Regularisation of Liaison Offices / Branch Offices of foreign entities established in India during the pre-FEMA regime

Regularisation of Liaison Offices / Branch Offices of foreign entities established in India during the pre-FEMA regime

ALLOTMENT OF UIN ( Unique Identification Number for LO/BO) 

It is observed that certain Liaison Offices (LO)/ Branch Offices (BO) established by foreign Non Government Organisations (NGOs), Non Profit Organisations (NPOs), news agencies and other foreign entities are continuing to function in India, without the approval of the Reserve Bank, even after the Foreign Exchange Management Act (FEMA), 1999 came into force from June 1, 2000.

Under the provisions of FEMA Act 1999, liaison offices/ branch offices can only be established with the prior permission from the Reserve Bank of India. Reserve Bank of India considers the requests of such entities to open an office in India, in consultation with Government of India, wherever required.

Accordingly, the foreign entities which have established LO or BO in India without obtaining permission from the Reserve Bank of India should approach the Reserve Bank within a period of 90 days from the date of the A.P. (DIR Series) Circular No.02 dated July 15, 2011 for regularization of establishment of such offices in India, in terms of the extant FEMA provisions.

Further, the foreign entities who have established LO or BO with the permission from the Government of India may also approach the Reserve Bank along with a copy of the said approval for allotment of a Unique Identification Number (UIN) by the Reserve Bank of India.

For both of the above , the last date for application to be made to RBI is 14th October 2011.

All LO/BO can use this golden opportunity.

For any clarification or assistance , please contact 

rvsekar2007@gmail.com, 09848915177

"Can company involved in "service industry" open up a branch office in India Under Approval Route?"

"Can company involved in "service industry" open up a branch office in India with the approval Route?"


The "Master Circular on Establishment of Liaison / Branch /Project Offices in India by Foreign Entities", it states that "Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank."

This specifically states only manufacturing and trading companies.

It does not speak about service industry.
There is ambiguity in the master circular regarding foreign service companies to open a branch office in India.

If you analyse the following Permissible Activities

a). Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India:

I. Export / Import of goods

II. Rendering professional or consultancy services.

The master circular says  " companies incorporate outside India " and engaged in manufacturing or trading activities" and the word trading includes the following ;

• dealing
• merchandising
• selling
• swapping

Hence , a company incorporated outside India can engage in trading of services also .

Further , sub-clause II says Rendering professional or consultancy service also.

Hence , according to me , a foreign company which is involved in service sector can open a branch office in India with prior approval from RBI.

Investment through Special Purpose Vehicle (SPV) under RBI Automatic Route

Investment through  SPV in UAE or other foreign countries under RBI automatic route

Investment through Special Purpose Vehicle (SPV) under RBI Automatic Route

(i) Investments in JV/WOS abroad by Indian parties through the medium of a Special Purpose Vehicle (SPV) are also permitted under the Automatic Route in terms of Regulation 6 of the Notification, subject to the conditions that the Indian party is not included in the Reserve Bank's caution list or is under investigation by the Directorate of Enforcement or included in the list of defaulters to the banking system circulated by the Reserve Bank/any other Credit Information company as approved by the Reserve Bank. Indian parties whose names appear in the Defaulters' list require prior approval of the Reserve Bank for the investment.

(ii) Setting up of an SPV under the Automatic Route is permitted for the purpose of making a investment in JV/WOS overseas.

Regulation 6

(1) Subject to the conditions specified in sub-regulation (2), (and Regulation 7 in case investment in financial services sector) an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India.

(2) (i) The total financial commitment of the Indian party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 400% of the net worth of the Indian Party as on the date of the last audited balance sheet;
Explanation: - For the purpose of the limit of 100% of the net worth the following shall be reckoned, namely:

(a) cash remittance by market purchase and /or equivalent rupee investments in case of Nepal and Bhutan
(b) capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11;
(c) fifty per cent of the value of guarantees issued by the Indian party to or on behalf of the joint venture company or wholly owned subsidiary.
(d) investment in agricultural operations through overseas offices or directly
(e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines
Notwithstanding anything contained in these Regulations investment in Pakistan shall not be permitted.

(ii) The direct investment is made in an overseas JV or WOS engaged in a bonafide business activity.

(iii) The Indian Party is not on the Reserve Bank’s Exporters caution list /list of defaulters to the banking system circulated by the Reserve Bank or under investigation by any investigation /enforcement agency or regulatory body.

(iv) The Indian party has submitted up to date returns in form APR in respect of all its overseas investments;

(v) The Indian Party routes all transactions relating to the investment in a Joint Venture/Wholly Owned Subsidiary through only one branch of an authorised dealer to be designated by it.

For any further clarification or assistance, please feel free to contact rvsekar2007@gmail.com and 919848915177.

Permission for Direct Investment in certain cases

 

Enforcement Directorate of RBI (FEMA) slaps Rs 7,100 crores fine on Etisalat DB for FEMA violations

Enforcement Directorate of RBI (FEMA)  slaps Rs 7,100 crore fine on Etisalat DB for FEMA violations

Etisalat DB was accused of not reporting funds from abroad to RBI.


The Enforcement Directorate (ED) on July 8^th 2011  slapped a Rs 7,100-crore penalty on Etisalat DB for alleged violations of the Foreign Exchange Management Act (FEMA).

ED, in a complaint before the Competent Adjudicating Authority for FEMA, said the penalty had been imposed for suspected violations of foreign exchange rules inside and outside the country.

ED said the violations included non-reporting of receipt of funds from abroad within the stipulated period to the Reserve Bank of India.

The company has been given 30 days to explain why it should not be fined.

Etisalat DB, a joint venture between UAE’s Etisalat and India’s DB Realty, was given licences to offer mobile services in 13 circles in 2008 when A Raja was the telecom minister. Raja is in judicial custody in the 2G scam case.

Etisalat DB (earlier Swan Telecom) chief Shahid Usman Balwa and Director Vinod Goenka are also in custody in the 2G scam.

ED had earlier charged Shahid Balwa-promoted Swan Telecom with committing FEMA violations to the tune of Rs 3,608 crore.

ED is also investigating other new telecom companies such as Loop Telecom and STel for FEMA violations.

Source : Business Standard 9^th July 2011

FORMALITIES FOR TRANSFER OR SALE OF SHARES BY A INDIAN COMPANY OR INDIAN SHAREHOLDERS TO A FOREIGN COMPANY OR FOREIGN INVESTORS

FORMALITIES FOR TRANSFER OR SALE OF SHARES BY A INDIAN COMPANY OR INDIAN SHAREHOLDERS TO A FOREIGN COMPANY OR FOREIGN INVESTORS 

If the transfer of shares of an Indan Companhy to Non resident company, the procedure is as follows:
For sale of shares from Resident seller to Non resident buyer, Non resident buyer will have to sign and file Form FC - TRS with Authorised Dealer as per RBI circular RBI/2004-05/207 dated October 4, 2004. 

Authorised Dealer will issue a certificate specifying that the remittance and the transaction is in accordance with FEMA regulations & RBI Guidelines.

Following are the attachments to form FC TRS:

1.Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e. number of shares to be transferred, the name of the investee company whose shares are being transferred and the price at which shares are being transferred. In case there is no formal Sale Agreement, letters exchanged to this effect may be kept on record.

2. Where Consent Letter has been signed by their duly appointed agent, the Power of Attorney Document executed by the seller/buyer authorizing the agent to purchase/sell shares.

3. The shareholding pattern of the investee company after the acquisition of shares by a person resident outside India showing equity participation of residents and non-residents category-wise (i.e. NRIs/OCBs/foreign nationals/incorporated non-resident entities/FIIs) and its percentage of paid up capital obtained by the seller/buyer or their duly appointed agent from the company, where the sectoral cap/limits have been prescribed.

4. Certificate indicating fair value of shares from a Chartered Accountant. (the sale consideration shall not be less than the fair value of the shares)

5. Undertaking from the buyer to the effect that he is eligible to acquire shares/convertible debentures under FDI policy and the existing sectoral limits and Pricing Guidelines have been complied with.

6. Undertaking from the FII/sub account to the effect that the individual FII/Sub account ceiling as prescribed by SEBI has not been breached.

The reader  can refer to RBI circular No. RBI/2009-10/445 dated 4 May, 2010 for understanding revised pricing guidelines.

For any clarification or assistance , please feel free to contact me through rvsekar2007@gmail .com or 919848915177.

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Companies Can Issue fresh FCCBs to liquidate existing FCCBS - Under Automatic Route of RBI

Companies Can Issue fresh FCCBs to liquidate existing FCCBS - Under Automatic Route of RBI

Keeping in view the need to provide a window to facilitate refinancing of FCCBs by the Indian companies who may be facing difficulty in meeting the redemption obligations, it has been decided to consider applications for refinancing of FCCBs by Indian companies under the automatic route.

Accordingly, designated AD Category - I banks may allow Indian companies to refinance the outstanding FCCBs subject to compliance with the terms and conditions set out hereunder: -
 
i) Fresh ECBs/ FCCBs shall be raised with the stipulated average maturity period and applicable all-in-cost being as per the extant ECB guidelines;
 
ii) The amount of fresh ECB/FCCB shall not exceed the outstanding redemption value at maturity of the outstanding FCCBs;
 
iii) The fresh ECB/FCCB shall not be raised six months prior to the maturity date of the outstanding FCCBs ;
 
iv) The purpose of ECB/FCCB shall be clearly mentioned as ‘Redemption of outstanding FCCBs’ in Form 83 at the time of obtaining Loan Registration Number from the Reserve Bank;
 
v) The designated AD - Category I bank should monitor the end-use of funds;

vi) All other aspects of ECB policy under the automatic route, such as, eligible borrower, recognised lender, end-use, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged;
 
vii) ECB / FCCB beyond USD 500 million for the purpose of redemption of the existing FCCB will be considered under the approval route; and
 
viii) ECB / FCCB availed of for the purpose of refinancing the existing outstanding FCCB will be reckoned as part of the limit of USD 500 million available under the automatic route as per the extant norms.
 
3. Restructuring of FCCBs involving change in the existing conversion price is not permissible. Proposals for restructuring of FCCBs not involving change in conversion price will, however, be considered under the approval route depending on the merits of the proposal.

REF _ RBI/2011-12/ 105 July 04, 2011---A.P. (DIR Series) Circular No.01 dated 4th July 2011


For any clarification or assistance , please feel free to contact me through rvsekar2007@gmail .com or 919848915177.