Foreign Direct Investment (FDI) into a Small Scale Industrial Undertakings (SSI) / Micro & Small Enterprises (MSE) and in Industrial Undertaking manufacturing items reserved for SSI/MSE

Foreign Direct Investment (FDI) into a Small Scale Industrial Undertakings (SSI) / Micro & Small Enterprises (MSE) and in Industrial Undertaking manufacturing items reserved for SSI/MSE

Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified by the Reserve Bank vide Notification No. FEMA. 20/2000-RB dated 3rd May 2000, as amended from time to time. 

2. In terms of the Schedule 1 of the Notification, ibid, an Indian company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of items included in Annex A, may issue shares or convertible debentures to a person resident outside India, to the extent of 24% of its paid -up capital provided that such company may issue shares in excess of 24% of its capital if:
(a) it has given up its small scale status,
(b) it is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, and
(c) it complies with the ceilings specified in Annex B to Schedule I of the Notification.
3. With the promulgation of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the extant policy for foreign direct investment (FDI) in Small Scale Industrial unit and in a company which has de-registered its small scale industry status and is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, has since been reviewed and it has been decided that;

1. a company which is reckoned as Micro and Small Enterprises (MSE) (earlier Small Scale Industries) in terms of MSMED Act, 2006 and not engaged in any activity/sector mentioned in Annex A to schedule 1 to the Notification, ibid may issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed in Annex B to schedule 1, in accordance with the entry routes specified therein and the provision of Foreign Direct Investment Policy, as notified by the Ministry of Commerce & Industry, Government of India, from time to time.
2. any Industrial undertaking, with or without FDI, which is not an MSE, having an industrial license under the provisions of the Industries (Development & Regulation) Act, 1951 for manufacturing items reserved for manufacture in the MSE sector may issue shares in excess of 24 per cent of its paid up capital with prior approval of the Foreign Investment Promotion Board of the Government of India.

4. Further, in terms of the provisions of MSMED Act, (i) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951, a micro enterprise means where the investment in plant and machinery does not exceed twenty five lakh rupees; a small enterprise means where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; (ii) in the case of the enterprises engaged in providing or rendering services, a micro enterprise means where the investment in equipment does not exceed ten lakh rupees; a small enterprise means where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees.
5. Copy of Press Note No. 6(2009) dated September 4, 2009 issued by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India in this regard is enclosed.

CHANGES IN ECB 2 RETURN FOR ACCOMODATING FINANCIAL HEDGING DETAILS

External Commercial Borrowings (ECB) – Reporting arrangements

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 and A.P. (DIR Series) Circular No.60 dated January 31, 2004 relating to reporting arrangements for ECB.

2. In order to capture details of the financial hedges contracted by corporates, of their foreign currency exposure relating to ECB and their foreign currency earnings and expenditure, the format of ECB-2 Return has been modified (Part-E) and the same has been given in the Annex. The reporting in the modified ECB-2 Return will be applicable from the return of the month April 2014 onwards.

3. There is no change in the reporting procedure and corporates raising ECB continue to submit ECB-2 Return on a monthly basis duly certified by the designated AD Category-I bank so as to reach Department of Statistics and Information Management (DSIM) of Reserve Bank of India within seven working days from the close of month to which it relates.

NEW FORMAT OF FC-GPR

 NEW FORMAT OF FC-GPR


Attention of Authorised Dealers Category-I (AD Category - I) banks is invited to provisions of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 (hereinafter referred to as Notification No. FEMA 20), as amended from time to time. Attention of AD Category - I banks is also invited to A.P. (DIR Series) Circular No.40 dated April 20, 2007, A.P. (DIR Series) Circular No. 44 dated May 30, 2008 and  A. P. (DIR Series) Circular No.110 dated June 12, 2013.
2. In terms of para 9 (1) A of Schedule I to the FEMA Notification No. 20 dated May 03, 2000 as amended from time to time, Indian companies are required to report the details of the amount of consideration received for issuing shares and convertible debentures under the Foreign Direct Investment (FDI) scheme to the Regional Office of the Reserve Bank in whose jurisdiction the Registered Office of the company operates, within 30 days of receipt of the amount of consideration. Further, in terms of Para 9 (1) B of Schedule ibid, the companies are required to report the details of the issue of shares / convertible debentures in form FC-GPR, to the Regional Office concerned, within 30 days of issue of shares / convertible debentures.

3. In order to further capture the granular details of FDI as regards Brownfield/Greenfield investments and the date of incorporation of investee company, Form FC-GPR has been revised. Accordingly, the details of FDI should, henceforth, be reported in the revised Form FC-GPR, enclosed as Annex-I

 Please click the following link to access the FC-GPR NEW FORM

http://rbidocs.rbi.org.in/rdocs/content/pdfs/AP110214_ANN.pdf

Conversion of External Commercial Borrowing and Lumpsum Fee/Royalty into Equity - What is the date of Conversion?

Conversion of External Commercial Borrowing and Lumpsum Fee/Royalty into Equity - What is the date of Conversion?

Attention of Authorised Dealer (AD) banks is invited to A.P. (DIR Series) Circular No. 15 dated October 1, 2004 on the captioned subject. 

2. In terms of the said circular, an Indian company can issue equity shares against External Commercial Borrowings (ECB) subject to conditions mentioned therein and pricing guidelines as prescribed by the Reserve Bank from time to time regarding value of equity shares to be issued. Reserve Bank has received some references regarding how the rupee amount against which equity shares are to be issued shall be arrived at; in other words, what rate of exchange shall be applied to the amount in foreign currency borrowed or owed by the resident entity from/to the non-resident entity. 

3. It is clarified that where the liability sought to be converted by the company is denominated in foreign currency as in case of ECB, import of capital goods, etc. it will be in order to apply the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion. Reserve Bank will have no objection if the borrower company wishes to issue equity shares for a rupee amount less than that arrived at as mentioned above by a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.

4. It is further clarified that the principle of calculation of INR equivalent for a liability denominated in foreign currency as mentioned at paragraph 3 above shall apply, mutatis mutandis, to all cases where any payables/liability by an Indian company such as, lump sum fees/royalties, etc. are permitted to be converted to equity shares or other securities to be issued to a non-resident subject to the conditions stipulated under the respective Regulations.

Prior Approval is needed for establishment of LO /BO/PO in India from companies registered in Hong Kong and Macau.

Clarification- Establishment of Liaison Office/ Branch Office/ Project Office in India by  Foreign Entities- General Permission- 

Prior Approval is needed for establishment of LO /BO/PO in India from companies registered in Hong Kong and Macau.
 
Attention of Authorised Dealer Category –I (AD Category – I) banks is invited to Regulation 4 of Notification No.FEMA.22/2000-RB dated May 3, 2000, viz., Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, as amended from time to time, in terms of which, no entity or person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China shall establish in India, a branch office or a liaison office or a project office or any other place of business by whatever name called, without the prior permission of the Reserve Bank.

2. It is clarified that the provisions of Regulation 4 of Notification No. FEMA 22/2000-RB dated 3rd May 2000, ibid, along with their specified conditions apply for entities from Hong Kong and Macau also.
3. Accordingly, applications from entities registered in / resident of Hong Kong and Macau, for establishment of Liaison/ Branch/ Project Offices or any other place of business by whatever name called shall require prior approval from Reserve Bank of India.

4. AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
5. Reserve Bank has since amended the subject Regulations accordingly through the Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) (Amendment) Regulations, 2013, which have been notified vide Notification No.FEMA.293/2013-RB dated November 12, 2013, vide G.S.R.No.767(E) dated December 06, 2013.

Rights of erst while Non-Resident- Indian to own,transfer or invest in in foreign assets

Provisions under section 6 (4) of Foreign Exchange Management Act, 1999 - Clarifications

Rights of erst while Non-Resident- Indian to own,transfer or invest in in foreign assets 

Attention of Authorized Dealers is invited to Section 6 (4) of FEMA, 1999 in terms of which a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

2. We have been receiving representations with regards to nature of transactions covered under Section 6(4) of FEMA, 1999. In this regard it is clarified that Section 6(4) of FEMA, 1999 covers the following transactions:

1. Foreign currency accounts opened and maintained by such a person when he was resident outside India;
   
   
2. Income earned through employment or business or vocation outside India taken up or commenced while such person was resident outside India, or from investments made while such person was resident outside India, or from gift or inheritance received while such a person was resident outside India;
   
   
3. Foreign exchange including any income arising therefrom, and conversion or replacement or accrual to the same, held outside India by a person resident in India acquired by way of inheritance from a person resident outside India.
   
   
4. A person resident in India may freely utilise all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without approval of Reserve Bank, provided the cost of such investments and/ or any subsequent payments received therefor are met exclusively out of funds forming part of eligible assets held by them and the transaction is not in contravention to extant FEMA provisions.
   

Resident Bank account maintained by residents in India –Joint holder – liberalization

Resident Bank account maintained by residents in India –Joint holder – liberalization
 
Attention of Authorised Dealer (AD) banks is invited to A.P.(DIR Series) Circular No.12 dated September 15, 2011 in terms of which individuals resident in India were permitted to include non-resident close relative(s) (relatives as defined in Section 6 of the Companies Act, 1956) as a joint holder(s) in their resident savings bank accounts on “former or survivor” basis. Such non-resident Indian close relatives are however not eligible to operate the account during the life time of the resident account holder in terms of said instructions.

2. Reserve Bank has received representations that for operational convenience the Non-Resident Indians (NRIs), as defined in Regulation 2(vi) of FEMA Notification No.5 dated May 3, 2000, may be permitted to operate such accounts on “Either or Survivor” basis. Accordingly, on a review, it has been decided that AD banks may include an NRI close relative (relatives as defined in Section 6 of the Companies Act, 1956) in existing / new resident bank accounts as joint holder with the resident account holder on “Either or Survivor” basis subject to the following conditions:

1. Such account will be treated as resident bank account for all purposes and all regulations applicable to a resident bank account shall be applicable.
   
   
2. Cheques, instruments, remittances, cash, card or any other proceeds belonging to the NRI close relative shall not be eligible for credit to this account.
   
   
3. The NRI close relative shall operate such account only for and on behalf of the resident for domestic payment and not for creating any beneficial interest for himself.
   
   
4. Where the NRI close relative becomes a joint holder with more than one resident in such account, such NRI close relative should be the close relative of all the resident bank account holders.
   
   
5. Where due to any eventuality, the non-resident account holder becomes the survivor of such an account, it shall be categorized as Non-Resident Ordinary Rupee (NRO) account as per the extant regulations.
   
   
6. Onus will be on the non-resident account holder to keep AD bank informed to get the account categorized as NRO account and all such regulations as applicable to NRO account shall be applicable.
   
   
7. The above joint account holder facility may be extended to all types of resident accounts including savings bank account.
   

3. While extending this facility the AD bank should satisfy itself about the actual need for such a facility and also obtain the following declaration duly signed by the non-resident account holder:

“I am the joint account holder of SB/FD/RD/Current Account bearing No ……. which stands in my name and in the name of Shri/Smt. ……….. who is my ………. (state relationship). I hereby undertake that I shall not use the proceeds lying in the above account for any transaction in contravention of the provisions of the Foreign Exchange Management Act (FEMA) 1999, Rules/Regulations made thereunder and the related circulars/instructions issued by the Reserve Bank from time to time. I further undertake that if any such transaction is put through the said account in contravention of the FEMA, 1999 or Rules/Regulations made thereunder, I shall be held responsible for the same. I shall intimate my bank in the event of any change in my Non-resident / Resident status.”

Foreign Direct Investment- Pricing Guidelines for FDI instruments with optionality clauses

Foreign Direct Investment- Pricing Guidelines for FDI instruments with optionality clauses

Attention of Authorised Dealers is invited to the Foreign Exchange Management (Transfer or 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 from time to time. In terms of the extant instructions, only equity shares or  preference shares/debentures are eligible to be issued to persons resident outside India under the Foreign Direct Investment Scheme in terms of Regulation 5 (1) of Foreign Exchange Management (Transfer and Issue of shares by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000.

2. On a review, it has now been decided that optionality clauses may henceforth be allowed in equity shares and compulsorily and mandatory convertible preference shares/debentures to be issued to a person resident outside India under the Foreign Direct Investment (FDI) Scheme. The optionality clause will oblige the buy-back of securities from the investor at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return. The provision of optionality clause shall be subject to the following conditions: 

(a) There is a minimum lock-in period of one year or a minimum lock-in period as prescribed under FDI Regulations, whichever is higher (e.g. defence and construction development sector where the lock-in period of three years has been prescribed). The lock-in period shall be effective from the date of allotment of such shares or convertible debentures or as prescribed for defence and construction development sectors, etc. in Annex B to Schedule 1 of Notification No. FEMA. 20 as amended from time to time; 

(b) After the lock-in period, as applicable above, the non-resident investor exercising option/right shall be eligible to exit without any assured return, as under:

(i) In case of a listed company, the non-resident investor shall be eligible to exit at the market price prevailing at the recognised stock exchanges;

(ii) In case of unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares of the investee company at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet. Any agreement permitting return linked to equity as above shall not be treated as violation of FDI policy/FEMA Regulations.

Note: For the above purpose, RoE shall mean Profit After Tax / Net Worth; Net Worth would include all free reserves and paid up capital.
(iii) Investments in Compulsorily Convertible Debentures (CCDs) and Compulsorily Convertible Preference Shares (CCPS) of an investee company may be transferred at a price worked out as per any internationally accepted pricing methodology at the time of exit duly certified by a Chartered Accountant or a SEBI registered Merchant Banker. The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit, subject to lock-in period requirement, as applicable.

3. Reserve Bank has since amended the Regulations and the changes have been notified vide Notification No. FEMA. 294/2013-RB dated November 12, 2013 vide G.S.R. No. 805(E) dated December 30, 2013. 

4. All existing contracts will have to comply with the above conditions to qualify as FDI compliant.

External Commercial Borrowings (ECB) Policy – Liberalisation of definition of Infrastructure Sector

External Commercial Borrowings (ECB) Policy – 

Liberalisation of definition of Infrastructure Sector

Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to the Notification No. FEMA.281/2013-RB dated July 19, 2013 published in the Gazette of India vide G.S.R. No. 627 (E) dated September 12, 2013 and to the A.P. (DIR Series) Circular No. 48 dated September 18, 2013 in terms of which definition of infrastructure sector for the purpose of raising ECB was expanded taking into account the Harmonised Master List of Infrastructure sub-sectors and Institutional Mechanism for its updation approved by Government of India vide Notification F.No.13/06/2009-INF dated March 27, 2012.

2. On a review, it has been decided that, for the purpose of ECB, ‘Maintenance, Repairs and Overhaul’ (MRO) will also be treated as a part of airport infrastructure. Accordingly, MRO, as distinct from the related services which are other than infrastructure, will be considered as part of the sub-sector of Airport in the Transport Sector of Infrastructure.
3. All other aspects of ECB policy shall remain unchanged.

Issue of Non convertible/ redeemable bonus preference shares or debentures - Clarifications

Issue of Non convertible/ redeemable bonus preference shares or debentures - Clarifications

Attention of Authorised Dealers Category- I (AD Category-I) banks is invited to Regulation (2ii) and Regulation 5 of the Foreign Exchange Management (Transfer or 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 from time to time, in terms of which equity shares, compulsorily and mandatorily convertible preference shares and compulsorily and mandatorily convertible debentures are treated as a part of share capital for the purpose of Foreign Direct Investment.

2. Reserve Bank of India has been receiving references from some Indian companies regarding issue of non-convertible/ redeemable bonus preference shares or debentures to non-resident shareholders from the general reserve under a Scheme of Arrangement by a Court, under the provisions of the Companies Act, as applicable. So far, Reserve Bank has been granting permission for such issuance on a case-to-case basis. On a review and with a view to rationalizing and simplifying the procedures, it has been decided that an Indian company may issue non-convertible/redeemable preference shares or debentures to non-resident shareholders, including the depositories that act as trustees for the ADR/GDR holders, by way of distribution as bonus from its general reserves under a Scheme of Arrangement approved by a Court in India under the provisions of the Companies Act, as applicable, subject to no-objection from the Income Tax Authorities.
3. The above general permission to Indian companies is only for issue of non-convertible/ redeemable preference shares or debentures to non-resident shareholders by way of distribution as bonus from the general reserves. The issue of  preference shares(excluding non-convertible/redeemable preference shares) and convertible debentures (excluding optionally convertible/partially convertible debentures) under the FDI scheme would continue to be subject to A.P. (DIR Series) Circular Nos.73 and 74 dated June 8, 2007 as hitherto.
4. Reserve Bank of India has since amended the Regulations and  notified vide Notification No.FEMA.291/2013-RB dated October 4, 2013 notified vide G.S.R. No.818 (E) dated December 31, 2013.

Overseas Direct Investments – Rollover of Guarantees

Attention of the Authorised Dealer (AD - Category I) banks is invited the provisions of Notification No. FEMA.120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time.

2. It has been decided not to treat / reckon the renewal / rollover of an existing / original guarantee, which is part of the total financial commitment of the Indian party in terms of Regulation 6 of the Notification ibid, as a fresh financial commitment, provided that :

1. the existing / original guarantee was issued in terms of the then extant / prevailing FEMA guidelines.
   
   
2. there is no change in the end use of the guarantee, i.e. the facilities availed by the JV / WOS / Step Down Subsidiary;
   
   
3. there is no change in any of the terms & conditions, including the amount of the guarantee except the validity period;
   
   
4. the reporting of the rolled over guarantee would be done as a fresh financial commitment in Part II of Form ODI, as hitherto; and
   
   
5. if the Indian party is under investigation by any investigation / enforcement agency or regulatory body, the concerned agency / body shall be kept informed about the same.
   

3. In case, however, the above conditions are not met, the Indian party shall obtain prior approval of the Reserve Bank for rollover / renewal of the existing guarantee through the designated AD bank.

External Commercial Borrowings (ECB) by Holding Companies / Core Investment Companies for the project use in Special Purpose Vehicles (SPVs)

External Commercial Borrowings (ECB) by Holding Companies / Core Investment Companies for the project use in Special Purpose Vehicles (SPVs)

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to the A.P. (DIR Series) Circular No. 5 dated August 1, 2005 as amended from time to time relating to the External Commercial Borrowings (ECB).

2. In order to strengthen the flow of resources to infrastructure sector, it has been decided to permit Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank to raise ECB under the automatic route/approval route, as the case may be, for project use in Special Purpose Vehicles (SPVs) with the following terms and conditions:

1. The business activity of the SPV should be in the infrastructure sector where “infrastructure” is defined as per the extant ECB guidelines;
   
   
2. The infrastructure project is required to be implemented by the SPV established exclusively for implementing the project;
   
   
3. The ECB proceeds is utilized either for fresh capital expenditure (capex) or for refinancing of existing Rupee loans (under the approval route) availed of from the domestic banking system for capex as per the extant norms on refinancing;
   
   
4. The ECB for SPV can be raised up to 3 years after the Commercial Operations Date of the SPV;
   
   
5. The SPV should give an undertaking that no other method of funding, such as, trade credit (if for import of capital goods), etc. will be utilized for that portion of fresh capital expenditure financed through ECB proceeds;
   
   
6. The ECB proceeds should be kept in a separate escrow account as per the extant guidelines on parking of ECB proceeds pending utilization for permissible end-uses and use of such proceeds should be strictly monitored by the ADs for permissible uses;
   
   
7. In case of Holding Companies that come under the Core Investment Company (CIC) regulatory framework of the Reserve Bank, the additional terms and conditions for raising ECB for project use in SPVs will be as under:
   a) The ECB availed is within the ceiling of leverage stipulated for CICs, i.e., their outside liabilities including ECB cannot be more than 2.5 times of their adjusted net worth as on the date of the last audited balance sheet; and
   b) In case of CICs with asset size below Rupees 100 crore, the ECB availed of should be on fully hedged basis.
   

3. The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of extant ECB guidelines (including provisions contained in A.P. (DIR Series) Circulars No. 25 and 111 dated September 23, 2011 and April 20, 2012 to the effect that maximum 25 per cent of ECB raised by the infrastructure companies can be utilised for refinancing of the Rupee loans availed from the domestic banking system (40 per cent in case of power sector) under the approval route) shall remain unchanged.

Foreign investment in India - participation by SEBI registered FIIs, QFIs and SEBI registered long term investors in credit enhanced bonds

Foreign investment in India - participation by SEBI registered FIIs, QFIs and SEBI registered long term investors in credit enhanced bonds

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to Schedule 5 to the Foreign Exchange Management (Transfer or 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 from time to time, in terms of which SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and long term investors, such as, Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign Central Banks, may purchase, on repatriation basis, Government securities and non-convertible debentures (NCDs) / bonds issued by an Indian company subject to such terms and conditions as mentioned therein and limits as prescribed for the same by RBI and SEBI from time to time. The present limits for investments by FIIs, QFIs and long term investors registered with SEBI in Government securities and corporate debt stands at USD 30 billion and USD 51 billion, respectively.

2. Attention of AD Category - I banks is also invited to A.P. (DIR Series) Circular No. 40 dated March 02, 2010 and A.P. (DIR Series) Circular No. 120 dated June 26, 2013, relating to External Commercial Borrowings (ECB) Policy – Structured Obligations. In terms of A.P. (DIR Series) circular dated June 26, 2013, credit enhancement can be provided by eligible non-resident entities to the domestic debt raised through issue of INR bonds/ debentures by all borrowers eligible to raise ECB under the automatic route. All the other terms and conditions mentioned in para 4 (iv), (vi) to (viii) of A.P. (DIR Series) Circular No. 40 dated March 02, 2010 will remain unchanged.

3. On a review, it has been decided to allow SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and long term investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign Central Banks - to invest in the credit enhanced bonds, as per paragraph 3 and 4 of A.P. (DIR Series) Circular No. 120 dated June 26, 2013, up to a limit of USD 5 billion within the overall limit of USD 51 billion earmarked for corporate debt.

Ref: A. P. (DIR Series) Circular No.74 November 11, 2013

Foreign Direct Investment in Financial Sector – Transfer of Shares

Foreign Direct Investment in Financial Sector – Transfer of Shares

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to Regulation 10(A)(v) of the Foreign Exchange Management (Transfer or 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 from time to time and Para 2(B)(iv) of A.P.(DIR Series) Circular No.43 dated November 4, 2011, in terms which for transfer of shares from Residents to Non-Residents where the investee company is in the financial services sector, No Objection Certificate (NoC) is required to be obtained from the respective financial sector regulators of the investee company as well as transferor and transferee entities and such NoC(s) are to be filed  with the form FC-TRS to the AD bank.

2. On a review, it has now been decided that the requirement of NoC(s) will be waived from the perspective of Foreign Exchange Management Act, 1999 and no such NoC(s) need to be filed along with form FC-TRS. However, any 'fit and proper/ due diligence' requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shall have to be complied with.
3. All the other instructions contained in the above referred A.P.(DIR Series) Circular shall remain unchanged

Third party payments for export / import transactions

Third party payments for export / import transactions

Attention of Authorized Dealer Category – I banks is invited to various provisions of FEMA Notification No. 14 dated May 3, 2000 dealing with the manner of receipt & payment for trade transactions. Normally payment for exports has to be received from the overseas buyer named in the Export Declaration Form (EDF) by the exporter and the payment shall be received in a currency appropriate to the place of final destination as mentioned in the EDF irrespective of the country of residence of the buyer. Similarly, the payments for the import should be made to the original overseas seller of the goods and the AD should ensure that the importer furnishes evidence of import, such as, Exchange Control copy of the Bill of Entry to satisfy itself that goods equivalent to the value of remittance have been imported.

2. With a view to further liberalising the procedure relating to payments for exports/imports and taking into account evolving international trade practices, it has been decided as under:

i. EXPORT TRANSACTIONS

AD banks may allow payments for export of goods / software to be received from a third party (a party other than the buyer) subject to conditions as under:

1. Firm irrevocable order backed by a tripartite agreement should be in place;
2. Third party payment should come from a Financial Action Task Force (FATF) compliant country and through the banking channel only;
3. The exporter should declare the third party remittance in the Export Declaration Form;
4. It would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF;
5. Reporting of outstandings, if any, in the XOS would continue to be shown against the name of the exporter. However, instead of the name of the overseas buyer from where the proceeds have to be realised, the name of the declared third party should appear in the XOS; and
6. In case of shipments being made to a country in Group II of Restricted Cover Countries, (e.g. Sudan, Somalia, etc.), payments for the same may be received from an Open Cover Country.

Note: Restricted cover Group II country is country which experiences chronic political and economic problems as well as balance of payment difficulties.

ii. IMPORT TRANSACTIONS

AD banks are allowed to make payments to a third party for import of goods, subject to conditions as under:

1. Firm irrevocable purchase order / tripartite agreement should be in place;
2. Third party payment should be made to a Financial Action Task Force (FATF) compliant country and through the banking channel only;
3. The Invoice should contain a narration that the related payment has to be made to the (named) third party;
4. Bill of Entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party;
5. Importer should comply with the related extant instructions relating to imports including those on advance payment being made for import of goods; and
6. The amount of an import transaction eligible for third party payment should not exceed USD 100,000. This limit will be revised as and when considered expedient. 
   
   
    Ref : A P. (DIR Series) Circular No.70 dated November 8 , 2013

 Attention of Authorized Dealer Category – I banks is invited to A. P. (DIR Series) Circular No.70 dated November 8, 2013, in terms of which they have been permitted to allow third party payments for export of goods & software / import of goods subject to the conditions stated therein. 

2. In view of the difficulties faced by exporters / importers in meeting the condition “firm irrevocable order backed by a tripartite agreement should be in place” specified in the abovementioned Circular, it has been decided that this requirement may not be insisted upon in case where documentary evidence for circumstances leading to third party payments / name of the third party being mentioned in the irrevocable order/ invoice has been produced. This shall be subject to conditions as under:

(i) AD bank should be satisfied with the bona-fides of the transaction and export documents, such as, invoice / FIRC.

(ii) AD bank should consider the FATF statements while handling such transaction. 

3. Further, with a view to liberalising the procedure, the limit of USD 100,000 eligible for third party payment for import of goods, stands withdrawn. 

4. All other terms & conditions mentioned in the A. P. (DIR Series) Circular No.70 dated November 8, 2013 rem

 A.P. (DIR Series) Circular No.100 February 4, 2014

Definition of ‘group company’ under FEMA

Foreign Direct Investment (FDI) in India –definition of ‘group company’

Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified by the Reserve Bank vide Notification No. FEMA. 20/2000-RB dated 3rd May 2000, as amended from time to time.

The extant FDI policy has since been reviewed and it has been decided to incorporate the definition for ‘group company’ as under;

‘Group company’ means two or more enterprises which, directly or indirectly, are in position to:

(i) exercise twenty-six per cent, or more of voting rights in other enterprise; or
(ii) appoint more than fifty per cent, of members of board of directors in the other enterprise.

 Ref:A.P. (DIR Series) Circular No.68 dated November 01, 2013