Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiaries (WOS) abroad
43 Replies
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What is direct investment outside India?
Direct investment outside India means investment by way of contribution to the capital or subscripttion to the Memorandum of Association of a foreign entity, signifying a long term interest (setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS)) in the overseas entity and thus does not include portfolio investment.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
Who is eligible to make overseas direct investment? A. Resident corporate entities and partnership firms registered under the Indian Partnership Act, 1932 (Indian Party) are eligible to make direct investment abroad in JVs/ WOSs.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
Does the definition mean that one cannot acquire an existing company either partially or wholly? A. No. An eligible entity is free to acquire either a partial stake (JV) or the entire equity (WOS) in an already existing company, provided the valuation is as per the laid down norms.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
Can overseas direct investment be made in any activity? A. An Indian Party can make overseas direct investment in any bonafide activity (except those that are specifically prohibited). However, for undertaking activities in the financial sector, certain additional conditions specified in Regulation 7 should be adhered to.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What are the prohibited activities for overseas direct investment? A. Real estate and Banking are the prohibited sectors for overseas direct investment. However, Indian banks operating in India can set up JVs/WOSs abroad provided they obtain clearance under the Banking Regulation Act 1949, from DBOD, RBI, CO.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What exactly is covered under the term real estate business? A. Real estate business means buying and selling of real estate or trading in transferable development rights (TDRs) but does not include development of township, construction of residential/commercial premises, roads and bridges.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What are the schemes under which an eligible entity can set up a JV or WOS abroad? A. Broadly there are two schemes under which an Indian Party can set up a JV/WOS abroad, namely the Automatic Route and the Normal Route.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What is the Automatic Route?
A. Under the Automatic Route, an Indian Party does not require any prior approval from the Reserve Bank for setting up a JV/WOS abroad (in case of investment in the financial sector, however, prior approval is required from the concerned regulatory authority both in India and abroad).
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What are the criteria for direct investment to be made under the Automatic Route? A. The criteria for direct investment under the Automatic Route are as under:
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What is ‘financial commitment’? A. Financial commitment means the amount of direct investment outside India by way of contribution to equity and loans and 50% of the amount of guarantee issued by an Indian Party to or on behalf of its overseas JV/WOS.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What is the limit for direct investment in Nepal or Bhutan under the Automatic Route?
A. In respect of direct investment in Nepal or Bhutan, the total financial commitment is upto the net worth of the Indian Party in INR.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
Can direct investment upto the net worth be made on an annual basis? A. No, the networth is the overall ceiling for overseas direct investment. Any fresh overseas investment can be made only on the basis of accretion to the networth.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What is the procedure to be followed by an eligible entity to make direct investment in a JV/WOS under the Automatic Route?
A. The eligible Indian Party intending to make a direct investment under the automatic route is required to fill in the form ODA supported by documents listed therein, i.e., certified copy of the Board Resolution, Statutory Auditors certificate, Valuation report (in case of acquisition of an existing company) as per valuation norms and approach an Authorised Dealer (designated Authorised Dealer) for making the investment/remittance.
Rahul Bansal
(Finalist)
(35929 Points)
Replied 11 January 2010
What are these valuation norms ? A. 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.
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