Definition of a person under FEMA includes a ‘company’ also and hence all the provisions applicable to a person resident in India (discussed earlier) are also applicable to an Indian company.However, certain specific provisions have been made under FEMA which are highlighted below. Investments overseas by an Indian company
“Indian company” is defined to mean a company incorporated in India. It is permitted to undertake agricultural operations overseas including purchase of land incidental to such activity either directly or indirectly through its overseas offices vide Regulation 6A of FEM (Transfer or issue of any Foreign Security) (Amendment) Regulations 2004.
An Indian company is not permitted to own or possess an agricultural land or carry out any agricultural activities in Karnataka as per the provisions of Section 79A and B of the Karnataka Land Reforms Act, 1961.
Exemption
In other words, an Indian company can undertake agricultural operations overseas even though it cannot do the same in the State. However, under sub-section (1) of Section 109 of the Karnataka Land Reforms Act, 1961, the State Government may, by notification, exempt any land in any area from the provisions and thereby permit the purchase of agricultural land by the company for the following purposes:
•For industrial development, not exceeding 20 units.
•For educational institutions recognised by the State or Central Government, not exceeding four units.
•Places of worship to be specified by the Government by notification which are established or constructed by a recognised or registered body, not exceeding one unit.
•A housing project, approved by the State Government, not exceeding 10 units.
•For the purpose of horticulture including floriculture and agro- based industries, not exceeding
20 units.
The Deputy Commissioner may also exercise the powers of the State Government under this sub-section, exempt any land in any area from the provisions of the restrictive sections and thereby permit the purchase of agricultural land by the company for the following purposes:
•For industrial development, not exceeding 10 units.
•For educational institutions recognised by the State or Central Government to be used for non-agricultural purposes, not exceeding two units.
•Places of worship to be specified by Government by notification which are established or constructed by a recognised or registered body for non-agricultural purpose, not exceeding one-fourth of a unit.
•A housing project, approved by the State Government, not exceeding 10 units.
•For the purpose of horticulture including floriculture and agro- based industries, not exceeding
10 units.
For this purpose, the aforesaid “unit” means about one acre of ‘A’ Class land or up to 5.4 acres of ‘D’ Class land depending on irrigation and other facilities available on the land and the soil classification value.
Equity shares
An Indian company can make investments in equity shares of company registered overseas subject to the following conditions and restrictions.
It should be a listed company.
Such a company can invest in shares of a listed overseas company which itself has a shareholding of at least 10 per cent of any Indian listed company.
Investment limit
Further, the investment by the Indian company shall not exceed 25 per cent of the net worth of the company.
The net worth is shown in the company’s latest audited balance sheet vide regulation 6B of FEM (Transfer or issue of any Foreign Security)(Amendment ) Regulations 2004.
Matters relating to investments by a Non-Resident Indian (NRI) and Persons of Indian Origin (PIO) are covered by FEM (Transfer or issue of security by a person resident outside India) Regulations 2000 and they are highlighted below.
An Indian company may issue shares/convertible debentures to:
A person resident outside India (other than citizen of Bangladesh or Pakistan) or an entity incorporated outside India (other than an entity in Bangladesh or Pakistan) under Foreign Direct Investment (FDI) subject to certain conditions (Regulation 5{1}).
A registered Foreign Institutional Investor (FII) under the Portfolio Investment Scheme (PIS) subject to certain conditions. (Regulation 5{2}).
A Non-Resident Indian (NRI) under the Portfolio Investment Scheme (PIS) in accordance with certain conditions (Regulation 5{3}).
Issue securities other than shares or convertible debentures to a Non-Resident Indian (NRI) or Foreign Institutional Investor (FII) subject to certain conditions (Regulation 5{3}).
Issue shares
An Indian company may also issue shares or convertible debentures on rights basis and bonus shares as well to non-residents subject to certain conditions (Regulation 6 and 6A).
An Indian company may also issue shares under the ESOS directly or through a trust to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India .
Foreign currency account outside India
An Indian company may open, hold and maintain in the name of its office, branch or representative abroad, a foreign currency account with a bank outside India for the purpose of normal business operations of the office / branch or representative abroad (vide Regulation 7{4A} of FEM {Foreign Currency Accounts by a Person Resident in India} Regulations, 2000).
