   
2. the shares acquired by all the employees/directors do not exceed 5% of the paid-up capital of the Joint Venture or Wholly Owned Subsidiary outside India; and
   
3. after allotment of such shares, the percentage of shares held by the Indian promoter company, together with shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior to such allotment.
   

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 the consideration for purchase does not exceed USD 50,000 or its equivalent in a block of five calendar years.

R.V.Seckar

 

rvsekar2007@gmail.com

919848915177

PROCEDURES FOR APPEALS UNDER FEMA

SPECIAL DIRECTOR OF APPEALS

Any person aggrieved by the order passed by the Deputy director , additional director , special director , Special Director with Deputy Legal Adviser, Director of Enforcement may appeal to Special Director ( Appeals).

Such appeal should be filed within 45 days from the date on which the copy of the order is made by the Adjudicating Authority . Appeal should be verified by the appellant in a proper manner and should accompany with the requisite fees.

The special director (appeals) has power to condone the delay beyond 45 days to file an appeal if he believes that there was enough cause for not filing the appeal within the due date.

The special director after receiving the appeal may give an opportunity to be heard and shall pass such an order thereby confirming or setting aside or modifying the earlier order passed by the authorities against which the present appeal lies. The Special Director (Appeals ) will have the powers analogues to that of civil court which are conferred n the Appellate Tribunal.

Appeals to Appellate Tribunal

If any party aggrieved by the order passed by the Special Director (Appeals ) can apply to  Appellate Tribunal. However , any penalty levied by the enforcing authority or Special Director (Appeals ) should be deposited by the aggrieved party before applying to the Appellate Tribunal. However , an aggrieved party may apply to the Appellate Tribunal to waive the payment penalty and he Appellate Tribunal may dispense with such deposit subject to such conditions as i may deem fit to impose so as to safeguard the realisation of penalty.

Every appeal  to Appellate Tribunal  shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person. Appeal should be verified by the appellant in a proper manner and should accompany with the requisite fees. On receipt of an appeal , the Appellate Tribunal may, after giving the parties to the appeal ,an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.    The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals).

Appeal to High Court Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any quest on of law arising out of such order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days. Explanation.-In this section "High Court" means –

(a) 1.the High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or personally works for gain; and (b) 2.where the Central Government is the aggrieved party, the High Court within the jurisdiction of which the respondent, or in a case where there are more than one respondent, any of the respondents, ordinarily resides or carries on business or personal works for gain. R.V.Seckar   rvsekar2007@gmail.com 919848915177

COMPOUNDING OF OFFENSES UNDER FEMA

According to RBI , persons charged with violation of the Foreign Exchange Management Act should apply for compounding, which is paying a sum to get relief from punitive action under the act, at the earliest. Thus , the onus under FEMA is on the persons concerned and  should,  in their own interest submit their applications for compounding of contravention under FEMA to the Reserve Bank at the earliest opportunity.

Persons who have contravened provisions of FEMA should not take upon themselves, suo motto or on the basis of external advice, to decide whether a particular contravention is of a technical or minor in nature and, hence, no compounding application need be submitted to the RBI. According to RBI , a decision on the exact pattern of treating contraventions under FEMA would be based on the merit of each individual case.

The following is the procedure for compounding of offenses under FEMA: 

1.     An application under prescribed format either through suo motto or through a memorandum with a fee of Rs 5000/= by way of demand draft in favor of compounding authority.

1.   If the contravention is  Rs 5 lacs or below , then application for compounding of offense shall be made to the Deputy director of the Directorate of Enforcement.
2.   If contravention is more than Rs 5 lacs but less than Rs 10 lacs , then application has to be made to  Additional Director  of the Directorate of Enforcement .
3.  If it is more than Rs 10 lacs but less than Rs 50 lacs , then to Special Director of the Directorate of Enforcement .
4.  If it is more than Rs 50 lacs but less than Rs 1 Crore , then application is to be made to Special Director with Deputy Legal Adviser of the Directorate of Enforcement .
5.    If the sum involved is more than Rs 1 Crore or more , then application is to be made to Director of the Enforcement  with Special Director of the Enforcement Directorate  of the Directorate of Enforcement .

7.     The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings.

8.     Where additional information/document is called for, such additional information/ document shall be submitted within 30 days or such additional period as may be given by the Compounding Authority from the date of the said letter.

 9. The Compounding Authority shall provide an opportunity of being heard to all the concerned.9a.                        The application will be disposed by RBI within 180 on receipt of application.

10.                        RBI will evaluate whether there is any contravention and if so , the quantum of contravention.

11.                        In case , contravention is minor or technical in nature , RBI will issue only administrative cautionary advice or caution or warning only.

12.     Contravention will be considered serious by RBI if there is any money-laundering , security or national issues thereby involving grave violations of FEMA regulations.

       13.The Compounding Authority (CA) will issue final order of fine amount if he finds if there is any contravention.

14.      The fine amount so levied will have to remitted to RBI within 15 days  of passing order by the CA by way of demand draft.

15.    Finally, a compounding certificate will be issued by RBI after receipt of the fine by RBI.

16.    If a company commits same type of contravention within 3 years of first contravention, then no compounding will be available and relevant provisions of FEMA, 1999 will be applicable.

17.     If second contravention is committed by a company after the lapse of first contravention (same type), then it will be construed as a first contravention by RBI.

18.If a company fails to get approval or permissions from any statutory authorities or governments, then such contravention will not be compounded by RBI till the required approvals are obtained from the relevant authorities.
       

R.V.Seckar

 

rvsekar2007@gmail.com

919848915177

Whether a NRI can Make Donations to any resident in India ? Will it Fall under FEMA or FCRA ?

Whether a NRI can Make Donations to any resident in India ? Will it Fall under FEMA or FCRA ?

A NRI can make donation to an Indian or any institution in India. There is no restriction for such donation either in FEMA or in FCRA.  For instances, many temples have online donation facility for a  NRI to pay donation from his NRE account or in foreign exchange.

Further, donation received from a NRI in foreign currency is not a foreign contribution if the NRI holds a valid Indian passport

For a .NRI (Non-Resident Indians) donors who are Indian citizens having an Indian passport and he can make donations to any one in India and he has to quote his passport number as this is because their contribution goes into a separate account as per the Foreign Contribution Regulation Act, (FCRA), 1976.

How much a Indian Resident can make as a gift to a resident outside India or donation to a foreign charitable institution?

Any resident individual, if he so desires, may remit the entire limit of USD 200,000 in one financial year under LRS as gift to a person residing outside India or as donation to a charitable/educational/ religious/cultural organization outside India.  Remittances exceeding the limit of USD 200,000 will require prior permission from the Reserve Bank.

Can a Resident or an Indian Company Accept Deposits from foreign national or Company?

There is a restriction for accepting deposits by a resident from a person outside India. As per FEMA Management of Deposits Regulation of 2000 vide circular FEMA 5/2000 dated 3-5-2007,

Save as otherwise provided in the Act or Regulations or in Rules , directions or orders made or issued under the Act , no person resident in India shall accept any deposits from , or make any deposits with , a person resident outside India ; Provided that RBI may , on an application made to it and on being satisfied that it is necessary so to do so, allow a person resident in India to accept or make deposit from or with a person resident outside India

Further , the master circular released on 1st Oct 2010 does not speak about any exemption the above and hence the restriction in accepting deposits continues.

Further , in case of listed companies , acceptance of deposits from overseas will need prior approval from RBI as deposit definition include under Laws relating to invitation & acceptance of fixeLaws relating to invitation & acceptance of fixed deposits by companiesd deposits by companies FEMA Management of Deposits Regulation of 2000 vide circular FEMA 5/2000 dated 3-5-2007,

v ) Deposit includes deposit of money with a bank , company ,proprietorship concern, partnership firm , corporate body , trust or any other person.


Alternatively  , a company may accept ECB by adhering the guidelines for accepting ECB under automatic route by satisfying ECB guidelines issued by RBI.

Whether an NRI can invest in Partnership Firm or in Properitorship in India?

FDI in Partnership Firm / Proprietary Concern by an NRI in India:

On Non -Repatriation Basis 

(i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest by way of contribution to the capital of a partner firm or a proprietary concern in India on non-repatriation basis provided;

(a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers / Authorized banks.

(b) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.

(c) Amount invested shall not be eligible for repatriation outside India.

On Repatriation Basis 

Investments with repatriation benefits: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation benefits. The application will be decided in consultation with the Government of India.
 

FDI by Foreign Nationals in a Partnership Firm of Proprietorship

(iii)Investment by non-residents: Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.

ECB Norms Violation . Rs 125 Crores was slapped on Reliance Infrastructure by RBI !!

ECB Norms Violation . Rs 125 Crores was slapped on Reliance Infrastructure by RBI

Under FEMA guidelines issued in 2000,  and as well as under  RBI Master circular on ECB 07/09/10 dated 1-7-2010 , a borrower is required to keep ECB funds parked abroad till the actual requirement in India. Further,  as per RBI norms, a borrower cannot utilize the funds for any other purpose as there is end use restrictions for ECB.

However, Reliance Infrastructure now Reliance Energy has parked its foreign loan proceeds worth $300 million with its mutual fund in India for 315 days, and then repatriated the money abroad to a joint venture company. These actions, according to an RBI , violated various provisions of the Foreign Exchange Management Act (FEMA).

Reliance Energy admitted that there was contravention and sought compounding. The company said due to unforeseen circumstances, its Dadri power project was delayed. Therefore, the ECB proceeds of $300 million were bought to India and was parked in liquid debt mutual fund schemes, it added.

Afterward, Reliance Energy repatriated the above sum for alternate use of investment in an overseas joint venture on March 5, 2008.

In doing so, Reliance had not applied for prior approval of RBI as it contravened the end use restrictions and also it repatriated the ECB funds for investments in its overseas joint venture without prior approval of RBI.

For the justification of its levy of fine of Rs 125 Crores , RBI viewed that as the Reliance has made additional income of Rs 124 crores by parking its ECB in its mutual funds in contravention of ECB end use restrictions , Reliance Energy was  liable to pay a fine of Rs 124.68 crores.

Courtesy : Economic Times

CONVERSION OF ECB INTO EQUITY- IS IT ALLLOWABLE UNDER FEMA ?

As per  RBI Master Circular No. 8 /2010-11 dated July 01, 2010, an Indian company is eligible to convert its ECB INTO EQUITY if it satisfies 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 DSIM.

(ii) General permission is also available for issue of shares/preference shares against lump sum technical know-how fee, royalty, under automatic route or SIA/FIPB route, subject to pricing guidelines of SEBI/CCI and compliance with applicable tax laws.

Illustrations :

• M/s Kerns Aero Products Private Limited was allowed by FIPB to issue shares for the value of machinery imported to the supplier .

• Issue of sweat equity shares by Quatrro BPO Solutions Private Limited was allowed under the rules ““Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003” and Regulation 8 of FEMA 20.

• FIPB allowed Actis Biologics Private Limited to issue equity share against transfer of technology.

• GIA India Laboratory Private Ltd was allowed by FIPB to issue shares against rent as a part of pro-incorporation expenses .

•  In case of Misuba Sical India P Ltd , FIPB allowed to issue of shares instead of redemption of preference shares.

•  In the case of MD Group Inc, Canada, issuance of shares was sought against Franchisee rights.  FIPB  viewed that the extant policy permits issuance of shares for consideration other than cash in the case of lump sum fees, royalty and ECB. Issuance of shares against internal accruals, import of second hand machinery etc. has also been allowed on a case to case basis, but it cannot be allowed against an intangible asset like Franchisee rights.

There are instances where FIPB has refused to accord its approval for issue of shares against trade payable .( Macroni Telecommunications (I)  Private Limited and in the case of Sun Technics Energy Systems Private Limited ).

Formalities for the transfering of shares held by a foreign investor to an Indian Buyer ?

For transfer of Indian company shares held by a foreign company or investor to the Indian buyer, the following procedures have to be observed:

An agreement between the parties as regards to selling price. Share transfer form has to be signed by the seller and to be sent to Indian company for registering the transfer .

The company may make transfer of shares after observing the formalities at its end.

In case of individual buyers , they can route the payment ( Sales consideration) through any authorised dealer to the foreign seller.


For making payment to overseas investor towards purchasing shares from foreign company by resident Indian,s the Authorised dealer would require the following documents.

1. Application for Outward Remittance in Annexure & Form A2.
2. Form 15CA & 15 CB
3. Letter from the Company Secretary - Existing share holding pattern of the company.
4. Letter from the Chartered Accountant - Appropriate taxes have been deducted and valuation of shares under discounted cash flow method.
5. Copy of FC-GPR B - Latest annual return submitted to RBI (31 July 2010)
6. FC-TRS return in duplicate within 60 days of transfer .
7. Any Agreement/letter between seller & Purchaser.

Can Indian Company can extend Guarantee to a foreign company which is a subsidiary of its 100% owned foreign subsidiary ?

Company A can give Corporate Guarantee to a Bank abroad on behalf of Company C. Company B is a 100% subsidiary of A and B is having a 49% holding in Company C.
. Which Guidelines govern the same and what would be the statutory formalities for the same???


Notification No.FEMA 8/2000-RB dated 3rd May 2000 . The notification provides the following prohibition:

Prohibition :-

Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability owed by a person resident in India to, or incurred by, a person resident outside India.

RBI master circular on WOS / JV abroad dated July 1, 2010.. In terms of the circular guarantee can ben given on behalf of a subsidiary / JV in which Company 'A' has equity participation. Going by this, Company A can't give guarantee on behalf of Company 'C'

Hence , Guarantee can be offered by a Indian Company to a foreign company in a structured business transactions only. The prohibition clause says even with the general or special permission from RBI , Guarantee cannot be given unless there is a structured business transaction.

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