Reporting of issue / transfer of Participat​ing interest/r​ight in Oil Fields to a Non Resident as an FDI Transactio​n

RBI through its A.P. (DIR Series) Circular No. 45 dated 16 November 2011 notified the FEMA (Transfer of Issue of Security by a PersonResident outside India) Regulations, 2000.

In terms of the said regulations the transfer of equity shares / fully and mandatorily convertible debentures/ fully and mandatorily convertible preference shares (hereinafter referred to as ‘shares’) of
an Indian company, from a person resident outside India (non-resident) to a person resident in India (resident) or vice versa, has to be reported to an AD Bank within 60 days of transactions. Further, the
receipt of consideration for issue of shares as well as the issue of shares of an Indian company, to a non-resident has to be reported to RBI through an AD Bank within 30 days of the transaction.

Further it has decided, to treat the issue / transfer of ‘participating interest/ rights’ in oil fields to a non- resident as Foreign Direct Investment (FDI) transaction under the extant FDI policy and the FEMA regulations.

And these transactions have to be reported as FDI transactions interms of the provisions of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended.
Accordingly, transfer of ‘participating interest/ rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS and issuance of ‘participating interest/ rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.

Set-off of export receivable​s against import payables-L​iberalizat​ion of Procedure

 RBI has delegate power to AD Category – I banks to deal with the cases of “set-off” of export receivables against import payables, subject to following terms and conditions:

 

a.The import is as per the Foreign Trade Policy in force.

b.Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.

c.Payment for the import is still outstanding in the books of the importer.

d.Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.

e.The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received.

f.The ” set-off” of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him.

g.The export / import transactions with ACU countries should be kept outside the arrangement.

h.All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions.

 

Ref: A.P. (DIR Series) Circular No. 47 dated November 17, 2011.

Guarantee by an Indian company on behalf of Wholly Owned Subsidiaries (WOSs)/Joint Ventures (JVs) abroad.

Guarantee by Indian Company on behalf of Wholly Owned Subsidiaries (WOSs)/Joint Ventures (JVs) abroad.

 i. Presently, only promoter corporates are permitted to offer guarantees on behalf of their Wholly Owned Subsidiaries (WOSs)/Joint Ventures (JVs), under the Automatic Route and issue of personal, collateral and third party guarantees requires prior approval of Reserve Bank and is considered by RBI, on a case by case basis.

 ii. The scope of guarantees covered under the Automatic Route has been enlarged. Indian entities are now permitted to offer any forms of guarantee – corporate or personal/ primary or collateral/ guarantee by the promoter company/ guarantee by group company, sister concern or associate company in India, provided:

 a) All "financial commitments" including all forms of guarantees are within the overall prescribed ceiling for overseas investment of the Indian party i.e. currently within 400 per cent of the net worth of the investing company (Indian party).

 b) No guarantee is 'open ended' i.e. the amount of the guarantee should be specified upfront, and

 c) As in the case of corporate guarantees, all guarantees are required to be reported to RBI in form ODI..
 iii. Guarantees issued by banks in India in favour of WOS/ JVs outside India are outside this ceiling and would be subject to prudential norms issued by RBI from time to time.

Financial commitment means the amount of direct investment outside India by way of contribution to equity, loans and 100% of the amount of guarantee issued by an Indian Party to or on behalf of its overseas JV/WOS ( the amount and period of the guarantee should be specified upfront).

Loan and guarantee can be extended to an overseas entity only if there is already existing equity participation by way of direct investment, within the overall ceiling of 400% of the Indian party's net worth as on the date of the last audited balance sheet. 

 Direct investment through the medium of a SPV is permitted under the Automatic Route, for the sole purpose of investment in JV/WOS overseas. Where the JV/WOS has been established through a SPV, all funding to the operating subsidiary should be routed through the SPV only. However, in the case of guarantees to be given to the first–level step down subsidiary of the SPV, these can be given directly by the Indian Party provided such exposures are within the permissible financial commitment of the Indian Party.

A Indian parent company can extend guarantee through Indian bank outside India under automatic route but it should be within 100% networth limit.

No prior approval is necessary as long as if they adhere above.

You have to report to RBI through for ODI for the guarantees issued.

For any doubt or clarification , you may please contact at rvsekar2007@gmail.com or 09848915177.

FDI in existing pharmaceutical companies needs prior approval from Government

1. Present Position:

Foreign Direct Investment (FDI), up to 100%, under the automatic route, is permitted in the pharmaceuticals sector.

2. Revised Position:

The Government of India has reviewed the extant policy on FDI and decided as under:

(i) FDI, up to 100%, under the automatic route, would continue to be permitted for greenfield investments in the pharmaceuticals sector.

(ii) FDI, up to 100%, would be permitted for brownfield investments (i.e., investments in existing companies), in the pharmaceuticals sector, under the Government approval route.

3. Accordingly, the following amendment is made in 'Circular 2 of 2011- Consolidated FDI Policy', dated 30-9-2011, issued by the Department of Industrial Policy & Promotion:

Insertion of a new paragraph 6.2.25:

A new paragraph (6.2.25) is inserted as below :

6.2.25	Pharmaceuticals
6.2.25.1	Greenfield	100%	Automatic
6.2.25.2	Existing companies	100%	Government

4. The above decision will take immediate effect. It would be reviewed after a period of six months.

 

Ref: Note No.3 (2011 Series), dated 8-11-2011

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09848915177.

Liberalisation of transfer of shares between resident and non-resident

Reserve Bank said that transfer of shares between Indians and non-residentswill not require its permission in several key areas like financial services.  Amending theForeign Exchange Management Regulations, the RBI said that its prior permission would not be necessary where the company whose shares are being transferred is engaged in any financial service. Besides, the RBI permission has also been done away with for transfer of shares between residents and non-residents in cases where the Foreign Investment Approval Board ( FIPB) has already given its clearances and the SEBI guidelines have been adhered to. These steps have been taken “as a measure to further liberalise and rationalise the procedures and policies governing foreign directinvestment in India,” . However, it was made clear that the transactions will have to comply with the SEBI regulations, FDI sectoral caps, and the pricing guidelines asspecified by RBI.

Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that

i. The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

B. Transfer of shares from Resident to Non Resident :

i) where the transfer of shares requires the prior approval of the FIPB

as per the extant FDI policy provided that :

a) the requisite approval of the FIPB has been obtained; and

b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

ii) where SEBI (SAST) guidelines are attracted

subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that

a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.; 3

b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and

c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

iv) where the investee company is in the financial sector provided that :

a) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

b). The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.

RBI Circular reference -- A.P. (DIR Series) Circular No. 43 November 04, 2011

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INVESTMENT BY OCB's ( Overseas Body Corporate) IS ALLOWED NOW UNDER FEMA?

As per FEMA regulation, OCB is not now allowed to invest in either in primary or secondary markets as of date.

Overseas Corporate Bodies (OCBs) have been de-recognised as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India which has made investment in India earlier and are not under adverse notice of the Reserve Bank can make fresh investments under the FDI Scheme as incorporated non-resident entities, with the prior approval of the Government of India, if the investment is through the Government Route; and with the prior approval of the Reserve Bank, if the investment is through the Automatic Route. However, before making any fresh FDI under the FDI scheme an erstwhile OCB should through their AD bank take a one time certification from RBI that it is not in the adverse list being maintained with the Reserve Bank of India.

ADs should also ensure that OCBs do not maintain any account other than NRO current account in line with the instructions as per A.P. (DIR Series) Circular No. 14 dated September 16, 2003. Further, this NRO account should not be used for any fresh investments in India. Any fresh request for opening of NRO current account for liquidating previous investment held on non-repatriation basis should be forwarded by the AD bank to Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. However, ADs should not close other category of accounts (NRE / FCNR / NRO) for OCBs which are in the adverse list of the Reserve Bank of India. These accounts are to be maintained by the respective AD banks in the frozen status.