Issue of Foreign Security

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

14. Acquisition of a foreign company through bidding or tender procedure

(1) On being approached by an Indian Party, which is eligible under the Regulations to make investment outside India, an authorised dealer may allow remittance towards earnest money deposit or issue a bid bond guarantee on its behalf for participation in bidding or tender procedure for acquisition of a company incorporated outside India,

(2) On the Indian Party winning the bid,

i. the authorised dealer may allow further remittances towards acquisition of the foreign company, subject to the ceilings specified in Regulation 6; and

ii. the Indian Party shall submit through the authorised dealer concerned a report to the Reserve Bank in form ODA within 30 days of effecting the final remittance.

(3) For participation in bidding or tender procedure for acquisition of a company incorporated outside India which does not fall within the provisions of sub-regulation (1), the Reserve Bank may, on application in Form ODI, allow remittance of foreign exchange towards earnest money deposit or permit the authorised dealer in India to issue a bid bond guarantee, subject to such terms and conditions as the Reserve Bank may stipulate.

(4) In case the Indian Party is successful in the bid but the terms and conditions of acquisition of a company outside India are,-

a. not in conformity with the provisions of Regulations in Part I, or different from those for which approval under sub-regulation (3) was obtained, the Indian Party shall submit application in form ODI to Reserve Bank for obtaining approval for the foreign direct investment in the manner specified in Regulation 9, or

b. in conformity with the provisions of the Regulations in Part I or are same as those for which approval under sub-regulation (3) was obtained, the Indian Party shall submit a report to the Reserve Bank, giving details of the remittances made, within 30 days of effecting the final remittance.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

15. Obligations of the Indian Party

An Indian Party, which has acquired foreign security in terms of the Regulations in Part- I, shall –

i. receive share certificates or any other document as an evidence of investment in the foreign entity to the satisfaction of the Reserve Bank within six months, or such further period as Reserve Bank may permit, from the date of effecting remittance or the date on which the amount to be capitalised became due to the Indian Party or the date on which the amount due was allowed to be capitalised;

ii. repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical fees etc., within 60 days of its falling due, or such further period as the Reserve Bank may permit;

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 audited accounts of the Joint Venture/Wholly Owned Subsidiary outside India or such further period as may be allowed by Reserve Bank, an annual performance report in form APR in respect of each Joint Venture or Wholly Owned Subsidiary outside India set up or acquired by the Indian Party and other reports or documents as may be stipulated by the Reserve Bank.

Explanation

It will be in order for individual partners to hold shares for and on behalf of the firm in an overseas JV/WOS in the individual name if the host country regulations or operational requirements warrant such holdings, subject to the condition that the entire funding for such investment is done by the firm.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

16. Transfer by way of sale of shares of a JV/WOS outside India

(1) An Indian party may transfer by way of sale to another Indian party who complies with the provisions of Regulation 6 above, or to a person resident outside India, any share or security held by him in a Joint Venture or Wholly Owned Subsidiary outside India

Provided that

(i) The sale does not result in any write-off of the investment made;

(ii) the sale is effected through a stock exchange where the shares of the overseas Joint Venture or Wholly Owned Subsidiary are listed;

(iii) if the shares are not listed on the stock exchange, and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant /Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the Joint Venture or Wholly Owned Subsidiary:

(iv)The Indian party 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;

(v)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;

(vi)The Indian party is not under investigation by CBI/ED/SEBI/IRDA or any other regulatory authority in India.

(2)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 and documentary evidence to this effect shall be submitted to the Regional office of the Reserve Bank through the designated authorized dealer.

(3) An Indian party, which does not satisfy the criteria specified at sub regulation (1) above, shall apply to the Reserve Bank for permission to transfer by way of sale of shares of a JV/WOS outside India which may be granted subject to such conditions as the Reserve Bank may consider appropriate.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

17. Transfer by way of Sale of Shares involving Write -off

Where the transfer by way of sale of shares or security referred to in sub regulation (1) of Regulation 16 by any Indian party listed on any stock exchange in India, is for a price less than the amount invested in the share or the security transferred, -

1.where the difference between the said value and the sale price does not exceed the percentage approved by the Reserve Bank, from time to time, of the Indian party's actual export realisation of the previous year, the Indian party may write-off to the extent of the difference, the capital invested in the overseas JV/WOS;

2.where such difference is more than the percentage approved by the Reserve Bank, from time to time, of the Indian party's actual export realisation of the previous year, the Indian party shall apply to the Reserve Bank for permission to write -off the capital invested, which permission may be granted subject to such conditions as the Reserve Bank considers appropriate.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

18.Pledge of Shares of Joint Ventures and Wholly Owned Subsidiaries

An Indian Party may transfer, by way of pledge, shares held in a Joint Venture or Wholly Owned Subsidiary outside India as a security for availing of fund based or non-fund based facilities for itself or for the Joint Venture or Wholly Owned Subsidiary from an authorised dealer or a public financial institution in India.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

Part II

Investments abroad

by Individuals

in India

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

19. Prior Permission of the Reserve Bank for Direct Investment by a Proprietary Concern in India

A proprietary concern in India may apply to the Reserve Bank in Form ODB for permission to accept shares of a company outside India in lieu of fees due to it for professional services rendered to the said company.

Provided that: -

(a) the value of the shares accepted from each company outside India shall not exceed fifty per cent of the fees receivable by the Indian concern from that company; and,

(b) the Indian concern’s shareholding in any one company outside India by virtue of shares accepted as aforesaid shall not exceed ten per cent of the paid-up capital of the company outside India, whose shares are accepted.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

20.Investment by Individuals

(1) A Resident individual may apply to the Reserve Bank for permission to acquire shares in a foreign entity offered as consideration for professional services rendered to the foreign entity.

(2) Reserve Bank may, after taking into account, inter alia, the following factors, grant permission subject to such terms and conditions as are considered necessary:

i. credentials and net worth of the individual and the nature of his profession;

ii. the extent of his forex earnings/balances in his EEFC and/or RFC account;

iii. financial and business track record of the foreign entity;

iv. potential for forex inflow to the country;

v. other likely benefits to the country.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

Part III

Investments in Foreign Securities other than

by way of

Direct Investment

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

21.Prohibition on issue of foreign security by a person resident in India.

(1) Save as otherwise provided in the Act or in sub-regulation (2), no person resident in India shall issue or transfer a foreign security.

(2) A person resident in India, being an Indian Company or a Body Corporate created by an Act of Parliament.

i)may issue FCCBs not exceeding USD 500 million to a person resident outside India in accordance with and subject to the conditions stipulated in Schedule I.

ii) may issue FCCBs beyond US $ 500 million with the specific approval of the Reserve Bank.

(3) The company/body corporate referred to in sub-regulation (2), issuing the FCCBs shall, within 30 days from the date of issue, furnish a report to the Reserve Bank giving the details and documents as under:

a. Total amount for which FCCBs have been issued,

b. Names of the investors resident outside India and number of FCCBs issued to each of them.

c. The amount repatriated to India through normal banking channels and/or the amount received by debit to NRE/FCNR accounts in India of the investors (duly supported by bank certificate).

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

22.Permission for purchase /acquisition of foreign securities in certain cases

(1) A person resident in India being an individual may acquire foreign securities:-

i. by way of gift from a person resident outside India; or

ii. issued by a company incorporated outside India under Cashless Employees Stock Option Scheme:-

Provided it does not involve any remittance from India, or

iii. by way of inheritance from a person whether resident in or outside India.

(2) A person resident in India, being an individual, who is an employee or a director of Indian office or branch of a foreign company or of a subsidiary in India of a foreign company or of an Indian company in which foreign equity holding is not less than 51 per cent,may purchase the equity shares offered by the said foreign company.

(3) An authorised dealer may allow the remittance by the person eligible to purchase the shares in terms of sub-regulation (2): -

Provided that the condition specified in that sub-regulation is fulfilled.

(4) A person resident in India may transfer by way of sale the shares acquired in terms of sub-regulation (1) and (2) above

Provided that the proceeds thereof are repatriated immediately on receipt thereof and in any case not later than 90 days from the date of sale of such securities.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

23. Transfer of a foreign security by a person resident in India

A person resident in India, who has acquired or holds foreign securities in accordance with the provisions of the Act, rules or regulations made thereunder, may transfer them by way of pledge for obtaining fund based or non-fund based facilities in India from an authorised dealer.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

24. General Permission for Acquisition of foreign securities as qualification / rights shares

(1) A person resident in India being an individual may

(a) acquire foreign securities as qualification shares issued by a company incorporated outside India for holding the post of a director in the company:

Provided that, -

i. the number of shares so acquired shall be the minimum required to be held for holding the post of director and in any case shall not exceed 1 per cent of the paid-up capital of the company, and

ii. the consideration for acquisition of such shares does not exceed the ceiling as stipulated by RBI from time to time.

(b) acquire foreign securities by way of rights shares in a company incorporated outside India:

Provided that the right shares are being issued by virtue of holding shares in accordance with the provisions of the law for the time being in force.

(c) where such person is an employee or a director of the Indian promoter company, acquire by way of purchase shares of a Joint Venture or Wholly Owned Subsidiary outside India of the Indian promoter company, in the field of software;

Provided that –

(1) (i) the consideration for purchase does not exceed the ceiling as stipulated by RBI from time to time.

(ii) the shares so acquired do not exceed 5% of the paid-up capital of the Joint Venture or Wholly Owned Subsidiary outside India, and

(iii) after allotment of such shares, the percentage of shares held by the Indian promoter company, together with shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior to such allotment.

(2) A person resident in India, being an individual holding qualification /rights shares in terms of sub regulations (a) or (b) above may sell the shares so acquired, without prior approval, provided the sale proceeds are repatriated to India through banking channels and documentary evidence is submitted to the authorized dealer.

(3) An Indian software company may allow its resident employees (including working directors) to purchase foreign securities under the ADR/GDR linked stock option schemes:-

Provided that the consideration for purchase does not exceed the ceiling as stipulated by RBI from time to time.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

25. Prior permission of Reserve Bank in certain cases

A person resident in India being an individual seeking to acquire qualification shares in a company outside India beyond the limits laid down in the proviso to clause (a) of sub-regulation (1) of Regulation 24 shall apply to the Reserve Bank for prior approval.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

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