RBI/2004-05/203
A.P. (DIR Series) Circular No. 15
October 1, 2004
To
All Banks Authorised to Deal in Foreign Exchange
Madam / Sirs,
Conversion of External Commercial Borrowing
and Lumpsum Fee/Royalty into Equity
Attention of Authorised Dealer (AD) banks is
invited to A.P.
(DIR Series) Circular No. 34 dated November 14, 2003, in terms of which
issue of equity/preference shares against lump-sum technical know-how fee, royalty
and External Commercial Borrowings (ECBs) already due for payment/repayment
was permitted, subject to meeting all applicable tax liabilities and compliance
with the procedures prescribed.
2. The matter has been further reviewed by
the Government of India, Ministry of Finance vide Press Release dated September
29, 2004 (copy enclosed). Accordingly, it has been decided to grant General
Permission for conversion of ECB into equity subject to the following conditions:
- The activity of the company is covered under the Automatic
Route for FDI or they had obtained Government approval for foreign equity
in the company,
- The foreign equity after such conversion of debt into equity
is within the sectoral cap, if any,
- Pricing of shares is as per SEBI and erstwhile CCI guidelines/regulations
in the case of listed/unlisted companies as the case may be.
- Compliance with the requirements prescribed under any other
statute and regulation in force.
3. It is clarified that the conversion facility
is available for all ECBs availed either with the general or specific permission
of Reserve Bank. This would also be applicable to ECBs irrespective of whether
due for repayment or not, as well as secured/ unsecured loans availed from non-resident
collaborators. However, import payables, deemed as ECBs would not be eligible
for conversion into equity/preference shares.
4. Reporting Requirements--Conversion of
ECB into equity:
Details of issue of shares against conversion
of ECB may be reported to the concerned Regional Office of the Reserve Bank,
as indicated below:
- In case of full conversion of ECB into
equity, the company shall report the conversion in form FC-GPR to the concerned
Regional Office of the Reserve Bank as well as in form ECB-2 submitted to
the Department of Statistical Analysis and Computer Services (DESACS), Reserve
Bank of India, Bandra-Kurla Complex, Mumbai – 400 051,
within seven working days from the close
of month to which it relates. The words 'ECB wholly converted to equity' shall
be clearly indicated on top of the ECB-2 form. Once reported, filing of ECB-2
in the subsequent months is not necessary.
- In case of partial conversion of ECB, the company
shall report the converted portion in form FC-GPR to the concerned Regional
Office as well as in form ECB-2 clearly differentiating the converted portion
from the unconverted portion. The words 'ECB partially converted to equity'
shall be indicated on top of the ECB-2 form. In the subsequent months, the
outstanding portion of ECB shall be reported in ECB-2 form to DESACS as per
the instructions contained in AP (DIR Series) Circular no. 60 dated January
31, 2004.
5. Conversion of Lumpsum fee/Royalty into
equity:
We also invite your attention to paragraph 2
of the Circular mentioned above. As regards issue of equity/preference shares
by conversion of lumpsum fee or royalty, the details thereof shall be reported
in form FC-GPR to the concerned Regional Office of Reserve Bank.
6. Necessary amendments to Foreign Exchange
Management (Transfer or issue of security by a Person Resident outside India)
Regulations, 2000 dated May 3, 2000 notified vide Notification No. FEMA 20/2000-RB
dated May 3, 2000 is being issued separately.
7. Authorised Dealers may bring the contents
of this circular to the notice of their constituents and customers concerned.
8. The directions contained in this circular
have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange
Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals,
if any, required under any other law.
Yours faithfully,
Grace Koshie
Chief General Manager
[A.P. (DIR Series) Circular No.15
dated October 1, 2004]
Press Release
Government of India
Ministry of Finance
Department of Economic Affairs
Wednesday, September 29, 2004
SIMPLIFICATION OF FOREIGN INVESTMENT PROCEDURES
In order to make the environment in India more
attractive for foreign investors, Government has decided to simplify the procedure
by placing the following under the General Permission route (i.e. RBI route)
instead of existing Government approval route (i.e. FIPB route) for speedy and
streamlined investment approvals:
a) Transfer of shares from resident to non-resident
(including transfer of subscribers' shares to non-residents) other than in financial
services sector provided the investment is covered under automatic route, does
not attract the provisions of SEBI's ( Substantial Acquisition of Shares and
Takeovers ) Regulations, 1997, falls within the sectoral cap and also complies
with prescribed pricing guidelines.
b) Conversion of ECB/Loan into equity provided
the activity of the company is covered under automatic route, the foreign equity
after such conversion falls within the sectoral cap and also complies with prescribed
pricing guidelines.
c) Cases of increase in foreign equity participation
by fresh issue of shares as well as conversion of preference shares into equity
capital provided such increase falls within the sectoral cap in the relevant
sectors, are within the automatic route and also complies with prescribed pricing
guidelines.
In respect of the procedural simplifications
given at para 1 above, the onus of complying with the sectoral cap/limits prescribed
under the FDI policy as well as other guidelines/regulations would rest with
the buyer and seller/issuer.
Necessary notification/circular under FEMA giving
details of the simplification of procedures are being brought out by the Reserve
Bank of India.
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