RBI Clarification on Issue of equity shares under the FDI scheme allowed under the Government route against pre-operative/pre-incorporation expenses

 

Foreign Direct Investment (FDI) in India - Issue of equity shares under the FDI scheme allowed under the Government route against pre-operative/pre-incorporation expenses

Attention of Authorised Dealers Category – I banks is invited to Para 3 (II) of A.P. (DIR Series) Circular No. 74 dated June 20, 2011 read with A.P. (DIR Series) Circular No. 55 dated December 9, 2011, allowing thereby issue of equity shares/ preference shares under the Government route by conversion of import of capital goods, etc., subject to terms and conditions stated therein.

2. On review of the policy, it has now been decided to amend condition at (c) in the aforesaid para. The amended condition is given in the Annex.

3. All the other conditions contained in the A.P. (DIR Series) Circulars No. 74 dated June 20, 2011 and No. 55 dated December 9, 2011, shall remain unchanged.

4. AD Category - I banks may bring the contents of the circular to the notice of their customers/constituents concerned.

A.P.(DIR Series) Circular No. 74 dated June 30, 2011	Earlier Condition	Revised condition
Para 3(II)(c)	Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI; and	Payments should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under FEMA Regulations; and

Ref:

A.P. (DIR Series) Circular No. 104 May 17, 2013

Transfer of shares/convertible debentures from Resident to Non-Resident

Transfer of shares/convertible debentures from Resident to Non-Resident

 

Transfer of shares or convertible debentures by Resident to Non-Resident is allowed subject to various terms and conditions.

The ‘Person Resident outside India’ now includes incorporated non-resident entity, foreign national, NRI, FII other than erstwhile OCB.

The foreign national, NRI, FII were earlier excluded from the definition of the ‘Person Resident outside India’ for the purposes of transfer of shares/convertible debentures from resident to the non-residents.

Conversion of ECB/Lump sum Fee/Royalty etc. into Equity

 

Conversion of ECB/Lump sum Fee/Royalty etc. into Equity- Waiver of Condition for valuation from an Independent valuer from country of import

 

As per the FDI Policy, the companies are allowed to issue equity shares against the import of capital goods/ machinery/ equipment (excluding second-hand machinery), subject to compliance with the various conditions specified therein.

One of the conditions in the FDI policy was mandatory requirement of independent valuation of the capital goods/machinery/equipments (including second-hand machinery) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair-value of such imports.

The said condition has been dispensed with through introduction of the new Consolidated FDI Policy dated 5th April, 2013.

 

Ref - Consolidated FDI Policy - April 2013

NEW FC-GPR FORM FROM APRIL 2013 - CHANGES IN THE FC-GPR FORM FROM APRIL 2013

NEW FC-GPR FORM FROM APRIL 2013 - CHANGES IN THE FC-GPR FORM FROM APRIL 2013

Every company, making allotment to any foreign individual or company incorporated outside India, is required to report to Reserve Bank of India (RBI) in form FC GPR within 30 days from the date of allotment. Apart from the various declarations in Form FC GPR, following two declarations have been deleted from the Form FC GPR with the introduction of new Consolidated FDI Policy dated 5th April, 2013.

a.     Foreign entity/entities—(other than individuals), to whom we have issued shares have existing joint venture or technology transfer or trade mark agreement in India in the same field and Conditions stipulated at Para 4.2 of Consolidated FDI policy Circular of Government of India have been complied with.

OR

Foreign entity/entities—(other than individuals), to whom we have issued shares do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field.

For the purpose of the 'same' field, 4 digit NIC 1987 code would be relevant.  

b.     We are not an Industrial Undertaking manufacturing items reserved for small sector.

OR

We are an Industrial Undertaking manufacturing items reserved for small sector and the investment limit of 24 % of paid-up capital has been observed/ requisite approvals have been obtained.

Source- Consolidated FDI Policy - April 2013

Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP)

Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) by Conversion of existing Company into LLP.

The Consolidated FDI Policy permits an Indian Company having FDI to be converted into the LLP with prior approval of FIPB/Government but subject to various conditions.

One of the conditions, prior to introduction of FDI Policy dated 5th April, 2013 was that Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.

In case of Conversion of an Indian Company into LLP, the said condition has been dispensed with by introducing new Consolidated FDI Policy dated 5th April, 2013.

Ref- Consolidated FDI Policy April 2013

Formalities for Registration of Liaison , Renewal of Liaison office In India

Setting –up of Liaison office in India will be under Approval Route

As per the Notification No. 22/2000, dated 3-5-2000, no person resident outside India shall establish a office without prior approval of RBI. Therefore, before setting up of a branch/liaison office, approval of RBI should be taken. Application in Form FNC-1 is required to be made.

What are the documents to be filed along with Form FNC-1?

(1) Form FNC-1- Available in RBI website.

 (2) English version of the Certificate of incorporation/registration or memorandum of articles of association of the Foreign Company which wishes to set-up liaison office in India.

3) The above mentioned documents should be attested either by the Indian

Embassy or a notary public of that country should attest this document

4) Latest Audited Balance Sheet of the foreign company

5) Complete and exhaustive details of the activities that is going to be carried out in India by the foreign company

6) POA in favour of the Indian agent or consultant

7) Form FNC-1 should be signed by the foreign company authorised signatory ( a director ) and the Indian agent or consultant  is not authorised to sign the above.

Annual Filing Formalities

Every year , a certificate from Chartered Accountant  is to be filed to the regional office of the RBI.

However , the law does not require a liaison office to file audited statement of Indian operation but it is prudent practice to enclose the same.

Renewal of  Liaison Office

Renewal letter may be sent to the regional office of RBI well before the expiry of the renewal date. No need to send the renewal in Form FNC-1. Optionally , the LO can enclose the MOA and annual activity report and audited accounts with the renewal application.

Registration of All Liaison office with the Registrar of Companies (ROC) New Delhi.

All LO in India after getting the approval from RBI for establishing LO in India  shall have to register the same with ROC , New Delhi compulsorily .Renewal of Liaison Office is also to be reported to ROC , New Delhi

 

Foreign Companies carrying on business in India have to file prescribed documents to Registrar and file its annual accounts every year.

 

Form NO	Contents
44	Documents to be delivered by Foreign Company for registration
52	·         Change in the Particulars of the Authorized Person   ·         Change in the Principal Place of Registered Office   ·         Annual Accounts & List of Place of Business   ·         Cessation of Business

 

·         Further, Department of Company affairs has clarified that if the foreign company has only liaison office in India and has obtained RBI permission, it should only produce copy of letter of RBI and statement of receipts and payments made by Indian branches of the foreign company. Such statement should be certified by Chartered accountant and authorized representative of the company.

 

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 DSIM.

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

4. Filing of FC-GPR

 

FDI IN OIL & NATURAL GAS PROJECT WILL BE UNDER AUTOMATIC ROUTE

Foreign Investment in Oil And Natural Gas Projects

As per extant Foreign Direct Investment (FDI) policy, FDI, up to 100%, is permitted, under the automatic route, for exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG regasification infrastructure, market study and formulation and petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. Extant FDI policy, therefore, does not envisage Government approval for bringing FDI into companies carrying on these activities.

Write-off” of unrealized export bills –Simplification of procedure

Write-off” of unrealized export bills – UNDER AUTOMATIC ROUTE

Export of Goods and Services – Simplification of procedure

 

Attention of Authorized Dealer Category – I (AD Category –I) banks is invited to A.P. (DIR. Series) Circular No. 12, 30, 61, 40, 33 and 03 dated September 09, 2000, April 04, 2001, December 14, 2002, December 05, 2003, February 28, 2007 and July 22, 2010 respectively in terms of which the exporters were given limited powers of write-off and also AD Category – I banks have been permitted to accede to the requests for "write-off" made by the exporters, subject to the conditions, inter alia, that the exporter had to surrender proportionate export incentives, if availed of, in respect of the relative shipments.

2. With a view to further simplifying and liberalizing the procedure and for providing greater flexibility to all exporters as well as the Authorized Dealer banks, the earlier instructions have been reviewed. It has now been decided to effect, subject to the stipulations regarding surrender of incentives prior to”write-off” adduced in the A.P. (DIR Series) Circular No. 03 dated 22 July 2010, the following liberalization in the limits of “write-offs” of unrealized export bills:

1. Self “write-off” by an exporter
   (Other than Status Holder Exporter) ----------------------------------------------------- 5%*
   
2. Self “write-off” by Status Holder Exporters ------------------------------------------ 10%*
   
3. ‘Write-off” by Authorized Dealer bank ------------------------------------------------ 10%*
   *of the total export proceeds realized during the previous calendar year.

3. The above limits will be related to total export proceeds realized during the previous calendar year and will be cumulatively available in a year.

4. The above “write-off” will be subject to the following conditions:

(a) The relevant amount has remained outstanding for more than one year;

(b) Satisfactory documentary evidence is furnished in support of the exporter having made all efforts to realize the dues;

(c) The case falls under any of the undernoted categories :

(i)	The overseas buyer has been declared insolvent and a certificate from the official liquidator indicating that there is no possibility of recovery of export proceeds has been produced.
(ii)	The overseas buyer is not traceable over a reasonably long period of time.
(iii)	The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country.
(iv)	The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization;
(v)	The unrealized amount represents the undrawn balance of an export bill (not exceeding 10% of the invoice value) remaining outstanding and turned out to be unrealizable despite all efforts made by the exporter;
(vi)	The cost of resorting to legal action would be disproportionate to the unrealized amount of the export bill or where the exporter even after winning the Court case against the overseas buyer could not execute the Court decree due to reasons beyond his control;
(vii)	Bills were drawn for the difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amount has remained unrealized consequent on dishonour of the bills by the overseas buyer and there are no prospects of realization.
(d)	The exporter has surrendered proportionate export incentives (for the cases not covered under A. P. (DIR. Series) Circular No.03 dated July 22, 2010), if any, availed of in respect of the relative shipments. The AD Category – I banks should obtain documents evidencing surrender of export incentives availed of before permitting the relevant bills to be written off.
(e)	In case of self write-off, the exporter should submit to the concerned AD bank, a Chartered Accountant’s certificate, indicating the export realization in the preceding calendar year and also the amount of write-off already availed of during the year, if any, the relevant GR / SDF Nos. to be written off, Bill No., invoice value, commodity exported, country of export. The CA certificate may also indicate that the export benefits, if any, availed of by the exporter have been surrendered.

5. However, the following would not qualify for the “write off” facility :

1. Exports made to countries with externalization problem i.e. where the overseas buyer has deposited the value of export in local currency but the amount has not been allowed to be repatriated by the central banking authorities of the country.
   
2. GR / SDF forms which are under investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the outstanding bills which are subject matter of civil / criminal suit.

6. The respective AD banks may forward a statement in form EBW, in the senclosed format, to the Regional Office of Reserve Bank under whose jurisdiction they are functioning, indicating details of write-offs allowed under this circular.

7. AD banks are advised to put in place a system under which their internal inspectors or auditors (including external auditors appointed by authorised dealers) should carry out random sample check / percentage check of “write-off” outstanding export bills.

8. Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.

Ref-

RBI/2012-13/435 A.P. (DIR Series) Circular No. 88 dated 12 March 2013

NOW, COMPANIES UNDER INVESTICATIONS BY DIRECTOR OF ENFORCEMENT CAN AVAIL ECB UNDER AUTOMATIC ROUTE !!!

NOW, COMPANIES UNDER INVESTICATIONS BY DIRECTOR OF ENFORCEMENT CAN AVAIL ECB UNDER AUTOMATIC ROUTE !!!

As per the extant guidelines, corporates that are under investigation by any law enforcing agencies like the Directorate of Enforcement (DoE), etc. are not allowed to access ECB under the Automatic route. Any request by such corporates for ECB is examined by the Reserve Bank under the approval route.

On a review, it has been decided to permit all entities to avail of ECBs under the automatic route as per the current norms, notwithstanding the pending investigations / adjudications / appeals by the law enforcing agencies, without prejudice to the outcome of such investigations / adjudications / appeals.

  Accordingly, in case of all applications where the borrowing entity has indicated about the pending investigations / adjudications / appeals, Authorised Dealers while approving the proposal shall intimate the concerned agencies by endorsing the copy of the approval letter. The same procedure will be followed by the Reserve Bank of India also while approving such proposals.

All other aspects of the ECB policy, under the Automatic route such as amount of ECB, eligible borrower, recognised lender, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

Ref- A.P. (DIR Series) Circular No. 87 dated 5th March 2013