Non-resident guarantee for non-fund based facilities entered between two resident entities

Non-resident guarantee for non-fund based facilities entered between two resident entities

 

Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to Notification No. FEMA 29 / 2000-RB dated September 26, 2000 viz. Payment to person resident outside India on invocation of guarantee, A.P. (DIR Series) Circular No. 28 dated March 30, 2001 and A.P. (DIR Series) Circular No. 5 dated August 1, 2005 relating to External Commercial Borrowings (ECB).

 

2. Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank vide Notification No. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.

 

3. On a review, it has been decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) ) entered into between two persons resident in India. The method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor would continue, as hitherto, as detailed in A.P. (DIR Series) Circular No. 28 dated March 30, 2001.

 

4. It has also been decided to introduce a reporting format to capture such guarantees issued and invoked. Authorized Dealer Category-I banks are required to furnish such details by all its branches, in a consolidated statement, during the quarter, as per the format in Annex to the Chief General Manager, Foreign Exchange Department, ECB Division, Reserve Bank of India, Central Office Building, 11th floor, Fort, Mumbai – 400 001 (and in MS-Excel file through email) so as to reach the Department not later than 10th day of the following month.

 

 

 

 

 

 

Ref:RBI/2012-13/179---A. P. (DIR Series) Circular No. 20 dated August 29, 2012

 

Review of the Foreign Direct Investment policy - permitting investments from Pakistan.

Review of the Foreign Direct Investment policy - permitting investments from Pakistan. or Bangaladesh.

1.0Present Position: 1.1 As per paragraph 3.1.1 of Circular 1 of 2012- Consolidated FDI Policy`, effective from 10.04.2012, investment from a citizen of Pakistan or an entity incorporated in Pakistan is not permitted. 2.0Revised Position: 2.1The Government of India has reviewed the policy, as contained in paragraph 3.1.1 of the circular ibid and decided to permit a citizen of Pakistan or an entity incorporated in Pakistan to make investments in India, under the Government route, in sectors/activities other than defence, space and atomic energy. 3.0Amendment to paragraph 3.1.1: 3.1Accordingly, Paragraph 3.1.1 of Circular 1 of 2012- Consolidated FDI Policy`, effective from 10.4.2012, is amended to read as below: "3.1.1 A non-resident entity can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. A citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space and atomic energy." Dept. of Industrial Policy & Promotion, Ministry of Commerce & Industry New Delhi:August 1, 2012

REVIEW OF GUIDELINES ON Exchange Earner's Foreign Currency (EEFC) Account, Diamond Dollar Account (DDA) & Resident Foreign Currency (RFC) Account

Exchange Earner's Foreign Currency (EEFC) Account, Diamond Dollar Account (DDA) & Resident Foreign Currency (RFC) Account - Review of Guidelines

Attention of the Authorised Dealer (AD) Category - I banks is invited to A.P. (DIR Series) Circular No.15 dated November 30, 2006 in terms of which all foreign exchange earners were permitted to retain 100% of their foreign exchange earnings in EEFC account with any AD in India. Subsequently, in terms of A.P. (DIR Series) Circular No. 124 dated May 10, 2012, it was stipulated, inter alia, that in respect of all future foreign exchange earnings, an exchange earner will be eligible to retain only 50% of her/his export earnings in EEFC accounts and the balance 50% shall be surrendered for conversion to rupee balances. This provision was, made applicable, mutatis mutandis, to Diamond Dollar Account and Resident Foreign Currency (RFC) Account as well. Further, in terms of A.P. (DIR Series) Circular No. 8 dated July 18, 2012, the RFC accounts were subsequently taken out of the purview of the provisions of the aforesaid Circular dated May 10, 2012.

2. For operational convenience, the regulations have been reviewed. It has now been decided to restore the erstwhile stipulation of allowing credit of 100% foreign exchange earnings to the EEFC account subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. Accordingly, balances outstanding in an EEFC account as on July 31, 2012 and those balances that would accrue in the account with effect from August 1, 2012 shall get converted to Rupee balances on or before close of business on September 30, 2012. Similar procedure may be followed for accruals during the subsequent months.

3. The above stipulations would also apply to RFC (Domestic) and Diamond Dollar accounts.


Ref:
RBI/2012-13/151 -A. P. (DIR Series) Circular No. 12 dated 31st July 2012

FURTHER CLARIFICATION ON COMPOUNDING OF OFFENSES UNDER FEMA BY RBI

Foreign Exchange Management Act, 1999 (FEMA)-
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. 56 dated June 28, 2010 and the subsequent Press Release dated August 13, 2010, clarifying the position on ‘technical’ contravention and subsequent compounding thereof.

2. In this connection, it is clarified that whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity involved in contravention by way of a reference other than through the prescribed application for compounding, the Bank will continue to decide (i) whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/ cautionary advice; (ii) whether it is material and, hence, is required to be compounded for which the necessary compounding procedure has to be followed or (iii) whether the issues involved are sensitive / serious in nature and, therefore, need to be referred to the Directorate of Enforcement (DOE). However, once a compounding application is filed by the concerned entity suo moto, admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the compounding process shall be initiated in terms of section 15 (1) of Foreign Exchange Management Act, 1999 read with Rule 9 of Foreign Exchange (Compounding Proceedings) Rules, 2000.

 Ref:RBI/2012-13/153-A.P. (DIR Series) Circular No.11 dated 31st July 2012

RBI HAS Revised A-2 Form for Various remittances out of India

Revised A-2 Form -Revised list of purpose codes along with Form A-2

 In A-2 forms ,RBI has already amended the purpose codes for foreign exchange purchase/ sale transactions, used for filling up of the cover page of R-Return have since been revised, vide A.P.(DIR Series) Circular No. 84 dated February 29, 2012.; It has therefore become necessary to revise the list of purpose codes appended to Form A-2 also. The revised list of purpose codes along with Form A-2 are thus annexed for use by the applicants for remittance of funds abroad.

Please click the following link to go to the revised form Link

 

http://rbidocs.rbi.org.in/rdocs/content/pdfs/1ANN120712.pdf


Regards

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VARIOUS MASTER CIRCULARS ISSUED BY RBI UNDER FEMA - AN UPDATE

Dear Professional Colleagues,

RBI , today , updated various master circulars and the details of the same are given below . Please click the respective link to have more idea on the subject .

1. Master Circular on Direct Investment by Residents in Joint Venture (JV) /

Wholly Owned Subsidiary (WOS) Abroad

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MC1072011.pdf
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2. Master Circular on Export of Goods and Services

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/14ME010212FS.pdf

3.Master Circular on External Commercial Borrowings and Trade Credits

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/12EC010712EF.pdf

4.Master Circular on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MD010712IFL.pdf

5.Master Circular on Miscellaneous Remittances from India – Facilities for Residents

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/06MR010712F.pdf

6.Master Circular on Import of Goods and Services

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/13IGSM020712.pdf

7.Master Circular on Compounding of Contraventions under FEMA, 1999

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/09MC062812FC.pdf

8.Master Circular on Remittance Facilities for Non-Resident Indians /
Persons of Indian Origin / Foreign Nationals

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/08MCEF02072012.pdf

9.Master Circular on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/07MCEL02072012.pdf

10.Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/MC04AT28062012.pdf

Foreign Investment in India - Recent Amendments under Sector Specific conditions under FEMA

Dear All,

Foreign Investment in India -Recent Amendments to
Sector Specific conditions under FEMA

RBI has recently made some amendments in sectors/activities wherein FDI is prohibited as also the entry norms, sectoral cap and other conditions for sectors/activities in which FDI is permitted under Government route and Automatic route are specified.

Please visit the following link to know more about the sectors/activities wherein FDI is prohibited as also the entry norms, sectoral cap and other conditions for sectors/activities in which FDI is permitted under Government route and Automatic route are specified.

Please click the following link for more details:

http://rbidocs.rbi.org.in/rdocs/content/pdfs/CAPFISS280612_1.pdf

GIFT OF SHARES BY INDIAN RESIDENT TO NRI , GIFT OF SHARES BY NRI TO ANOTHER NRI OUTSIDE INDIA, GIFT BY NON-RESIDENT TO ANOTHER NON-RESIDENT OUTSIDE INDIA, GIFT OF SHARES BY A NON-RESIDENT TO RESIDENT INDIAN

GIFT OF SHARES BY INDIAN RESIDENT TO NRI , GIFT OF SHARES BY NRI TO ANOTHER NRI OUTSIDE INDIA, GIFT BY NON-RESIDENT TO ANOTHER NON-RESIDENT OUTSIDE INDIA, GIFT OF SHARES BY A NON-RESIDENT TO RESIDENT INDIAN

Transfer of any capital instrument, by way of gift by a person resident in India to a person resident outside India. prior approval of Reserve Bank for approval for transfer of capital instruments by way of gift is needed.

Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift
i. Name and address of the transferor (donor) and the transferee (donee).
ii. Relationship between the transferor and the transferee.
iii. Reasons for making the gift.
iv. In case of Government dated securities and treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such security.
v. In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.
vi. In case of shares and convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by Securities & Exchange Board of India or DCF method for listed companies and unlisted companies, respectively.
vii. Certificate from the concerned Indian company certifying that the proposed transfer of shares/ convertible debentures by way of gift from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company.
viii. An undertaking from the resident transferor that the value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000  during a financial year.

* RBI‘s A.P. (DIR Series) Circular No. 14 Dated 15.09.2011

Reserve Bank considers the following factors while processing such applications:

(a) The proposed transferee (donee) is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

(b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.

(c) The applicable sectoral cap limit in the Indian company is not breached.
General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the following:

(a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs).

(b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.

(c) A person resident outside India can transfer any security to a person resident in India by way of gift.

NOW , MANUFACTURING and INFRASTRUCTURE COMPANIES CAN BORROW 10 BILLION USD FOR REPAYMENT OF RUPEE LOAN UNDER APPROVAL ROUTE

External Commercial Borrowings (ECB) – Repayment of Rupee loans

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to the Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000, notified vide Notification No. FEMA 3/2000-RB dated May 3, 2000, as amended from time to time, A.P. (DIR Series) Circular No. 25 dated September 23, 2011 and A.P. (DIR Series) Circular No. 111 dated April 20, 2012 relating to relaxation of ECB norms for Infrastructure and Power sector.

2. On a review, it has been decided to allow Indian companies to avail of ECBs for repayment of Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure, under the approval route, subject to them satisfying the following conditions:-

1. Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;
2. Such companies shall be a consistent foreign exchange earner during the past three financial years;
3. Such companies are not in the default list/caution list of the Reserve Bank of India; and
4. Such ECBs shall only be utilized for repayment of the Rupee loan(s) availed of for 'capital expenditure' incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure.

3. The overall ceiling for such ECBs as in para 2 above shall be USD 10 (ten) billion. The maximum permissible ECB that can be availed of by an individual company will be limited to 50 per cent of the average annual export earnings realised during the past three financial years.TheECBs will be allowed to companies based on the foreign exchange earnings and its ability to service the ECB. The companies should draw down the entire facility within a month after taking the Loan Registration Number (LRN) from the Reserve Bank.

4. Companies desirous of availing such ECBs may submit their applications in Form ECB through their designated Authorised Dealer bank with certification from the Statutory Auditor regarding the utilization of Rupee loan(s) with respect to 'capital expenditure' incurred earlier. Statutory Auditor shall also certify that the company is a consistent foreign exchange earner during the past three financial years. The outstanding Rupee loan(s) shall be duly certified by the domestic lending bank(s) concerned and the designated Authorised Dealer bank. Authorised Dealer should ensure that the foreign exchange for repayment of ECB is not accessed from Indian markets and the liability arising out of ECB is extinguished only out of the foreign exchange earnings of the borrowing company.

5. The designated AD - Category I bank shall monitor the end-use of funds and bank(s) in India will not be permitted to provide any form of guarantee(s). All other conditions of ECB, such as recognized lender, all-in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged and shall be complied with.

REF-A. P. (DIR Series) Circular No. 134 dated 25 JUNE 2012

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS REPORTING BY INDIAN COMPANIES – REVISED FORMAT

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS  REPORTING BY INDIAN COMPANIES – REVISED FORMAT

NOW , YOU CAN FILE THE ANNUAL RETURN ON FOREIGN ASSETS AND LIABILITIES ONLINE ON OR BEFORE JULY EVERY YEAR

The Reserve Bank Of India vide its Circular No. 133, Dated June,20,2012 the format of Annual Return on Foreign Liabilities and Assets reporting by Indian Companies has been revised now. The Annual Return now been filed electronically by July, 15 every year .

Attention of the Authorised Dealer (AD) Category – I banks is invited to A. P. (DIR Series) Circular No.45 dated March 15, 2011 wherein, it was, inter-alia, stipulated that the annual return on Foreign Liabilities and Assets (FLA) is required to be submitted directly by all the Indian companies which have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year, to the Director, External Liabilities and Assets Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, C-8, 3rd floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051, by July 15 of every year.

2. The Annual Return on FLA is now modified as attached. An easy-to-fill soft form of the return with guidance to users and in-built validations is now being made available on the RBI website (www.rbi.org.in → Forms category → FEMA Forms) which can be duly filled-in, validated and sent by e-mail, by July 15 every year.

Any queries related to filling of annual return should be e-mailed. These directions will come into force with immediate effect. AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

3. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 and the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 and Notification No. FEMA 120 dated July 07, 2004, respectively will be issued separately.

Ref: A.P. (DIR Series) Circular No.133 dated 20 June 2012