CA Sanjay Joshi, ACCA (UK), DISA, DIRM
Following is brief of the procedure under Automatic Route of ODI:
1. Submit form ODI along with the required documents
2. Conditions to be followed are under automatic route;
a. Investee shall ensure that investment does not exceed 400% of the net-worth (capital plus reserves) of the investee (as on late audited balance sheet date)
b. Investee should not be on the list of defaulters by RBI or by CIBIL (even credit card default may create issues for individuals)
c. All transactions of investment shall be routed through one branch of a bank (authorized dealer)
d. When investment in an existing foreign company does not exceeds USD 5 million, valuation of the shares of the company shall be made by a Chartered Accountant or a Certified Public Accountant
e. ODI form shall be submitted to AD bank (for further submission to RBI) within 30 days from the date of transaction. (i.e. w.r.t. each transaction)
f. The funds required for investment may be brought in from following sources:
i. By drawing foreign exchange from an AD bank,
ii. From balances held in EEFC A/c of the investee, (with regard investment form EFFC A/c, the condition of 400% of net worth does not apply)
iii. Capitalization of exports
g. Investment up-to USD 200000 per annum can be made under Liberalized Remittance Scheme (except when remittance is by an individual for setting up a company abroad)
3. If any of the conditions of clause 2 are not fulfilled, RBI approval shall be obtained first. For this approval, an application along with ODI form dully filled (with documents) shall be submitted to AD bank.
4. The following conditions will apply in case when an established proprietor or unregistered partnership firm export firms are investees and it requires prior approval of RBI;
a. Such entity is DGFT registered star export house,
b. AD bank satisfies that the exporter is KYC compliant and meets the conditions of criteria referred at a.
c. Exporter’s overdue exports do not exceed 10% of average export realization of past 3 financial years.
d. Export is not under adverse notice of any government agency
e. Investment does not exceed 10% of export realization of the past 3 F. Y. or 200 % of net owned funds of the firm, whichever is lower.
Note:
1. The above procedure is simplified for an individual or small business entity even a company, which is not having structured financial instrument in its capital being convertible preference shares etc. Further, the investment shall be simple instruments like equity or debt.
2. Even an SPV can be created for making above referred investment, subject to above referred conditions.
3. This route is only for making ODI in incorporated entities.
4. Additional conditions are to be fulfilled when investment is in financial services sector.
