♦ Oversea Direct Investment:

Direct investment outside India means investment by way of contribution to the capital of a foreign entity.

♦ Eligible entity to make overseas investment (Other than Individual):

a. Resident corporate entities and

b. Registered partnership firms.

♦ ODI can be by Indian party or Individual

An investment outside India can be done by an Indian party or an individual.

Indian Party means:

a. a company incorporated in India; or

b. a body created under an Act of Parliament; or

c. a partnership firm registered under the Indian Partnership Act 1932; or

d. a Limited Liability Partnership (LLP) incorporated under the LLP Act, 2008; and

e. any other entity in India as may be notified by the Reserve Bank.

♦ Overseas investment be made in following activity:

Overseas investment in any activity except those that are specifically prohibited.

Prohibited Sectors:

Real estate sector and Banking are the prohibited sectors for overseas investment

♦ Permissible sources for funding overseas investment:

a. The balances held in Exchange Earners Foreign Currency (EECF)account of the Indian party maintained with an authorised dealer,

b. Proceeds of ADR/GDR issues,

c. Market purchases of foreign exchange,

d. Share swap (refers to the acquisition of the shares of an overseas entity by way of exchange of the shares of the Indian entity).

e. Capitalisation of exports, royalties, etc.

f. Proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds (FCCBs)

♦ What are the obligations of the Indian party, which has made direct investment outside India?

An Indian Party will have to comply with the following: –

i. Receive share certificates or any other documentary evidence of investment in within six months.

ii. Repatriate to India, all dues receivable, like dividend, royalty, technical fees etc., within 60 days of its falling due.

iii. Submit to the Reserve Bank every year within 60 days from the date of expiry of the statutory period as prescribed by the respective laws of the host country for finalisation of the

a. audited accounts of the JV/WOS outside India

b. an Annual Performance Report in form APR in respect of each JV/WOS outside India.

c. Copies of FIRCs in support of inward remittances on account of dividend, royalty, etc along with following documents.

i. Audited Financial Statements of the overseas venture.

ii. CA’s certificate in support of realization of export proceeds.

iii. A note on the working of the JV/WOS during the previous year in monetary terms.

♦ Investment in a JV/WOS abroad, which will be engaged in the financial services sector

Only an Indian Company engaged in financial sector activities can make investment in the financial services sector provided it fulfils the following norms besides complying with other conditions:

a. has earned net profit during the preceding three financial years from the financial services activities;

b. is registered with the appropriate regulatory authority in India for conducting financial services activities;

c. has a minimum net worth (Paid-up share Capital + Free Reserve) of Rs.15 crores as on the date of the last audited balance sheet; and

d. has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority (RBI) in India.

♦ Investment by Indian Company:

An Indian company (Having FDI or not) which wishes to invest in a foreign company does not require to take any prior permission from the Reserve Bank of India for making overseas direct investments in a JV/WOS abroad.

The Indian Company must approach an Authorized Dealer Category – I bank with an application in Form ODI and the supporting documents for effecting the remittances towards such investments.

However, if the foreign investment has to be done in the financial services sector, prior approval is required from the regulatory authority concerned, both in India and abroad.

♦ Prerequisites for Foreign Investment

The following points must be kept in mind before investing in the shares of a foreign company.

1. The Indian Company is prohibited to make overseas investment in a foreign company engaged in Real Estate Business or banking business. It requires prior permission from RBI.

2. The company investing in a foreign company should not be on RBI export caution list or list of defaulters in the banking system.

3. Annual Performance Report (APR) must be filed up to date for all foreign investment in the format provided.

4. The details of transactions of the investment in the foreign company have to be routed only through one authorized dealer.

5. The direct investment is made in an overseas JV or WOS (foreign company) engaged in a Bona fide business activity.

6. The company total financial commitment should be up to a prescribed limit (100%) of the net worth (Net worth means paid-up capital and free-reserves of the Indian company) of the company as on the date of the balance sheet last audited.

7. The total financial commitment of the Indian Party in all WOS abroad should not exceed 400% of the net worth of the Indian Party as on the date of last audited balance sheet.

However, any financial commitment exceeding USD $ 1 billion in a financial year would require prior approval of the Reserve Bank

Compliances under FEMA, 1999

√ One time:

The Indian Company intending to make a direct investment under the automatic route is required to submit form ODI with the designated bank, duly supported by the documents listed therein such as,

  • Certified copy of the Board Resolution;
  • Statutory Auditors certificate; and
  • Valuation report.

√ Recurring

Submit Annual Performance Report of overseas entity to the Reserve Bank of India through AD Bank

Submit annual return on foreign liabilities and foreign assets

Report the details of the decisions taken by a JV/WOS regarding diversification of its activities /setting up of step-down subsidiaries/alteration in its share holding pattern within 30 days of such alteration

√ Event based

In case of disinvestment, sale proceeds of shares/securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares /securities.

Compliances under Companies Act, 2013

Limitation under section 186 of Companies Act, 2013

Section 186(1) will not be applicable in case Mpurse as neither the Chinese company is an Investment Company nor Mpurse is making more than two layers of Investment.

Also, the section is not applicable if the Investee company is “Company incorporated outside India” and “if such other company has investment subsidiaries beyond two layers as per the laws of such country”.

Section 186(2)(c) No company (whether Public or Private Company) shall directly or indirectly —

(c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate exceeding:
60% (paid-up share capital + free reserves + securities premium account)

or

100% (free reserves + securities premium account)

whichever is more.

unless previously authorized by a special resolution passed in a general meeting.

The Company has to check the limit as applicable above before making investment in another Company.

Author Bio

Qualification: CS
Company: Nitin Narang & Associates
Location: North East Delhi, Delhi, India
Member Since: 23 Jul 2020 | Total Posts: 10
Ayushi Verma is a Professional, Corporate Trainer , Sociopreneur, and a Perceptive Communicator with the capacity to engage, compel and liaise with colleagues, executives & external stakeholders. She is a Researcher, Writer and Outspoken activist. View Full Profile

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