Reserve Bank of India
Exchange Control Department
Central Office
Mumbai 400 001
A. P (DIR Series) Circular No. 41
December 6, 2003
To
All Authorised Dealers in Foreign Exchange
Madam/ Sirs,
Indian Direct Investment in
JVs/WOSs Abroad
Attention of Authorised Dealers
is invited to the following Notifications on Foreign Exchange Management
(Transfer or issue of any foreign security) Regulations, 2000 amending the
provisions of the original Notification No. FEMA.19/RB-2000 dated May 3,
2000.
-
FEMA.40/RB-2000 dated
March 2, 2001
- FEMA.48/2002-RB dated January 1, 2002
- FEMA.49/2002-RB dated January 19, 2002
- FEMA.53/2002-RB dated March 1, 2002
- FEMA.55/2002-RB dated March 5, 2002
2. With a view to simplifying
and liberalising the present policy of overseas direct investment, the existing
guidelines have been modified as under :
2.1 Investment by Firms
in India
It has been decided to permit
firms in India registered under the Indian Partnership Act, 1932 and having
a good track record, to make direct investments outside India in an entity
engaged in any bonafide business activity under the Automatic Route upto
100% of its net worth or USD 10 mn. or its equivalent, whichever is less,
in one financial year. Firms intending to undertake financial services
activities would, however, have to satisfy the additional requirements
prescribed in Regulation 7 of Notification ibid.
2.2 Investment through
Special Purpose Vehicle (SPV) under the Automatic Route
Attention of Authorised Dealers
is also invited to AP (Dir Series) Circular No.23 dated February 19, 2002,
in terms of which investments in JV/WOS abroad through the medium of a
Special Purpose Vehicle (SPV) has been prohibited under the Automatic
Route. On a review, it has been decided to cover such investments also
under the Automatic Route in terms of Regulation 6 of Notification No.
FEMA.19/ RB-2000 dated May 3, 2000 as amended ubject to the following:
In terms of clause (v) of
Sub-regulation (2) of Regulation 6, Indian parties included in the Reserve
Bank’s Caution List or under investigation by the Enforcement Directorate
are not eligible to make overseas investments under the Automatic Route.
It is clarified that this restriction is also applicable to Indian parties
which are defaulters to the banking system in India and whose names appear
in the Defaulters’ List published/circulated by the Reserve Bank. Authorised
Dealers may, while allowing remittances under the Automatic Route, satisfy
themselves that the Indian party proposing to make the investment is not
included in the Defaulters’ List. Indian parties whose names appear in
the Defaulters’ List may be advised to apply to the Reserve Bank for prior
approval for the investment.
2.3 Investment by way
of share swap
At present, all proposals
for investment by way of swap of shares require prior approval of the
Reserve Bank. It has now been decided to permit such investments also
under the Auto Route as per the conditions specified in Regulation 6 of
Notification No. FEMA.19/RB-2000 dated May 3, 2000 as amended. However,
Authorised Dealers may note that all share swap transactions require prior
approval of the Foreign Investment Promotion Board (FIPB) for the inward
leg of investment.
Such swap transactions would
have to be in accordance with the valuation norms prescribed vide Sub-Regulation
7(b) of Regulation 6 of Notification ibid, i.e., by a Category I Merchant
Banker registered with the Securities and Exchange Board of India (SEBI)
or an Investment Banker/Merchant Banker outside India registered with
the appropriate Regulatory Authority in the host country.
Authorised Dealers may accordingly
obtain and consider the investment proposals from the Indian parties in
respect of cases under 2.1, 2.2 and 2.3 above in Form ODA alongwith the
prescribed enclosures and immediately after making the remittance, forward
the report of remittance / transaction in form ODR to the Reserve Bank
of India, Exchange Control Department, Central Office, Overseas Investment
Division, Mumbai 400 001.
In the case of investment
by way of share swap, Authorised Dealers are additionally required to
submit to Reserve Bank the details of transactions such as number of shares
received /allotted, premium paid/ received, brokerage paid/ received etc.,
and also confirmation to the effect that the inward leg of transaction
has been approved by FIPB and the valuation has been done as per laid-down
procedure and that the overseas company's shares are issued / transferred
in the name of the Indian investing company. Authorised Dealers may also
obtain from the applicants an undertaking to the effect that future sale/transfer
of shares so acquired by Non-Residents in the Indian Company shall be
in accordance with the provisions of Notification No. FEMA 20/2000-RB
dated May 3, 2000 as amended from time to time.
2.4 Direct Investment
Abroad in Financial Services Sector Activities
At present only Indian companies
engaged in financial sector activities in India and complying with additional
norms prescribed in Regulation 7 of Notification No. FEMA.19/RB-2000 dated
May 3, 2000 as amended are permitted to invest abroad in the financial
sector. In partial modification of the said Regulation, the stipulation
of the minimum net worth of Rs.15 crores prescribed therein has been dispensed
with. However, henceforth any Indian entity engaged in the financial services
sector and wishing to undertake financial sector activities abroad should
also obtain approval for doing so from the concerned Regulatory
Authorities both in India and abroad before venturing into such
activity. All other conditions stipulated in the Regulation 7 remain unchanged.
While forwarding the report of remittance in respect of the above category
in form ODR to the Reserve Bank, Authorised Dealers may forward details
of such regulatory approvals also.
3. Diversification of
activity/step down investments by JV/WOS established by an Indian party
As Authorised Dealers are aware,
in terms of Regulation 13 of Notification No. FEMA.19/RB-2000 dated May
3, 2000 as amended, an Indian party, which holds 50% or more of the paid
up capital of the overseas entity, has to apply to the Reserve Bank for
permission to
-
diversify activity
-
set up a step down subsidiary
-
alter the shareholding
pattern in the overseas entity, if it does not satisfy the conditions
stipulated therein.
These restrictions were not
applicable in case the Indian party is a minority shareholder or the investment
has been made entirely out of balances held in EEFC account or through ADR/GDR
issue. It has now been decided to remove the existing restrictions and provide
a level playing field for all.
Authorised Dealers may accordingly
consider the proposals for diversifications /step down investments by the
Indian parties having JV/WOS abroad and allow remittance within the limits
applicable for investments under the automatic route.
The Indian Party shall report
to the Reserve Bank the details of decisions taken by the JV/WOS within
30 days of the approval of those decisions by the share holders/promoters/directors
of the JV/WOS in terms of the local laws of the host country and include
the same in the Annual Performance Reports (APR) required to be forwarded
annually to the Reserve Bank.
4. Transfer by way of
sale of shares of a JV/WOS outside India
Hitherto, in terms of Regulation
16 of Notification No. FEMA.19/RB-2000 dated May 3, 2000 as amended, prior
permission of Reserve Bank was required for transfer by way of sale of shares
of a JV/WOS. It has now been decided to permit Indian party to transfer
by way of sale to another Indian party, which complies with the provisions
of Regulation 6 of the said Notification or to a person resident outside
India, any share or security held by it in a joint venture or wholly owned
subsidiary outside India subject to the conditions and reporting requirements
indicated in the Annexure to this circular.
An Indian party, which does
not satisfy the eligibility norms and proposals and seek 'write-off' of
the investment, shall have to apply to the Reserve Bank for prior permission.
Authorised Dealers may accordingly
consider proposals for disinvestment which fulfill the said norms.
5. Necessary amendments to
the Foreign Exchange Management (Transfer or issue of any foreign security)
Regulations, 2000 are being notified separately.
6. Authorised Dealers may bring
the contents of this circular to the notice of their constituents concerned.
7. The directions contained
in this circular have been issued under Sections 10(4) and 11(1) of the
Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully,
Grace Koshie
Chief General Manager
Annexure
Transfer by way of sale of shares
of a JV/WOS outside India
I. Terms and conditions governing
transfer by way of sale of shares of a JV /WOS outside India :
-
the sale is to be effected
through a stock exchange where the shares of the overseas joint venture
or wholly owned subsidiary are listed;
-
if the shares are not listed
on the stock exchange, and the disinvestment is by private arrangement,
the sale price of the share is not less than the value certified by
a Chartered Accountant/Certified Public Accountant/Category I Merchant
Banker registered with SEBI;
-
The Indian promoter does
not have any outstanding dues by way of dividend, technical know-how
fees, royalty, consultancy, commission or other entitlements, and/or
export proceeds from the joint venture or wholly owned subsidiary ;
-
The overseas concern has
been in operation for at least one full year and the annual performance
report together with the audited accounts for that year has been submitted
to the Reserve Bank;
-
The Indian party is not
under investigation by CBI/ED/ SEBI/IRDA or any other regulatory authority
in India;
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.
II. Authorised Dealers may
obtain following documents in order to process an application for disinvestment
from an Indian party having JV/ WOS abroad.
-
Latest Annual Performance
Report on the working of the JV/WOS including financial statements
-
Certified true copy of
the Board Resolution approving the disinvestment and indicating the
amount of disinvestment approved
-
Letter of offer from the
purchaser
-
Consent letter from the
partners in case of disinvestment of share in a JV abroad
-
Valuation certificate
-
Certificate from a Chartered
Accountant certifying that no dues are outstanding to the Indian party
or indicating the details of dues, if any, from the JV/WOS to the Indian
party
III. Report regarding disinvestment
to the Regional Office of the Reserve Bank, inter alia, should indicate
the following:
-
Identification No.
-
Name of Indian company
-
Name of the country and
amount of investment approved
-
Amount of disinvestment
-
Date of repatriation of
the disinvestment proceeds
-
Certificate that all documents
as above have been obtained