ØWe would like to inform that our company was incorporated on 7th March 2006 under the provisions of the Companies Act, 1956, for the manufacture and sale of power and distribution transformers, control & protection panels, and is catering to both export and domestic markets. The paid-up share capital of the Company is Rs.3,48,86,640/-. The shareholding pattern of the company is as follows:
Particulars of Members
No. of Shares
Face Value
Percentage
Foreign Individual Investors
34,78,664
10.00
99.72%
Resident Indians (subscriber shares)
10,000
10.00
0.28%
Total
34,88,664
100.00%
ØFrom the above it shall be noted that 99.72% of capital is held by foreign individual investors and the balance 0.28% of capital is held by resident individuals. The company has duly complied with the regulations as stipulated by RBI in respect of its foreign direct investment, which is falling under the automatic route. The Company has obtained necessary acknowledgement from RBI for its above said foreign direct investment.
ØOur Company is not a Small Scale Industry. The necessary declaration was also submitted with RBI alongwith Form FC-GPR stating that the company is not a small scale industry.
OUR QUERY / CLARIFICATION REQUIRED
vWe wish to register our company under the provisions of MSME Act, 2006.
vWe request you to kindly clarify whether registration of our company under the MSME Act 2006 will be in accordance with the provisions FEMA guidelines as well as rules laid down by RBI in respect of foreign direct investment under automatic route.
vThe value of plant & machinery of our company is more than Rs.25 lacs but less than 5.00 crores. As per Section 7 of MSME Act, 2006, our Company could be categorised as a Small Enterprises.
vAs 99.72% of our share capital is held by foreign investors and since there is a FDI cap of 24% under automatic route for investing in small scale industry the above question arises.
Clarification on FDI into a Small Scale Industrial Undertak
Clarification on Foreign Direct Investment (FDI) into a Small Scale Industrial Undertaking (SSI)/Micro & Small Enterprises (MSE) and in Industrial Undertaking manufacturing items reserved for SSII MSE
Press Note No. 6 (2009), dated 4-9-2009
1.0 FDI into SSIIMSE
1.1 A Small Scale industrial undertaking (SSI) was defined in terms of: (i) investment in fixed assets in plant and machinery and (ii) equity participation (both domestic and foreign) in the SSI, by other industrial undertakings prior to 2006.
1.2 Vide Press Note 18 (1997), it was further notified that, for cases of foreign collaborations, since the maximum equity participation allowed for in small scale units was 24%, proposals for induction of foreign equity more than 24% would be subject to the condition that: (i) the company would get itself de-registered as a small scale unit and (ii) obtain industrial licence or file Industrial Entrepreneur Memorandum with SIA, as per prescribed policy and procedure.
1.3 With the promulgation of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the ceiling for equity participation (both domestic and foreign) in the micro and small enterprises, by other enterprises, was removed and Micro and Small Enterprises (MSE) (earlier small scale industries) were defined solely on the basis of investment in plant & machinery (for micro and small enterprise engaged in manufacturing) and equipment (for micro and small enterprise engaged in providing or rendering of services). Accordingly, this change was notified by Notification No. S.O. 563(E) dated 27th February 2009 of Department of Industrial Policy & Promotion, Ministry of Commerce & Industry.
1.4 Thus the present policy on FDI in MSE permits FDI subject only to the sectoral equity caps, entry routes and other relevant sectoral regulations.
1.5 Press Note 18 (1997 series) stands modified to the above extent.
2.0 FDI in Industrial Undertaking manufacturing items reserved for SSIIMSE
2.1 Vide Press Note 14 (1997), it was notified that Industrial Undertakings manufacturing items reserved for small scale sector were not eligible for automatic approval for induction of foreign investment.
2.2 Accordingly, the FDI policy notified vide Press Note 2 (2000) prescribed prior approval of Government where foreign investment was more than 24% in the equity capital of units manufacturing items reserved for small scale industries. This was reiterated in the Annex to Press Note 4 (2006) and at Para III (ii) of Annex to Press Note 7 (2008).
2.3 Thus, any industrial undertaking, with or without FDI, which is not a MSE, manufacturing items reserved for manufacture in the MSE sector (presently 21 items) as per the Industrial Policy, would require an Industrial License under the Industries (Development & Regulation) Act, 1951, for such manufacture. The issue of the Industrial Licence will be subject to a few general conditions and the specific condition that the undertaking shall undertake to 'export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production'.
Such an industrial undertaking would also require prior approval of the Government (FIPB) where foreign investment is more than 24% in the equity capital.
D RANGA CHARY
(MANAGER FINANCE)
(23 Points)
Replied 31 March 2010
a limited company with Paid up Capital of 3.00 and reserves 2.00 crores would like to invest in a US incoporated company with 100000 USD . The company incorporated in US is by the managing director of the the indian company . the quiere is that whether indian company can invest in such foreign company , any RBI prior approval required.