1. Introduction on FIs by Non-residents in India
(i) Permitted capital instruments
(a) Equity Shares
(b) Convertible Debentures
(c) Convertible preference Shares
(d) Shares warrants
(e) American Deposit Receipts (ADRs)
(f) Global Deposit Receipts (GDRs)
(g) Foreign Currency Convertible Bonds (FCCBs)
(h) Real Estate Investment Trust (REIT)
(i) Alternative Investment Fund (AIF)
(j) Indian Depository Receipts (IDRs)
(ii) Definition of the Non-resident to include :-
(a) Non-resident individual
(b) Non-resident Indian (NRI)
(c) Person of Indian Origin (PIO)
(d) Overseas Citizen of India (OCI)
(e) Foreign Institutional Investor (FII)
(f) Foreign Ventures Capital Investor (FVCI)
(g) Qualified Foreign Investor (QFI)
(h) Foreign Portfolio Investor (FPI)
(i) Foreign Central Bank (FCB)
(j) Multilateral Development Bank (MDB)
(k) Sovereign Wealth Fund (SWF)
(l) Endowment Funds as set up Outside India
(m) Insurance Funds as set up Outside India
(n) Pension Funds as set up Outside India
(iii) Permitted Indian entity
(a) Company as incorporated in India
(b) Partnership firm constituted in India
(c) Proprietary Concern as set-up in India
(d) Domestic Venture Capital fund (DVCF) as set-up in India
(e) Limited Liabilities Partnership (LLP) as incorporated in India
(f) Central Govt.
(g) State Govt.
(iv) Permitted modes for issuing equity shares under the followings:-
(a) External Commercial Borrowings (ECBs)
(b) Lump-Sum Technical Know-how fee
(c) Royalty
(d) Import of Capital goods
(e) Pre-operative Expenses
(f) Pre incorporation Expenses
(v) Permitted modes for receiving equity shares
(a) Equity shares under the purchase
(b) Equity Shares under the Gift
(c) Equity Shares under conversion from the ECBs
(d) Equity Shares against the Lump-sum Technical known how fee
(e) Equity Shares against the royalty
(f) Equity shares under the Right issue
(g) Equity shares under the Bonus issue
(h) Equity shares under the Additional Right issue
(i) Equity shares under the Merger
(j) Equity shares under the demerger
(k) Equity shares under the Amalgamation
(l) Equity shares under the Employee Stock Option Scheme (ESOP)
(vi) Permitted modes for the Investments
(a) Under repatriation basis
(b) Under non repatriation basis
(c) Under automatic route basis
(d) Under approval route basis
(vii) Permitted modes for the payments
(a) Direct foreign remittance under the normal banking channel from Outside India
(b) Debit to NRO, NRE and FCNR (B) account
(c) Deferred payment basis
(viii) Not Permitted (Prohibited) Sectors/Activities
(a) Lottery Business
(b) Gambling and Betting including Casino
(c) Chit fund
(d) Nidhi Company
(e) Trading in TDRs
(f) Real Estate Business (Trading). However permitted for the Construction activities
(g) Construction of the Farm Houses. However permitted for the Plantation activities
(h) Not permitted the following manufacturing items and also not permitted for whole sale, cash and carry, retail trading.
(ha) Cigars
(hb) Cheroots
(hc) Cigarillos
(hd) Cigarettes
(he) Tobacco
(hf) Tobacco substitutes
(hg) Atomic Energy
(hh) Railway operations
2. Automatic Route and Approval Route
(i) Under the Automatic Route
- Investor or investee is not required approval from Govt. of India/RBI for the FIs under the automatic route. Now approximately 90% FIs are permitted under the automatic route
(ii) Under the Approval Route
(a) Investor or investee is required approval from Govt. of India through Foreign Investment Promotion Board (FIPB) for the FIs under the approval Now approximately 10% FIs are permitted under the approval route
(b) The Govt. of India has abolished the FIPB. Now approval required from concerned ministry of Govt. of India in consultation with Department of Industrial Policy and Promotion (DIPP) for the FIs under approval route
3. Pricing for the Convertible and Non-Convertible Debentures etc.
(i) For Convertible Debentures and Preference Shares
(a) Pricing or conversion formula for convertible debentures and preference shares is to be determined at time of issue not at time of the conversion.
(b) Price for the unlisted shares are not to be lower than the fair value at the time of conversion
(c) Valuation is to be made in accordance to SEBI (ICDR) Regulations for the listed companies
(ii) For non-Convertible Debentures/ECBs
(a) Non–convertible, optionally convertible or partially convertible debentures are to be considered as Foreign Debts (FDs) /
(b) Prescribed Norms for the ECBs
(ba) Eligible borrowers
(bb) Recognized lenders
(bc) Maximum amount
(bd) Minimum Average Maturity Period (MAMP)
(be) End use concept etc.
(c) Valuation is not required for the debts/ECBs
4. Permitted Foreign Entities
(i) Non Residents (NRs) including NRIs and PIOs
(a) These are permitted to invest in accordance to FIs policy as applicable in India
(b) However non–residents from Bangladesh and Pakistan are permitted under the approval route only
(c) Investments are also permitted on non–repatriation basis from the NRIs and from company, trust and partnership firm as incorporated/constituted Outside India and also owned and controlled by a NRI are treated as domestic investments at par with the investments as made by a resident of India as clarified vide Circular No.06 dated October 20, 2016
(ii) Foreign Institutional Investors (FIIs)
(a) SEBI registered FIIs are permitted to invest in capital of an Indian listed company under Portfolio Investment Scheme (PIS) through a recognized stock exchange only
(b) Individual and Aggregate Limit for the FIs under PIS
(ba) Individual limit for a single FII is 10% of capital of the Indian company
(bb) Aggregate limit for the multiple FIIs is 24% of capital of the Indian company
(c) Enhancement in Aggregate Limit for the FIIs
(ca) Aggregate limit per company can be increased up to sectorial cap or statutory ceiling as case may be through passing a special resolution in the AGM/EGM
(cb) Prior intimation to the RBI is mandatory required
(cc) Aggregate of FIs +PIS together are also to be within sectorial cap or statutory ceiling as case may be, if any is applicable
(iii) Foreign Ventures Capital Investors (FVCIs)
(a) SEBI registered FVCIs are permitted to invest up to 100% capital of the Indian Venture Capital Undertaking (IVCU)
(b) FVCIs are permitted to set up domestic Asset Management Company (AMC) in India to manage the funds
(c) FVCIs are permitted to invest under the automatic route in accordance to schedule 6 of Notification No. FEMA 20
(d) FVCIs are permitted to invest in the domestic venture capital fund as registered under SEBI (Venture Capital Fund) Regulations, 1996
(e) FVCIs are also permitted to invest under the FIs Scheme as applicable to the permitted non–resident
(f) FVCIs are permitted to invest in listed securities through a recognized stock Exchange Subject to provisions of SEBI (FVCI) Regulations, 2000
(iv) Qualified Foreign Investors (QFIs)
(a) QFIs are permitted to invest in the equity Shares under FIs policy as applicable in India
(b) QFIs to Includes:-
(ba) A resident of the country where the Financial Action Task Force (FATF) Standard are compliance
(bb) A resident of the country where country is a signatory to the International Organization of Securities Commission’s (IOSCO’S)
(bc) The resident should not be a resident of India
(bd) The resident should not be registered with SEBI as FII or sub account of the FII
(c) QFIs are permitted to invest through SEBI registered Depository Participants (DPs) in equity shares of the listed Indian companies through recognized broker at recognized stock exchange in equity shares of the Indian companies offered for public in India
(d) QFIs are also permitted to acquire the equity shares by way of the right shares, the bonus shares, equity shares on account of stock split, consolidation of equity shares on account of amalgamation, demerger or corporate actions subject to the prescribed invest- ment limits for the FIs
(e) QFIs are permitted to sell the equity shares in accordance to the SEBI guidelines
(f) QFIs are permitted to tender the equity shares in open offer in accordance with SEBI (Substantial Acquisition of shares and Takeovers) Regulations, 2011
(fa) This open offer should be in accordance to SEBI (Delisting of Equity shares) Regulations, 2009
(fb) This open offer should be in accordance to SEBI (Buyback of Securities) Regulations, 1998 for buy back of shares of the listed companies
(g) Individual and Aggregate Limits for Investment by the QFIs
(ga) Individual limit is 5% of paid up capital of an Indian company
(gb) Aggregate limit is 10% of paid up capital of an Indian company
(gc) Limits for the OFIs are over and above the limit for FII and NRI investments limits as prescribed under PIS for the FIs in India
(gd) However these limits are to be within sectorial limit or statutory cap as may be if any is applicable in India
(gh) Onus of the monitoring and compliance of these limits are to be jointly and severally with the QFIs, DPs and Indian company
(h) Payments of the Dividend
(ha) Dividend payments on the equity shares are to be remitted to designated bank accounts of the QFIs outside India
(hb) This also may be credited to single rupee pool bank account of the QFI in India.
(hc) Banks are required to remit the dividend to designated bank account outside India within 5 working days
(hd) QFIs are permitted to invest within 5 working days in fresh purchases of equity shares out of the dividend received
(i) Demat Account
- Demat account of a QFI is not permitted where details of ultimate beneficiary is not available
(j) Responsibility of the DP
- DP is required to ensure that equity shares as held by QFIs are free from all encumbrances including pledge or lien etc.
(k) KYC norms
- QFIs are required to submit combined PAN-Cum-KYC form as notified by the CBDT
(v) Foreign Portfolio Investors (FPIs)
(a) FPIs are permitted to invest in equity shares through recognized stock exchange only
(b) Limit for investments by the FPIs are over and above the limit fixed for FIs but FIs + FPIs together should be with in sectorial limit or statutory cap as case may be, if any limit or cap is applicable in India.
(c) Approval from Govt. of India or from the RBI is not required for the FPIs where control of Indian company is not changed due to the FPIs investments
(d) Onus of the compliance for sectorial limit or statutory cap shall be on the investee Indian
5. FIs from N1pal and Bhutan
(i) Residents and/or Citizen of Nepal and Bhutan are permitted to invest in capital of the Indian Companies on repatriation basis like other foreign investors
(ii) However repatriation basis is permitted where FIs are made through direct inward remittance in free foreign exchange through normal banking Channel from outside India
6. FIs has Owned and controlled by a Resident Indian Citizen
- These investments are treated domestic investments at par with the other investments as made by a resident of India
(i) Definition of the Owned by Resident Indian Citizen
- Where more than 50% of capital is ultimately beneficially owned by a Indian Citizen and/or Indian Company
(ii) Definition of the Controlled by Resident Indian Citizen
- Where power to appoint the majority of directors is with the resident Indian Citizen and/or Indian Company
(iii) Definition of the Indian Company
- Where company is incorporated in India under the Companies Act, 1956 or 2013
(iv) Definition of the Indian Citizen
- Resident Indian Citizen is interpreted with the definition of a person resident in India in accordance to section 2(V) of FEMA, 1999 read along with Indian Citizenship Act, 1955
7. Eligible Indian Entity
(i) FIs in an Indian Company
- FIs are permitted in the Indian Companies
(ii) FIs in a Partnership firm or a Proprietary concern
(a) FIs by NRI or PIO
- NRI or PIO is permitted to invest in capital of partnership firm or proprietary concern in India after satisfaction of the following terms and conditions
(aa) That FIs are made through direct foreign inward remittance from Outside India or debit to NRE, FCNR(B) or NRO account
(ab) That Partnership firm or proprietary concern is not engaged in agricultural, plantation or real estate business activities
(ac) That NRI or PIO is not eligible for repatriation outside India
(b) NRI or PIO is required to obtain an approval from the RBI for repatriation These approvals are to be decided in consultation with the Govt. of India
(c) FIs by Non Residents other than NRI or PIO
- These are required to obtain an approval from the RBI for the FIs in partnership firm or proprietorship concern in India on non–repatriation basis. These approvals are to be decided in consultation with Govt. of India
(iii) FIs in the Domestic Venture Capital funds (DVCFs)
(a) Non-resident entities, individuals and NRIs are permitted to invest in DVCF subject to approval from the RBI
(b) However automatic route is also permitted where DVCF is Set–up as an incorporated company under the Companies Act, 1956 or 2013 subject to pricing guidelines, reporting requirements, mode of payment and minimum capitalization norms etc.
(iv) FIs in a Trust
- Non-residents are not permitted for the FIs in trust as constituted in India.
FIs in Limited Liability Partnership (LLP)
(v) FIs are permitted in LLPs after satisfaction of the following terms and conditions
(a) That FIs are permitted in LLPs under the automatic route where LLPs are operating in the sectors/activities which are permitted for 100% FIs under the automatic route
(b) That FIs are not permitted in LLPs where LLPs are engaged in agricultural, plantation activity or real estate business
(c) That non-residents are permitted to invest in LLPs where non-residents and LLPs both are engaged in sectors/activities which are covered for 100% FIs under the automatic route
(d) That LLPs are not permitted to invest further in any other entity
(e) That FIs are to be made through direct foreign inward remittance from Outside India or debit to NRE, FCNR(B) or NRO account as maintained in India
(f) That FIs by the FIIs and FVCIs are not permitted in the LLPs
(vi) FIs in any Other Entity
- FIs are not permitted in any other entity except the following:-
(a) FIs in the Indian Companies
(b) FIs in the partnership firms and proprietary concerns
(c) FIs in the DVCFs
(d) FIs in the LLPs
8. Issue of the Capital Instruments
(i) Capital instruments are be issued within 180 days from the date of direct foreign inward remittance from Outside India through normal banking channels or debit to NRE, FCNR (B) or NRO account as maintained in India
(ii) Outward remittance or credit to NRE, FCNR (B) or NRO account is permitted where capital instrument is not issued within 180 days
(iii) Non Compliance of these provisions are to be treated as contravention under FEMA,1999 where penalty is applicable up to 300% of the amount contravention
(iv) However delay of refund may be permitted beyond 180 days where approval from the RBI is specifically obtained.
9. Permitted formats for the Carrying Business in India
- Business in India can be undertaken in the following formats by a non-resident
(a) By incorporation of a company for a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) in India
(b) By set up of a Liaison office, Project office or Branch office in India within scope of permitted activities by the RBI
10. Pricing for the Equity Shares
(i) Pricing for the Listed shares
- Price should not be lower than as worked out in accordance with the SEBI guidelines
(ii) Pricing for the Non Listed Shares
- Pricing should not be lower than fair valuation of shares as worked out by SEBI registered category-I Merchant Banker or CA in accordance to Discounted Free Cash Flow Method (DFCFM)
(iii) Pricing for the Issue of shares under Preferential Allotment
- Price should not be lower than as worked out in accordance with the RBI guidelines laid down from time-to-time
11. Pricing for the Equity Shares under Swap of the Shares
- Valuation of the shares be made by SEBI registered category-I Merchant Banker in India or by registered Investment banker outside India
12. Approval from the RBI for Transfer of Share and Convertible Debentures
- Approval from the RBI is required for transfer of the shares and convertible debentures from a resident to non-resident of India by way of sale in the following circumstance irrespective of fact that 100% FIs are permitted under the automatic route
(a) Where price is lower than worked out in accordance to guidelines as issued by the RBI from time-to-time
(b) Where non–resident is acquiring shares and convertible debentures against deferment of payment of the consideration
13. Approval from the Govt. of India
- Approval from Govt. of India is required for transfer of a capital instrument of a company who is engaged in a sector where approval from Govt. of India is needed.
(i) Where transfer from a non–resident to a non–resident by way of sale or otherwise
(ii) Where transfer from a resident to a non-resident by way of sale or otherwise
14. Approval from the RBI for the Transfer of a Capital Instrument as Gift
- Approval from the RBI is required for transfer of a capital instrument by way of Gift from a resident to a non–resident of India
15. Transfer of the Equity Shares and Convertible Debentures
(i) Non-residents are permitted for fresh purchasing or acquiring the existing equity shares from a resident and non-resident after satisfaction of the FIs Sectorial Cap policy under the approval or automatic route as case may be
(ii) General permission is granted to the non–residents and NRIs for acquisition of equity shares by way of transfer where 100% FIs are permitted under the automatic route but after satisfaction of the following terms and conditions
(a) Non-residents excluding NRIs are permitted to transfer by way of sale or gift the equity shares or convertible debentures to other non–residents including NRIs
(b) NRIs are permitted to transfer by way of sale or gift the equity shares or convertible debentures to other NRIs only
- Henceforth Approval from the RBI is required where transfer of the equity shares from a NRI to a non–resident of India
(c) Non-residents are permitted to transfer the equity shares and convertible debentures by way of gift to the residents of India
(d) Non–residents are permitted to sell the equity shares and convertible debentures through recognized stock exchange only
(e) Non–residents are permitted to sell the equity shares and convertible debentures to a resident of India under private arrangement after satisfaction of certain guidelines as issued by the RBI
(f) Non–residents are permitted to transfer the equity shares and convertible debentures under buy back or capital reduction scheme of an Indian Company
- However General Permission is not allowed where transfer the equity shares and convertible debentures are of the NBFCs, ARCs or CICs etc. from a resident to non– resident or NRI
(g) Form FC–TRS is to be submitted to AD Category-I Bank within 60 days from the date of receipt of consideration and also onus for submission of form FC–TRS is on transferee or transferor who is a resident of India
(iii) KYC Norms
(a) Sale consideration against the equity shares and convertible debentures are to be remitted through normal banking channels to the non–residents
(b) Remittance receiving bank is required to satisfy the KYC guidelines as issued by the RBI
(iv) Escrow and special Accounts
(a) General permission is permitted to open the Escrow and special accounts by the non–resident corporates for the open offer or exit offer
(b) These facilities are available for issue of fresh equity shares and transfer of equity shares both
16. Approval from the RBI Not Required
(i) For transfer of equity shares from a Non Resident to a Resident of India
(a) Where original and resultant both investments are in accordance to FIs policy and FEMA regulations i.e sectorial caps and minimum capitalization etc.
(b) Where pricing for transaction is in accordance to SEBI regulations or the RBI guidelines i.e IPO, Book Building, Block Deal and Delisting etc.
(c) Where certificate from a CA is obtained for compliance of SEBI regulations or the RBI guidelines
(ii) For Transfer of shares from a Resident to a Non Resident of India
(a) Where transfer of Shares is requires approval from Govt. of India and same has been obtained and also pricing guidelines and documentation requirements as specified by the RBI are compliance
(b) Where transfer of shares is requires satisfaction of the pricing guidelines as specified by SEBI (SAST) are compliance
(c) Where FIs policy and FEMA regulations are compliance and also pricing for transaction is in accordance to SEBI regulations or the RBI guidelines and certificate from CA is obtained for compliance of SEBI regulations, the RBI guidelines or NOC is obtained from the financial sector regulator for investee company
18. Processing for Approval by the RBI relating to a Gift to a non-resident
- The RBI is required to consider the following criterias against processing an application for approval relating to transfer of capital instruments by way of gift
(i) That proposed transferee (donee) is eligible to hold the capital instruments under the schedules 1, 4 and 5 of notification No. FEMA 20/2000-RB dated May 03, 2000
(ii) That gift should not be exceeding 5% of the paid up capital of an Indian company
(iii) That Sectorial cap in Indian company is not crossed
(iv) That donor and donee are close relatives in accordance to the Companies Act, 2013
(v) That Value of transfer is not exceeding the limit as prescribed for each financial year under the LRS up to USD 5 Lac for a gift from residence individual to the non- resident close relative.
19. Direct and Indirect FIs in an Indian Company
(i) Where an investee Indian company has domestic investments through an Indian company which is owned and controlled by a non–resident entity are treated as indirect FIs
(ii) Indirect FIs can also may be in multi layered structure of the companies
(iii) Mode of direct and indirect both FIs are the followings :-
(a) Equity Shares
(b) ADRs
(c) GDRs
(d) FCCBs
(e) Fully, compulsorily and mandatorily convertible debentures and preference shares
(f) Shares Warrants
(g) Partly paid shares
(iv) Down Stream Investments (DIs)
(a) When Indian entity or investment vehicle is making down-stream investment in another Indian entity is treated indirect FI where investee Indian entity is having
(b) Investee Indian entity is required to inform to DIPP within 30 days of investment and to the RBI within 30 days of allotment of the equity shares
20. Issue of Equity Shares against Conversion of the ECBs
- Indian Company is permitted to convert the ECBs excluding deemed ECBs into equity shares or fully compulsorily and mandatorily convertible preference shares under the automatic route after satisfaction of the following terms and conditions
(i) That activity of Indian company is covered under the automatic route for FIs or Company has already obtained an approval from Govt. of India for FIs where ever is applicable.
(ii) That FIs after conversion of ECBs in equity shares is within Sectorial cap, if any applicable
(iii) That pricing of shares is in accordance to SEBI regulations or the RBI guidelines
(iv) That conversion is in accordance to the requirement as prescribed under any other statute or regulation is in force
(v) (a) That conversion facility is available for the ECBs as availed under the automatic or approval route
(b) That conversion facility is available for the ECBs whether due for the payment or not due for the payment
(c) That conversion facility is available for the secured or Unsecured loans availed from the non-resident collaborators
21. Issue of Equity Shares Against Lump Sum Technical known How Fee or Royalty
(i) Indian Company is permitted to issue the equity shares against lump sum technical Known How fee or royalty under the automatic route
(ii) However this is permitted after satisfaction of the following certain terms and conditions
(a) Sectorial Cap is obeyed
(b) Pricing guidelines are followed
(c) Applicable tax law are compliance
22. Issue of Equity Shares against Import of Capital Goods, Machinery, Expenses ETC
- Indian Company is permitted to issue the Shares under the automatic route after satisfaction of the following terms and conditions
(i) That pricing guidelines, Sectorial Cap and rules and regulations of the RBI are compliance
(ii) That Issue the equity shares are not permitted against import of second hand machinery
(iii) That import of capital goods or machinery etc. is in accordance to Import and Export policy of Govt. of India as defined by DGFT or FEMA provisions relating to the imports m
(iv) (a) That valuation of capital goods, machinery or equipments is made by an independent value from country of the imports
(b) That importer has submitted the copies of documents or certificates as issued by customs authorities for assessment for fair value of the imports
(v) That Application for approval if needed from Govt. of India should indicate the beneficial ownership, identity of importer Indian company and Foreign entity
(vi) That Application for approval if needed from Govt. of India is submitted within 180 days from the date of shipment of goods
(vii) Terms and Conditions are to be applied for Pre–Operative or Pre–Incorporation expenses
(a) FIRC is to be submitted for remittance of funds by foreign promoters for the expenditures as already incurred.
(b) Certification is to be made by statutory auditor for pre–incorporation or pre– operative expanses
(c) Payments are to be made by foreign investors to the company either directly or through bank account as opened by foreign investors in accordance to the FEMA Regulations
(d) Application for approval if needed from Govt. of India is submitted within 180 days from the date of incorporation of company
(vii) Following General Conditions are to be applied
(a) Application for approval if needed from Govt. of India be accompanied by a special resolution of the company
(b) Approval if needed from Govt. of India is subject to pricing guidelines of the RBI and an appropriate tax clearance from Income Tax Dept.
23. Issue of the Right or Bonus Shares
(i) Indian Company is permitted to issue the right or bonus shares to the existing non-resident shareholders subject to sectorial cap if any applicable
(ii) However right or bonus shares are be issued in accordance to SEBI (Issue of capital and Disclosure Requirements) Regulations, 2009 for the listed Companies
(iii) Pricing for Issue of the right Shares
(a) Price should not be lower than as listed at a stock exchange
(b) Price for non–resident share holder should not be lower than as offered to resident shareholders for the non–listed shares
24. Issue an Additional Right Shares
- Indian Company is permitted to issue an additional right share out of the unsubscribed portion after satisfaction of the following terms and conditions
(i) That issue of shares to the non-residents is within FIs limit if any applicable
(ii) That Issue of shares to the non–residents is within sectorial cap if any applicable
25. Issue of the Shares under Merger, Demerger or Amalgamation
(i) Merger, demerger or amalgamation was earlier governed by an order of the high court based on the Scheme as submitted by Company, now is governed by an order of the NCLT
(ii) Transferee or new company is permitted to issue the equity shares to non–resident shareholders after an order of the NCLT and also after satisfaction of the following terms and conditions
(a) That percentage of shareholdings for the non–residents in transferee or new company is not exceeding the sectorial cap, if any applicable
(b) That transferor, transferee or new company is not engaged in the prohibited activities under the FIs policy as applicable in India
26. Issue of the Shares under Employee Stock Option Scheme (ESOP)
(i) By a Listed Indian Company
(a) Listed Indian Company is permitted to issue the shares to its non–residents employees under ESOP in India and Outside India both
(b) And also ESOP to Employees of it’s joint venture (JV) or Wholly owned subsidiary (WOS) outside India.
(c) However shares under ESOP are permitted to the non–residents and citizens of Bangladesh and Pakistan with an approval from the Govt. of India
(d) Shares under ESOP are permitted to issue as direct or through a trust after satisfaction of the following terms and conditions
(da) That ESOP scheme is in accordance to regulations as issued by the SEBI
(db) And also face value of shares to non-residents is not exceeding 5% of the paid up capital of an issuing company
(ii) By a Non Listed Indian Company
(a) Non listed Indian Company is also permitted to issue the Shares under ESOP to non- residents employees
(b) Shares under ESOP are permitted to the non– residents and citizens of Bangladesh and Pakistan with an approval from the Govt. of India
(iii) Legal Compliances
- Issuing Company is required to report to the RBI about the details of shares as issued under ESOP to the non-residents employees and also to submit Form No. FC–GPR within 30 days from the date of issue of shares
27. Pledging for the Equity Shares of an Indian Company
(i) Pledging by the non-resident Promoters for Indian Company
(a) Promoters are permitted to pledge the shares for securing a ECB for an investee Indian Company
(b) Authorized dealer bank is required to issue a NOC for pledging of the shares after satisfaction of the following terms and conditions
(ba) That ECBs are in accordance to the FEMA regulations
(bb) That loan agreement is signed by the lender and borrower both
(bc) That loan agreement is required a security clause to create a charge on the financial securities
(bd) That borrower has obtained a Loan Registration Number (LRN) from the RBI
(be) That pledging is terminated with maturity of the ECBs
(bf) That invocation of transfer of shares is in accordance to the FIs policy and also directions as issued by the RBI from time to time
(bg) That statutory auditor has certified for utilization of the ECBs for permitted end use purpose only
(ii) Pledging by the non-resident shareholders for an Indian company
- Non–residents are permitted to pledge the shares to a bank in India to secure a credit facility for an investee Indian company for bonafide business purpose after satisfaction of the following terms and conditions
(a) That transfer of shares after invocation of pledge is in accordance to FIs policy as applicable at time of creation of the pledge
(b) That statutory Auditor has certified for utilization of loan proceeds for permitted end use purpose only
(c) That investee Indian company is obeyed the SEBI disclosure norms
(d) That pledge of shares in favor of lender bank is subject to section 19 of the Banking Regulation Act, 1949
(iii) Pledging by a Non-Resident Shareholder for a Non-Resident shareholder/ Promoter
- Non- residents are permitted to pledge the shares in favour of bank outside India to secure a credit facility for a non-resident investor or promoter for the bonafide business purpose after satisfaction of the following terms and conditions
(a) That loan is availed from bank outside India
(b) That loan is utilized for bonafide business purpose outside India not for any investment as direct or indirect in India
(c) That investment outside India is out of loan proceeds only not for any capital inflow in India
(d) That transfer of shares after invocation of pledge is in accordance to FIs policy as applicable at time of creation of the pledge
(e) That CA or CPA has certified for utilization of loan proceeds for permitted end use purpose only
28. Computation for the Direct and Indirect FIs
(i) Computation for Direct FIs in India is including all FIs by the non–residents in an Indian Company are treated as direct FIs
(ii) Computation of Indirect FIs in India
(a) Not Indirect FIs
- FIs through Indian Company are not treated Indirect FIs where Indian company is owned and controlled by a resident Indian entity
(b) Indirect FIs
- FIs through Indian company are treated indirect FIs where Indian company is owned and controlled by a non-resident entity
(iii) Computation of the total FIs in India
- Direct + Indirect FIs = Total FIs in India
29. Transfer of shares from a Resident Indian entity to a Non Resident Entity
(i) Approval from the Govt. of India is required
(a) Where Indian company is being established with the FIs by a non–resident entity and also FIs are not permitted under the automatic route
(b) Where Control of an Indian Company is being transferred to non–resident entity due to transfer of shares or Issue of fresh shares through amalgamation, merger, demerger or acquisition and also FIs are not permitted under the automatic route
(ii) Approval from Govt. of India is not required
- Where 100% FIs are permitted under the automatic route in an Indian Company
30. Downstream Investments by a Non Resident Entity
(i) Specified form is to be submitted within 30 days against downstream investments as intimation to the RBI by an Indian Company which is owned and controlled by a non-resident entity.
(ii) Downstream investments are to be supported by a resolution of Board of Directors and the Shareholders agreement
(iii) (a) Downstream investments are to be made through fresh funds from outside India
(b) And also No leverage of the funds from the domestic market
(iv) Issue pricing and Valuation of the shares are to be in accordance to guidelines as issued by the SEBI and the RBI from time to time
31. Remittance for the Sale Proceeds against Winding up or Liquidation
(i) Remittances against sale proceeds of shares and Securities are to be made in to The Foreign Exchange Management (Remittance of Assets) Regulations, 2000
(ii) Authorized dealer is required to remit the sale proceeds after deduction of income tax where FIs are held on repatriation basis
(iii) Authorized dealer is also required to remit the winding up proceeds of the Company after receipt of the following documents
(a) NOC or Tax clearance certificate from the Income tax deptt, if any needed
(b) Statutory Auditor certificate for confirming that all liabilities in India are paid or adequately provided
(c) Statutory Auditor certificate for confirming that winding up is in accordance with provisions of the Companies Act, 2013
(d) Statutory Auditor certificate for confirming that no legal proceeding is pending in any court in India where winding up is without order of any court
32. Repatriation for the Dividend
- Dividend is permitted for repatriation after withholding of Income Tax and remittance are also be made in accordance to Foreign Exchange Management (current Account Transactions) Rules, 2000 as amended from time-to-time
33. Reporting for the FIs
(i) Reporting for the FIs Received against issue of Shares
(a) Indian eligible entity is required to submit in specified Form within 30 days from the date of receipt of FIs in India
(b) Also to submit the copies of FIRC and KYC report on non–resident investors from overseas bank remitting the funds into India
(c) Also to obtain UIN from the RBI by an Indian Company
(ii) Reporting for Issue of the Shares
(a) Indian Company is required to submit Form FC–GPR within 30 days from the date of issue of shares
(b) Form FC–GPR is to be signed by a Managing Director, Director or Company Secretary and also be submitted to the RBI through authorised dealer bank
(c) Form FC–GPR is to be submitted alongwith certificate as issued by a company secretary
(ca) That requirement of the Companies Act, 2013 have been complied
(cb) That terms and conditions of Govt. approval, if any have been complied before submitting to the RBI
(cc) That company is eligible to issue the shares under the SEBI these Regulations and the RBI guidelines
(iii) Annual Return for Foreign liabilities and Assets (FLA) in the company
(a) Indian Company is required to submit FLA annual return for the FIs and ODIs (Overseas Direct Investments)
(b) FLA annual return is to be submitted up to July 15 of every year to the Director, Balance of payment statistics Division DSIM, the RBI through e-portal
(c) FLA annual return is permitted to submit, based on unaudited financial statements up to July 15 of every year
(d) However further FLA Annual return is to be submitted based on audited financial statements up to September 30 where FLA annual return based on unaudited financial statements has already been submitted up to July 15
34. Comparison between Foreign Investments (FIs) and Foreign Debts (FDs)
(i) Foreign Investments (FIs) in the Indian Entities
(a) An direct and indirect FIs in capital of eligible Indian entities are treated FIs in India like investments in domestic companies and LLPs etc.
(b) These foreign investments are to be with in composite sectorial limit or statutory cap, if any is applicable
(c) However these sectorial limit or statutory cap for the FIs are having no nexus with the foreign debts, like ECBs etc.
(ii) Foreign Debts (FDs) in the Indian Entities
(a) All foreign debts in eligible Indian entities are treated FDs in India
(b) These foreign debts are to be with in limit, as applicable for the debts
(c) Foreign debts like ECBs and FCCBs etc.
(d) Are having no nexus with the FIs sectorial limit or statutory cap until these debts are converted into the equity shares.
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Disclaimer : The contents of this presentation are solely for informational purpose. Neither this presentation nor the information contained herein constitutes a contract or will form the basis of a contract. The material contained in this presentation does not constitute/substitute professional advice that may be required before acting on any matter. While every care has been taken in the preparation of this presentation to ensure its accuracy at the time of publication, Satish Agarwal assumes no responsibility for any errors which despite all precautions, may be found herein. In no event shall we be liable for direct or indirect or consequential damages, if any, arising out of or in any way connected with the use of this presentation or the information contained herein.
(Author can be reached at email address satishagarwal307@yahoo.com or on Mobile No. 9811081957)
(Republished with amendments)
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