Investments Outside India

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ramanjaneyulu (Querist)
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27 January 2010 Dear All,

What are the compliances for making investments outsiade India before making investment and after making investment.

Chandranil

Chandranil (Expert)
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18 March 2010 following is the procedure for Investment out side India

1. Definitions:

Joint Venture – Means a foreign entity formed registered or incorporated in accordance with the Laws and regulations of the host country in which the Indian party makes direct Investment.

2. Criteria for Direct Investment

1. Indian Party can make investment Upto 100% of the net worth of the Indian party as on the date of last audited balance sheet

2. The Indian Party is not on the Reserve Bank’s exporters caution list / list of defaulters to the banking system published/ circulated by the Credit Information Bureau of India Ltd. (CIBIL)/RBI or under investigation by the Enforcement Directorate or any investigative agency or regulatory authority3. All transaction relating to JV should be routed through one branch of an authorized dealer to be designated by Indian Party.

3. The Indian Party routes all the transactions relating to the investment in a JV/WOS through only one branch of an authorized dealer to be designated by it.

3. Procedure for Direct Investment outside India

The eligible Indian Party intending to make a direct investment under the automatic route is required to fill in the form ODI supported by documents listed therein, ( (a)certified copy of the Board Resolution, (b) Statutory Auditors certificate, (c) Valuation report (in case of acquisition of an existing company) approach an Authorised Dealer (designated Authorised Dealer) for making the investment/remittance.)

4. Valuation Norms

Where the investment is more than USD five million, the valuation has to be done by a Category I Merchant Banker registered with 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 and in all other cases by a Chartered Accountant/Certified Public Accountant. However, in the case of investment by acquisition of shares where the consideration is to be paid fully or partly by issue of the Indian Party’s shares (swap), in all cases, the valuation will have to be done by a Category I Merchant Banker registered with 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.

In our case Investment is USD $ 1.6 Millions so valuation can be done by Chartered Accountant.

5. No Prior registration is necessary under automatic route

No prior registration with the Reserve Bank is necessary for direct investments under the automatic route. After the report of remittance/investment in form ODI is received by the Reserve Bank, from the designated Authorised Dealer, an identification number for that particular JV/WOS will be issued for the purpose of taking on record the overseas direct investment with the objective of maintaining a database for monitoring the outflows/inflows in respect of the overseas entities. Subsequent investments in the same project can be made only after allotment of the identification number.( Allotment of UIN does not means that RBI approval is received it conveys that RBI has taken on record the transaction)

6. Application under normal route

Proposals not covered by the conditions under the automatic route require the prior clearance of the Reserve Bank for which a specific application in form ODI with the documents prescribed therein is required to be made to

7. Mode of funds

Investment in JV may be funded out of one of the following sources

1. Drawl of foreign exchange from AD bank in India

2. Capitalization of exports
3. Swap of shares
4. Utilisation of proceeds of ECB
5. In exchange of ADR/ GDR issued in accordance with the scheme for issue of FCCB
6. Balance held in EEFC account of the Indian Party

8. Indian party has following obligation

1. Receive share certificate or any other document for investment in shares with in Six months failing which an application for extension of time citing reasons for non-receipt will have to be made to the Reserve Bank.

2. repatriate to India the dues receivable from foreign entity within 60 days
( such as royalties, dividends)

3. submit such documents and Annual Performance report part III of ODI Form to RBI , In accordance with the provisions specified in Reg 15 of the notification

(a) Copies of IFRCs in support of inward remittances on account of dividend, royalty, etc.
(b) Audited financial statements of the JV/ WOS
(c) Certificate from a CA in support of realization of export proceeds.
(d) A note on the working of the JV/ WOS during the previous year highlighting the ups and downs, reasons for non-performance, etc in monetary terms.

9. Late filing & Penalty for non submission of APR

In case the Indian Entity is unable to submit APR within stipulated time, an application on the due date should be made to the RBI seeking extension, giving reasons for the same. A RBI takes a serious view of delayed submissions /non-submissions of such reports.

Reserve Bank takes a serious view of delayed submission/non-submission of such reports and can take such measures, as prescribed under FEMA 1999, against the delinquent Indian Party as it deems fit.

10 further investment

On Change of share holding (increase , dencrease) Indian party shall report to RBI in form ODI the details of such decisions taken by foreign entity within 30 days within 30 days of the approval of this decision from the competent authority concerned of such foreign entity in terms of local laws of the host country and include the same in Annual Performance report required to be filed with RBI

11. Approval of the Reserve Bank in certain cases

(1) An Indian Party, which does not satisfy the eligibility norms under Regulations 6 or 7 or 8, may apply to the Reserve Bank for approval
.
(2) Application for direct investment in Joint Venture/Wholly Owned Subsidiary outside India, or by way of exchange for shares of a foreign company, shall be made in Form ODI, or in Form ODB, as applicable.

(2A) An application made under sub-regulation (2) in Form ODI

(a) for the purpose of investment by way of remittance from India, in an existing company outside India, shall be accompanied, by the valuation of shares of the company outside India, made-

(i) where the investment is more than USD 5 (five) million, by a Category I Merchant Banker registered with SEBI or an Investment Banker/Merchant Banker registered with the appropriate regulatory authority in the host country; and

(ii) in all other cases, by a Chartered Accountant or a Certified Public Accountant.

(b) for the purposes of investment by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party’s shares, shall be accompanied by the valuation carried out by a Category I Merchant Banker registered with the SEBI or an Investment Banker/Merchant Banker registered with the appropriate regulatory authority in the host country.

(3) The Reserve Bank may, inter alia, take into account following factors while considering the application made under sub-regulation (2):
a. Prima facie viability of the Joint Venture/Wholly Owned Subsidiary outside India;

b. Contribution to external trade and other benefits which will accrue to India through such investment;

c. Financial position and business track record of the Indian Party and the foreign entity;

d. Expertise and experience of the Indian Party in the same or related line of activity of the Joint Venture or Wholly Owned Subsidiary outside India.

12. Unique Identification Number

Reserve bank will allot a unique Identification Number for each Joint Venture or Wholly Owned Subsidiary outside India and the Indian Party shall quote such number in all its communications and reports to the Reserve Bank and the authorised dealer

13. Form ODI is required to be filed

1 Part I (barring Section C) of the form is required to be filled up by the Indian party seeking to invest in JV / WOS overseas either under Automatic Route or Approval Route and submitted to the designated AD Category – I bank.

Part I (Sections C and D) is required to be submitted, whenever the initial capital or financing structure of the JV / WOS reported to the Reserve Bank at the time of the initial remittance / approval undergoes changes by way of expansion, merger, infusion of additional capital, etc

2. In case of supplementary remittances, only Part II of the form, complete in all respects, is required to be submitted by the AD Category - I bank to Reserve Bank. However, if capital structure / financing pattern, etc. of the JV / WOS have changed since reporting at the time of initial investment Part I of the form (barring Sections A and B) need to be submitted along with Part II.

3. Annual Performance Report (APR) (Part III) should be submitted, through the designated AD Category-I bank, every year within 60 days of the closing of annual accounts of the JV / WOS for as long as the JV/WOS is in existence, at the address above. It should be certified by Chartered Accountant