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Documentation related to foreign investments in India
A foreign company can set up business in India in the following manners:
i) Incorporate a company under the Companies Act, 1956
ii) As a Joint Venture
iii) A Wholly Owned Subsidiary
iv) Set up a Liaison Office
v) Representative Office
vi) Project Office
vii) Branch Office of the foreign company
Note: Foreigners can not set up a partnership/ proprietorship concern in India as only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.
The activities which a foreign company can undertake in India are enumerated under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.
WHAT IS A DIRECT FOREIGN INVESTMENT OR FDI :
The concept direct foreign investment means foreign investment in any Indian company made directly in form of Foreign Direct Investment (FDI), Portfolio investment from Foreign Institutional Investment (FII), Non-Resident Indian, Qualified Foreign Investor (QFI), Registered Foreign Portfolio Investor and Foreign Venture Capital Investor i.e. under Schedule 1, 2, 2A, 3, 6 and 8 of the Notification No. FEMA.20/2000-RB dated May 3, 2000, as amended from time to time. Thus, the investment in the above manner will be aggregated in first level Indian Company. Such first level Indian Company obviously cannot have indirect foreign investment.
WHAT IS THE COMPOSITION OF INDIRECT FOREIGN INVESTMENT
Indirect foreign investment means entire investment in other Indian companies by an Indian company (IC), having foreign investment in it provided IC is not owned and controlled by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens or where the IC is owned or controlled by non-residents. However, as an exception, the indirect foreign investment in the 100% owned subsidiaries of operating-cum-investing/investing companies will be limited to the foreign investment in the operating-cum-investing/ investing company. Thus, if an Indian company A has 60% FDI/ADR/GDR/Portfolio investment/FCCB/FVCI in it, invests in 100% of the shareholding of another Indian company B, it will be taken as B has an indirect foreign investment of 60%. But, foreign-owned Indian company A, having a foreign investment of more than 50% but less than 100%, invests in 20% of the shareholding of another Indian company B, it will be taken as B has an indirect foreign investment of 20%.
ROUTES OF FDI IN INDIA:
Foreign Direct Investment in an Indian company can be received under these two routes in compliance of the provisions of the FDI policy and report the entire remittance to RBI in the prescribed manner:
FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the Consolidated FDI Policy, issued by the Government of India from time to time.
ii. Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which is considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.
The instruments through which Foreign Direct Investment in an Indian company can be made are:
Foreign investment is reckoned as FDI only if the investment is made in equity shares, fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on the formula that is decided upfront. Partly paid equity shares and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines, as applicable, shall be treated as eligible FDI instruments w.e.f. July 8, 2014 subject to compliance with FDI scheme. The pricing and receipt of balance consideration shall be as stipulated in terms of A.P.(DIR Series) Circular No.3 dated July 14, 2014 as modified from time to time.
The FDI policy provides that the price/ conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations [valuation as per any internationally accepted pricing methodology on arm’s length basis for the unlisted companies and valuation in terms of SEBI (ICDR) Regulations, for the listed companies] without any assured return.
Any FDI company in India can make payments after receiving Foreign Direct Investment in an Indian company by issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by:
(i) inward remittance through normal banking channels.
(ii) debit to NRE / FCNR account of a person concerned maintained with an AD Category-I bank.
(iii) conversion of royalty/lump sum/technical know-how fee due for payment or conversion of ECB, shall be treated as consideration for issue of shares.
(iv) conversion of import payables / pre-incorporation expenses/share swap can be treated as consideration for issue of shares with the approval of FIPB.
(v) debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration.
If the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR (B) / Escrow account, the amount shall be refunded. Further, Reserve Bank may on an application made to it and for sufficient reasons permit an Indian Company to refund/allot shares for the amount of consideration received towards the issue of security if such amount is outstanding beyond the period of 180 days from the date of receipt.
Sectors in which FDI is not allowed in India, both under the Automatic Route as well as under the Government Route:
i) Atomic Energy
ii) Lottery Business
iii) Gambling and Betting
iv) Business of Chit Fund
v) Nidhi Company
vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) (c.f. Notification No. FEMA 94/2003-RB dated June 18, 2003).
vii) Housing and Real Estate business (except development of townships, construction of residen¬tial/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005).
viii) Trading in Transferable Development Rights (TDRs).
ix) Manufacture of cigars, cheroots, cigarillos, and cigarettes, of tobacco or of tobacco substitutes.
Procedure to be followed after the investment is made under the Automatic Route or with Government approval:
After receipt of share application money the following steps are to be undertaken under the present norms:
Within 30 days of receipt of share application money/amount of consideration from the non-resident investor, the Indian company is required to report to the Foreign Exchange Department, Regional Office concerned of the Reserve Bank of India, under whose jurisdiction its Registered Office is located, the Advance Reporting Form, containing the following details:
Name and address of the foreign investor/s;
Date of receipt of funds and the Rupee equivalent;
Name and address of the authorized dealer through whom the funds have been received;
Details of the Government approval, if any; and
KYC report on the non-resident investor from the overseas bank remitting the amount of consideration.
The Indian company has to ensure that the shares are issued within 180 days from the date of inward remittance which otherwise would result in the contravention/violation of the FEMA regulations.
Upon issue of shares to non-resident investors:
Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A together with the following documents should be filed with the Foreign Exchange Department, Regional Office concerned of the Reserve Bank of India.
Certificate from the Company Secretary of the company accepting investment from person resident outside India certifying that:
The company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time.
The investment is within the sectoral cap / statutory ceiling permissible under the Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for investments under the Automatic Route,
Shares have been issued in terms of SIA/FIPB approval No. ——————— dated ——————– (enclosing the FIPB approval copy)
Certificate from Statutory Auditors/ SEBI registered Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
THE EXISTING GUIDELINES FOR TRANSFER OF EXISTING SHARES FROM NON-RESIDENTS TO RESIDENTS OR RESIDENTS TO NON-RESIDENTS UNDER THE FDI POLICY ARE AS UNDER:
i. The original and resultant investment is in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionality’s (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;
ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and
iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.
B. Transfer of shares from Resident to Non-Resident:
i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that:
a) the requisite approval of the FIPB has been obtained; and
b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.
ii) where SEBI (SAST) guidelines are attracted subject to the adherence to the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.
iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:-
The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionality’s (such as minimum capitalization, etc.), reporting requirements, documentation etc.;
The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and
Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank
iv) where the investee company is in the financial sector provided that:
The FDI policy and FEMA regulations in terms of entry route, sectoral caps, conditionality’s (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.
Transfer of shares/ fully and mandatorily convertible debentures by way of Gift:
A person resident outside India can freely transfer shares/ fully and mandatorily convertible debentures by way of gift to a person resident in India as under:
Any person resident outside India, (not being a NRI or an erstwhile OCB), can transfer by way of gift the shares/ fully and mandatorily convertible debentures to any person resident outside India (including NRIs but excluding OCBs).
Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.
NRI may transfer by way of gift, the shares/convertible debentures held by him to another NRI only.
Any person resident outside India may transfer share/ fully and mandatorily convertible debentures to a person resident in India by way of gift.
A PERSON RESIDENT IN INDIA TRANSFER SECURITY BY WAY OF GIFT TO A PERSON RESIDENT OUTSIDE INDIA WITHOUT THE PERMISSION OF GOVERNMENT:
Any person resident in India who proposes to transfer security by way of gift to a person resident outside India [other than erstwhile OCBs] shall make an application to the Central Office of the Foreign Exchange Department, Reserve Bank of India furnishing the following information, namely:
Name and address of the transferor and the proposed transferee
Relationship between the transferor and the proposed transferee
Reasons for making the gift.
In the case of Government dated securities, treasury bills, and bonds, a certificate issued by a Chartered Accountant on the market value of such securities.
In the case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.
In case of shares/ fully and mandatorily convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by the Securities & Exchange Board of India or the valuation as per any internationally accepted pricing methodology on arm’s length basis with regard to listed companies and unlisted companies, respectively.
Certificate from the Indian company concerned certifying that the proposed transfer of shares/convertible debentures, by way of gift, from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 percent of the paid-up capital of the company.
The transfer of a security by way of gift may be permitted by the Reserve Bank provided:
(i) The donee is eligible to hold such security under Schedules 1, 4 and 5 to Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.
(ii) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/ each series of debentures/ each mutual fund scheme
(iii) The applicable sectoral cap/ foreign direct investment limit in the Indian company is not breached
(iv) The donor and the donee are relatives as defined in section 6 of the Companies Act, 1956.
(v) The value of the security to be transferred by the donor together with any security transferred to any person residing outside India as a gift in the financial year does not exceed the rupee equivalent of USD 50000.
(vi) Such other conditions as considered necessary in public interest by the Reserve Bank.
TRANSFER OF SHARES BY RESIDENT WHICH REQUIRES GOVERNMENT APPROVAL
The following instances of transfer of shares from residents to non-residents by way of sale or otherwise requires Government approval:
(i) Transfer of shares of companies engaged in sector falling under the Government Route.
(ii) Transfer of shares resulting in foreign investments in the Indian company, breaching the sectoral cap applicable.
Prior permission of the Reserve Bank in certain cases for acquisition/transfer of security
i) Transfer of shares or convertible debentures from residents to non-residents by way of sale requires prior approval of Reserve Bank in the case where the non-resident acquirer proposes deferment of payment of the amount of consideration. Further, in case of approval is granted for the transaction, the same should be reported in Form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.
(ii) A person resident in India, who intends to transfer any security, by way of gift to a person resident outside India, has to obtain prior approval from the Reserve Bank.
Any other case not covered by General Permission.
COMPLIANCE IN CASE OF TRANSFER OF SHARES BETWEEN RESIDENT AND NON-RESIDENT:
The transaction should be reported by submission of form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt/remittance of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe would be on the resident in India, the transferor or transferee, as the case may be.
METHOD OF PAYMENT AND REMITTANCE/CREDIT OF SALE PROCEEDS IN CASE OF TRANSFER OF SHARES BETWEEN RESIDENT AND NON-RESIDENT:
The sale consideration in respect of the shares purchased by a person resident outside India shall be remitted to India through normal banking channels. In case the buyer is a Foreign Institutional Investor (FII), payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is an NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts. However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR (B)/NRO accounts.
The sale proceeds of shares (net of taxes) sold by a person resident outside India) may be remitted outside India. In the case of FII, the sale proceeds may be credited to its special Non-Resident Rupee Account. In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE/FCNR(B) accounts and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to his NRO account subject to payment of taxes. The sale proceeds of shares (net of taxes) sold by an erstwhile OCB may be remitted outside India directly if the shares were held on repatriation basis and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of erstwhile OCBs whose accounts have been blocked by Reserve Bank.
THE INVESTMENTS AND PROFITS EARNED IN INDIA REPATRIABLE:
All foreign investments are freely repatriable (net of applicable taxes) except in cases where:
i) the foreign investment is in a sector like Construction and Development Projects and Defence wherein the foreign investment is subject to a lock-in period; and
ii) NRIs choose to invest specifically under non-repatriable schemes.
Further, dividends (net of applicable taxes) declared on foreign investments can be remitted freely through an Authorised Dealer bank.
GUIDELINES ON ISSUE AND VALUATION OF SHARES IN CASE OF EXISTING COMPANIES:
The price of shares issued to person resident outside India under the FDI Scheme shall not be less than:
(i) the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognized stock exchange in India;
(ii) the fair valuation of shares done as per SEBI guidelines for listed companies or as per any internationally accepted pricing methodology on arm’s length basis, for unlisted companies
B. The price of shares transferred from resident to a non-resident and vice versa should be determined as under:
i) Transfer of shares from a resident to a non-resident:
a) In the case of listed shares, at a price which is not less than the price at which a preferential allotment of shares would be made under SEBI guidelines.
b) In the case of unlisted shares at a price which is not less than the fair value as per any internationally accepted pricing methodology on arm’s length basis to be determined by a SEBI registered Category-I- Merchant Banker/Chartered Accountant.
ii) Transfer of shares from a non-resident to a resident – The price should not be more than the minimum price at which the transfer of shares would have been made from a resident to a non-resident.
In any case, the price per share arrived at as per the above method should be certified by a SEBI registered Category-I-Merchant Banker / Chartered Accountant.
REGULATIONS PERTAINING TO ISSUE OF ADRS/ GDRS BY INDIAN COMPANIES:
Indian companies can raise foreign currency resources abroad through the issue of ADRs/ GDRs, in accordance with the Scheme for the issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India thereunder from time to time.
A company can issue ADRs / GDRs if it is eligible to issue shares to person resident outside India under the FDI Scheme. However, an Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs.
After the issue of ADRs/GDRs, the company has to file a return in Form DR as indicated in the RBI Notification No. FEMA.20/ 2000-RB dated May 3, 2000, as amended from time to time. The company is also required to file a quarterly return in Form DR- Quarterly as indicated in the RBI Notification ibid.
Unlisted companies incorporated in India to raise capital abroad, without the requirement of prior or subsequent listing in India, initially for a period of two years, subject to conditions mentioned below. This scheme will be implemented from the date of the Government Notification of the scheme, subject to review after a period of two years. The investment shall be subject to the following conditions:
(a) Unlisted Indian companies shall list abroad only on exchanges in IOSCO/FATF compliant jurisdictions or those jurisdictions with which SEBI has signed bilateral agreements;
(b) The ADRs/ GDRs shall be issued subject to sectoral cap, entry route, minimum capitalization norms, pricing norms, etc. as applicable as per FDI regulations notified by the Reserve Bank from time to time;
(c) The pricing of such ADRs/GDRs to be issued to a person resident outside India shall be determined in accordance with the captioned scheme as prescribed under paragraph 6 of Schedule 1 of Notification No. FEMA. 20 dated May 3, 2000, as amended from time to time;
(d) The number of underlying equity shares offered for issuance of ADRs/GDRs to be kept with the local custodian shall be determined upfront and ratio of ADRs/GDRs to equity shares shall be decided upfront based on applicable FDI pricing norms of equity shares of unlisted company;
(e) The unlisted Indian company shall comply with the instructions on downstream investment as notified by the Reserve Bank from time to time;
(f) The criteria of eligibility of unlisted company raising funds through ADRs/GDRs shall be as prescribed by Government of India;
(g) The capital raised abroad may be utilized for retiring outstanding overseas debt or for bona fide operations abroad including for acquisitions;
(h) In case the funds raised are not utilized abroad as stipulated above, the company shall repatriate the funds to India within 15 days and such money shall be parked only with AD Category-1 banks recognized by RBI and shall be used for eligible purposes;
(i) The unlisted company shall report to the Reserve Bank as prescribed under subparagraphs (2) and (3) of Paragraph 4 of Schedule 1 to FEMA Notification No. 20.
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to subscribe to ADRs / GDRs issued by Indian companies.
The pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at a price determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and directions issued by the Reserve Bank, from time to time.
THE SPONSORED ADR & TWO-WAY FUNGIBILITY SCHEME OF ADR/ GDR:
Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/ GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.
Two-way fungibility Scheme: Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/ GDRs. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs/ GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/ GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for the fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long the ADRs/ GDRs are quoted at discount to the value of shares in the domestic market, an investor will gain by converting the ADRs/ GDRs into underlying shares and selling them in the domestic market. In the case of ADRs/ GDRs being quoted at a premium, there will be demand for reverse fungibility, i.e. purchase of shares in the domestic market for re-conversion into ADRs/ GDRs. The scheme is operationalised through the Custodians of securities and stock brokers under SEBI.
INDIAN COMPANIES CAN ISSUE FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS):
FCCBs can be issued by Indian companies in the overseas market in accordance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.
The FCCB being a debt security, the issue needs to conform to the External Commercial Borrowing guidelines, issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3, 2000, as amended from time to time.
A FOREIGN INVESTOR INVEST IN PREFERENCE SHARES:
Any Foreign investment through preference shares is treated as a foreign direct investment. However, the preference shares should be fully and mandatorily convertible into equity shares within a specified time to be reckoned as part of share capital under FDI. Investment in other forms of preference shares requires complying with the ECB norms.
A FOREIGN COMPANY ISSUE DEBENTURES AS PART OF FDI:
Debentures which are fully and mandatorily convertible into equity within a specified time would be reckoned as part of share capital under the FDI Policy.
SHARES CAN BE ISSUED AGAINST LUMPSUM FEE, ROYALTY, ECB, IMPORT OF CAPITAL GOODS/ Machinery / EQUIPMENT (EXCLUDING SECOND-HAND MACHINE) AND PRE-OPERATIVE/PRE-INCORPORATION EXPENSES (INCLUDING PAYMENTS OF RENT)
An Indian company eligible to issue shares under the FDI policy and subject to pricing guidelines as specified by the Reserve Bank from time to time may issue shares to a person resident outside India:
being a provider of technology / technical know-how, against Royalty / Lumpsum fees due for payment;
against External Commercial Borrowing (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI Guidelines).
With prior approval from FIPB for against import of capital goods/ machinery / equipment’s and Pre-operative/pre-incorporation expenses subject to the compliance with the extant FEMA regulations and AP Dir Series 74 dated June 30, 2011.
Provided, that the foreign equity in the company, after such conversion, is within the sectoral cap.
Further, on a review in September 2014, it has been decided that an Indian investee company may issue equity shares against any other funds payable by them, remittance of which does not require prior permission of the Government of India or Reserve Bank of India under FEMA, 1999 or any rules/ regulations framed or directions issued thereunder, provided that:
The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines etc. as amended by Reserve Bank of India, from time to time;
Explanation: Issue of shares/convertible debentures that require Government approval in terms of paragraph 3 of Schedule 1 of FEMA 20 or import dues deemed as ECB or trade credit or payable against import of second-hand machinery shall continue to be dealt in accordance with extant guidelines;
the issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.
SHARES FOR WHICH GENERAL PERMISSION IS AVAILABLE UNDER RBI NOTIFICATION NO. FEMA 20 DATED MAY 3, 2000:
The issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a Trust up to 5% of the paid-up capital of the company.
Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies.
Issue shares or preference shares or convertible debentures on rights basis by an Indian company to a person resident outside India.
A FOREIGN INVESTOR INVEST IN SHARES ISSUED BY AN UNLISTED COMPANY IN INDIA:
As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in shares issued by an unlisted Indian company subject to compliance with FEMA provisions such as pricing, reporting, etc.
A FOREIGN INVESTOR INVEST IN RIGHTS SHARES ISSUED BY AN INDIAN COMPANY AT A DISCOUNT:
There are no restrictions under FEMA for investment in Rights shares issued at a discount by an Indian company, provided the rights shares so issued are being offered at the same price to residents and non-residents. The offer on right basis to the person’s resident outside India shall be:
(a) in the case of shares of a company listed on a recognized stock exchange in India, at a price as determined by the company; and
(b) in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders.
AN AD BANK ALLOW PLEDGE OF SHARES OF AN INDIAN COMPANY HELD BY NON-RESIDENT INVESTOR IN FAVOUR OF AN INDIAN BANK OR AN OVERSEAS BANK OR NBFC:
Allowed vide the instruction sand subject to compliance with the terms and conditions as mentioned in the AP (Dir. Series) Circular No 57 dated May 2, 2011 and A.P. (DIR Series) Circular No.141 dated June 6, 2014.
NON-RESIDENT IS PERMITTED TO ACQUIRE SHARE ON STOCK EXCHANGE UNDER FDI SCHEME ON THE MARKET PRICE IN INDIA:
Portfolio Investors registered with SEBI namely FII and QFI were eligible to acquire shares on the stock exchange in accordance with the requirements. Further, NRIs were also permitted to acquire shares on a stock exchange, on repatriation and non-repatriation basis, in accordance with portfolio investment scheme for them.
With effect from August 5, 2013 (date of publication of relevant notification), a non-resident, other than portfolio investor, is eligible to acquire shares on stock exchange through a registered broker subject to the condition that the non-resident investor has already acquired and continues to hold the control in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations i.e. he has complied with the minimum stake requirement under SEBI Regulations.
NON-RESIDENT, PERMITTED TO ACQUIRE AND SALE SHARES ON STOCK EXCHANGE UNDER FDI SCHEME:
Non-resident shall be at liberty to sell shares as applicable under FDI guidelines. The shares acquired under the present scheme shall be treated as an acquisition under FDI scheme and as such all requirement namely, sectoral cap, entry route, pricing, reporting, documentation etc. would have to be complied with.
Thus, non-resident having acquired shares under the scheme can subsequently transfer shares under FDI scheme.
MODE OF PAYMENT FOR THE NON-RESIDENT PERMITTED TO ACQUIRE SHARE ON STOCK EXCHANGE UNDER FDI SCHEME
The Non-Resident permitted to acquire shares under the scheme can use the following mode for payment of shares:
by way of inward remittance through normal banking channels, or
by way of debit to the NRE/FCNR account of the person concerned maintained with an authorized dealer/bank;
by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in India with the AD bank in accordance with Foreign Exchange Management (Deposit) Regulations, 2000;
the consideration amount may also be paid out of the dividend payable by Indian investee company, in which the said non-resident holds control, provided the right to receive the dividend is established and the dividend amount has been credited to specially designated non-interest bearing rupee account for the acquisition of shares on the floor of stock exchange.
ESCROW ACCOUNT CAN BE OPENED WITHOUT RBI PERMISSION FOR THE NON-RESIDENT PERMITTED TO ACQUIRE SHARE ON STOCK EXCHANGE UNDER FDI SCHEME:
an escrow account for the purpose can be opened under General Permission under Regulation 5(5) of Foreign Exchange Management (Deposit) Regulations. [c.f. FEMA Notification No. 280 dated July 10, 2013]
CONCEPT OF DOWNSTREAM INVESTMENT:
In common understanding, the downstream investment would mean investment by a company in another company by way of subscription or acquisition of shares or acquisition of control. The investment in another Indian company (downstream) by an Indian company already having foreign investment is called downstream investment subject to conditions of ownership and control. Thus, there will be two Indian Companies, a first level company which has accepted foreign investment and in turn, has made an investment in a second level company i.e. another Indian company. [c.f. A.P. (DIR Series) Circular Numbers 1, 42 and 44 respectively dated July 4, 2013, September 13, 2013 and September 13, 2013].
INVESTMENT IN SECOND LEVEL INDIAN COMPANY:
Second level Indian Company can have ‘direct foreign investment’ as explained above and also have investment from another Indian company which is not ‘resident owned and controlled’ i.e. indirect foreign investment.
Further, the methodology for calculation of total foreign investment i.e. direct as well as the indirect foreign investment would apply at every stage of investment in Indian companies and thus in each and every Indian company.
RESIDENT OWNED INDIAN COMPANY:
An Indian company be treated as ‘Owned by resident Indian citizens’ if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens. Thus, computation of such percentage would require ascertaining shareholding by ‘resident Indian citizens’ and if the shareholding of such company is held by another Indian company each of such Indian companies are ultimately owned and controlled by resident Indian citizens. It is clarified that such Indian owners are not the only resident within the meaning of Section 2(v) of FEMA, 1999 but are also citizens of India. The shareholding of a foreign citizen who has become resident within the meaning of Section 2(v) ibid will not be aggregated for the benchmark of 50% and above.
Further, for Information & Broadcasting and defense sector if a declaration is made by persons as per section 187C of the Indian Companies Act about a beneficial interest being held by a non-resident entity, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.
THE EXTANT PRICING GUIDELINES FOR FDI INSTRUMENTS
In terms of extant FEMA regulations, foreign investment in an Indian investee company should be subject to pricing guidelines as stipulated by RBI/SEBI from time to time. Earlier, the pricing guidelines for FDI instruments with optionality clauses was decided in terms of A.P.(DIR Series) Circular No. 86 dated January 9, 2014. The extent pricing guidelines for FDI investment has since been reviewed vide A. P. (DIR Series) Circular No. 4 dated July 15, 2014 as under:
(i) In case of listed companies the issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures shall be as per the SEBI guidelines and for FDI instruments with optionality clauses shall continue to be in accordance with A.P. (DIR Series) Circular No. 86 dated January 9, 2014, i.e., the non-resident investor shall be eligible to exit at the market price prevailing on the recognised stock exchanges subject to lock-in period as stipulated, without any assured return.
(ii) In the case of unlisted companies, the issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures with or without optionality clauses shall be at a price worked out as per any internationally accepted pricing methodology on arm’s length basis.
FOREIGN TECHNOLOGY COLLABORATION AGREEMENT:
RBI has delegated the powers, to make payments for royalty, lump sum fee for transfer of technology and payment for use of trademark/brand name in terms of the foreign technology collaboration agreement entered by the Indian company with its foreign partners, to the AD banks subject to compliance with the provisions of Foreign Exchange Management (Current Account Transactions) Rules, 2000. Further, the requirement of registration of the agreement with the Regional Office of Reserve Bank of India has also been done away with.
FOREIGN PORTFOLIO INVESTMENT:
THE REGULATIONS REGARDING PORTFOLIO INVESTMENTS BY REGISTERED FOREIGN PORTFOLIO INVESTORS (RFPIS)
Investment by RFPI registered in accordance with SEBI guidelines including deemed RFPI [erstwhile FII, QFI) is permitted. RFPI may include Asset Management Companies, Pension Funds, Mutual Funds, and Investment Trusts as Nominee Companies, Incorporated / Institutional Portfolio Managers or their Power of Attorney holders, University Funds, Endowment Foundations, Charitable Trusts and Charitable Societies.
Investment by RFPIs cannot exceed 10 per cent of the paid-up capital of the Indian company. All RFPI/FII/QFI have taken together cannot acquire more than 24 percent of the paid-up capital of an Indian Company.
RFPI can invest in primary issues of Non-Convertible Debentures (NCDs)/ bonds only if the listing of such bonds / NCDs is committed to be done within 15 days of such investment. In case the NCDs/bonds issued to the SEBI RFPI are not listed within 15 days of issuance, for any reason, then the RFPI shall immediately dispose of these bonds/NCDs either by way of sale to a third party or to the issuer and the terms of offer to RFPI should contain a clause that the issuer of such debt securities shall immediately redeem / buyback the said securities from the RFPI in such an eventuality.
THE REGULATIONS REGARDING PORTFOLIO INVESTMENTS BY NRIS/PIOS:
Non- Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase or sell shares/ fully and mandatorily convertible debentures of Indian companies on the Stock Exchanges under the Portfolio Investment Scheme. For this purpose, the NRI/ PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/ purchase transactions are to be routed through the designated branch.
An NRI or a PIO can purchase shares up to 5 per cent of the paid-up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10 percent of the paid up value of the company.
The sale proceeds of the repatriable investments can be credited to the NRE/ NRO, etc. accounts of the NRI/ PIO, whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
The sale of shares will be subject to payment of applicable taxes.
INVESTMENT IN OTHER SECURITIES:
A Non-resident Indian (NRI) and SEBI registered Foreign Institutional Investor (FII)invest in Government Securities/ Treasury bills and Corporate debt under the FEMA Regulations, only NRIs and SEBI registered FIIs are permitted to purchase Government Securities/Treasury bills and Corporate debt. The details are as under:
A Non-resident Indian can purchase without limit,
(1) on repatriation basis
i) Dated Government securities (other than bearer securities) or treasury bills or units of domestic mutual funds;
ii) Bonds issued by a public sector undertaking (PSU) in India; and
iii) Shares in Public Sector Enterprises being disinvested by the Government of India.
(2) on non-repatriation basis
i) Dated Government securities (other than bearer securities) or treasury bills or units of domestic mutual funds;
ii) Units of Money Market Mutual Funds in India; and
iii) National Plan/Savings Certificates.
A SEBI registered FII may purchase, on repatriation basis, dated Government securities/ treasury bills, listed non-convertible debentures/ bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or in any manner as per the prevalent/approved market practice.
Purchase of debt instruments including Upper Tier II instruments issued by banks in India and denominated in Indian Rupees by FIIs are subject to limits notified by SEBI and the Reserve Bank from time to time. The present limit for investment in Corporate Debt Instruments like non-convertible debentures/bonds by RFPI/FII/QFI and long-term investors is USD 51 billion, out of which a sub-limit up to USD 2 billion is for Commercial Papers.
The present limit for investment by SEBI registered Foreign Institutional Investors (FIIs), SEBI registered Qualified Foreign Investors (QFIs) and long term investors registered with SEBI and Registered Foreign Portfolio Investor (RFPI) in Government Securities is USD 30 billion.
NRI and SEBI registered FII invest in Tier I and Tier II instruments issued by banks in India as RFPI and NRIs have been permitted to subscribe to the Perpetual Debt instruments (eligible for inclusion as Tier I capital) and Debt Capital instruments (eligible for inclusion as upper Tier II capital), issued by banks in India and denominated in Indian Rupees, subject to the following conditions:
i)Investment by all RFPI in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 49 per cent of each issue and investment by individual FII should not exceed the limit of 10 percent of each issue.
i)Investments by all NRIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 24 per cent of each issue and investments by a single NRI should not exceed 5 percent of each issue.
ii)Investment by RFPIs in Rupee denominated Debt Capital instruments (Tier II) shall be within the limits stipulated by SEBI for RFPI/FII/QFI investment in corporate debt instruments.
iii)Investment by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.
iv)Investment by RFPIs in Rupee denominated Upper Tier II Instruments raised in Indian Rupees will be within the limit prescribed by the SEBI for investment in corporate debt instruments.
v)The details of the secondary market sales/purchases by RFPIs and the NRIs in these instruments on the floor of the stock exchange are to be reported by the custodians and designated Authorised Dealer banks respectively, to the Reserve Bank through the soft copy of the Forms LEC (FII) and LEC (NRI).
NRI AND RFPI INVEST IN INDIAN DEPOSITORY RECEIPTS (IDRS):
NRI and RFPIs have been permitted to invest, purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market, subject to the following conditions:
(i) The purchase, hold and transfer of IDRs is in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 notified vide Notification No. FEMA 20 / 2000-RB dated May 3, 2000, as amended from time to time.
A limited two-way fungibility for IDRs (similar to the limited two-way fungibility facility available for ADRs/GDRs) subject to the following terms and conditions:
The conversion of IDRs into underlying equity shares would be governed by the conditions mentioned in paras 6 and 7 of A.P. (DIR Series) Circular No. 5 dated July 22, 2009.
Fresh IDRs would continue to be issued in terms of the provisions of A.P. (DIR Series) Circular No. 5 dated July 22, 2009.
The re-issuance of IDRs would be allowed only to the extent of IDRs that have been redeemed /converted into underlying shares and sold.
There would be an overall cap of USD 5 billion for raising of capital by issuance of IDRs by eligible foreign companies in Indian markets. This cap would be akin to the caps imposed for FII investment in debt securities and would be monitored by SEBI.
IDRs shall not be redeemable into underlying equity shares before the expiry of one year period from the date of issue of the IDRs.
At the time of redemption/conversion of IDRs into the underlying shares, the Indian holders (person resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004 dated July 7, 2004, as amended from time to time.
The FEMA provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs and NRIs. The issuance, redemption, and fungibility of IDRs would also be subject to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time as well as other relevant guidelines issued in this regard by the Government, the SEBI and the RBI from time to time.
A PERSON RESIDENT IN INDIA INVEST IN INDIAN DEPOSITORY RECEIPTS (IDRS)? WHAT IS THE PROCEDURE FOR REDEMPTION OF IDRS HELD BY PERSONS RESIDENT IN INDIA:
A person resident in India may purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market. The FEMA Regulations shall not be applicable to person resident in India as defined in section 2(v) of FEMA, 1999, for investing in IDRs and subsequent transfer arising out of a transaction on a recognized Stock Exchange in India. However, at the time of redemption/conversion of IDRs into underlying shares, the Indian holders (person resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004 dated July 7, 2004, as amended from time to time. The following guidelines shall be followed on redemption of IDRs by person resident in India:
i. Listed Indian companies may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulations 6B and 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.
ii. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulation 6C of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.
iii. Other person resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares.
FOREIGN VENTURE CAPITAL INVESTMENT
A SEBI registered Foreign Venture Capital Investor has general permission from the Reserve Bank of India to invest in a Venture Capital Fund (VCF) or an Indian Venture Capital Undertaking (IVCU), in the manner and subject to the terms and conditions specified in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. These investments by SEBI registered FVCI, would be subject to the SEBI regulation and sector specific caps of FDI.
FVCIs can purchase equity/equity linked instruments/debt / debt instruments, debentures of an IVCU or of a VCF through initial public offer or private placement in units of schemes/funds set up by a VCF. At the time of granting approval, the Reserve Bank permits the FVCI to open a Foreign Currency Account and/ or a Rupee Account with a designated branch of an AD Category I bank.
FVCIs allowed investing in the eligible securities (equity, equity linked instruments, debt, debt instruments, debentures of an IVCU or VCF, units of schemes/funds set up by a VCF) by way of private arrangement/purchase from a third party also. FVCIs are also allowed to invest in securities on a recognized stock exchange.
The purchase/sale of shares, debentures, and units can be at a price that is mutually acceptable to the buyer and the seller.
AD Category I banks can offer forward cover to FVCIs to the extent of total inward remittance. In case the FVCI has made any remittance by liquidating some investments, the original cost of the investments has to be deducted from the eligible cover to arrive at the actual cover that can be offered.
QFI MEAN A PERSON WHO FULFILS THE FOLLOWING CRITERIA:
(a) Resident in a country that is a member of Financial Action Task Force (FATF) or a member of a group which is a member of FATF; and
(b) Resident in a country that is a signatory to IOSCO MoU (Appendix A Signatories) or a signatory of a bilateral MoU with SEBI
PROVIDED that the person is not resident in a country listed in the public statements issued by FATF from time to time in jurisdictions having a strategic AML/CFT deficiencies to which countermeasures apply or that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies;
Further such person is not resident in India and is not registered with SEBI as a Foreign Institutional Investor (FII) or Sub-Account of an FII or Foreign Venture Capital Investor (FVCI).
“bilateral MoU with SEBI shall mean a bilateral MoU between SEBI and the overseas regulator that, inter alia, provides for information sharing arrangements.
Member of FATF shall not mean an associate member of FATF.
Reporting requirements of QFI
(A) Reporting of FDI for fresh issuance of shares
(i) Reporting of inflow
(a) The actual inflows on account of such issuance of shares shall be reported by the AD branch in the R-returns in the normal course.
(b) An Indian company receiving investment from outside India for issuing shares / convertible debentures / preference shares under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank through it AD Category I bank, not later than 30 days from the date of receipt in the Advance Reporting Form enclosed in Annex – 6. Noncompliance with the above provision would be reckoned as a contravention under FEMA, 1999 and could attract penal provisions.
(c) Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares / convertible debentures, through an AD Category – I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor from the overseas bank remitting the amount. The report would be acknowledged by the Regional Office concerned, which will allow a Unique Identification Number (UIN) for the amount reported.
(ii) Time frame within which shares have to be issued
The equity instruments should be issued within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) /Escrow account of the non-resident investor. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B)/Escrow account, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. In exceptional cases, refund/allotment of shares for the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the Reserve Bank, on the merits of the case.
(iii) Reporting of issue of shares
(a) After issue of shares (including bonus and shares issued on rights basis and shares issued on conversion of stock option under ESOP scheme)/ convertible debentures / convertible preference shares, the Indian company has to file Form FC-GPR, through its AD Category I bank, not later than 30 days from the date of issue of shares. The Form can also be downloaded from the Reserve Bank’s website http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx
Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.
(b) Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorised Dealer of the company, who will forward it to the concerned Regional Office of the Reserve Bank. The following documents have to be submitted along with Form FC-GPR:
(i) A certificate from the Company Secretary of the company certifying that:
a) all the requirements of the Companies Act, 1956 have been complied with;
b) terms and conditions of the Government’s approval, if any, have been complied with;
c) the company is eligible to issue shares under these Regulations, and
d) the company has all original certificates issued by AD banks in India evidencing receipt of the amount of consideration.
(ii) A certificate from SEBI registered Merchant Banker or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the person resident outside India.
(c) The report of receipt of consideration as well as Form FC-GPR has to be submitted by the AD bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated.
d) Issue of bonus/rights shares or shares on conversion of stock options issued under ESOP to persons resident outside India directly or on amalgamation / merger with an existing Indian company, as well as issue of shares on conversion of ECB / royalty / lumpsum technical know-how fee / import of capital goods by units in SEZs has to be reported in Form FC-GPR.
REPORTING OF FDI FOR TRANSFER OF SHARES ROUTE:
(i) The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in the normal course.
(ii) Reporting of transfer of shares between residents and non-residents and vice- Versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India.
(iii) The sale consideration in respect of equity instruments purchased by a person resident outside India remitted into India through normal banking channels, shall be subjected to a KYC check (Annex 9-ii) by the remittance receiving AD Category I bank at the time of receipt of funds. In case, the remittance receiving AD Category I bank is different from the AD Category – I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category I bank carrying out the transaction along with the Form FC-TRS.
(iv) The AD bank should scrutinize the transactions and on being satisfied with the transactions should certify the form FC-TRS as being in order.
(v) The AD bank branch should submit two copies of the Form FC-TRS received from their constituents/customers together with the statement of inflows/outflows on account of remittances received/made in connection with transfer of shares, by way of sale, to IBD/FED/or the nodal office designated for the purpose by the bank in the proforma (which is to be prepared in MS-Excel format). The IBD/FED or the nodal office of the bank will consolidate reporting in respect of all the transactions reported by their branches into two statements inflow and outflow statement. These statements (inflow and outflow) should be forwarded on a monthly basis to Foreign Exchange Department, Reserve Bank, Foreign Investment Division, Central Office, Mumbai in soft copy (in MS- Excel) by e-mail. The bank should maintain the FC-TRS forms with it and should not forward the same to the Reserve Bank of India.
(vi) The transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer on its books.
(vii) On receipt of statements from the AD bank, the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be.
REPORTING OF CONVERSION OF ECB INTO EQUITY:
Details of issue of shares against conversion of ECB have to be reported to the Regional Office concerned of the Reserve Bank
REPORTING OF ESOPS FOR ALLOTMENT OF EQUITY SHARES:
The issuing company is required to report the details of issuance of ESOPs to its employees to the Regional Office concerned of the Reserve Bank, in plain paper reporting, within 30 days from the date of issue of ESOPs. Further, at the time of conversion of options into shares the Indian company has to ensure reporting to the Regional Office concerned of the Reserve Bank in form FC-GPR, within 30 days of allotment of such shares. However, provision with regard to advance reporting would not be applicable for such issuances.
REPORTING OF ADR/GDR ISSUES:
The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the Form enclosed in Annex -10, within 30 days from the date of closing of the issue. The company should also furnish a quarterly return in the prescribed Form, to the Reserve Bank within 15 days of the close of the calendar quarter. The quarterly return has to be submitted till the entire amount raised through ADR/GDR mechanism is either repatriated to India or utilized abroad as per the extant Reserve Bank guidelines.
(i) RFPI reporting: The AD Category – I banks have to ensure that the RFPI who are purchasing various securities (except derivative and IDRs) by debit to the Special Non-Resident Rupee Account should report all such transactions details (except derivative and IDRs) in the Form LEC to Foreign Exchange Department, Reserve Bank of India, Central Office by uploading the same to the ORFS website (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the bank’s responsibility to ensure that the data submitted to RBI is reconciled by periodically taking an FII holding report for their bank.
(iii) The Indian company which has issued shares to FIIs under the FDI Scheme (for which the payment has been received directly into company account) and the Portfolio Investment Scheme (for which the payment has been received from FIIs’ account maintained with an AD Category I bank in India) should report these figures separately under item no. 5 of Form FC-GPR (Annex – 8) (Post-issue pattern of shareholding) so that the details could be suitably reconciled for statistical / monitoring purposes.
REPORTING OF NRI INVESTMENTS UNDER PIS SCHEME:
The link office of the designated branch of an AD Category – I bank shall furnish to the Reserve Bank18, a report on a daily basis on PIS transactions undertaken by it, on behalf of NRIs. This report can be furnished on a floppy to the Reserve Bank and also uploaded directly on the ORFS website (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the bank’s responsibility to ensure that the data submitted to RBI is reconciled by periodically taking an NRI holding report for their bank.
REPORTING OF FOREIGN INVESTMENT BY WAY OF ISSUE / TRANSFER OF PARTICIPATING INTEREST/RIGHTS IN OIL FIELDS:
Foreign investment by way of issue/transfer of participating interest/right” in oil fields by Indian companies to a nonresident would be treated as an FDI transaction under the extant FDI policy and the FEMA regulations. Accordingly, transfer of participating interest/ rights will be reported as other categories under Para 7 of revised Form FC-TRS and issuance of participating interest/ rights will be reported as another category of instruments under Para 4 of Form FCGPR.
The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval to amendments to the Real Estate (Regulation and Development) Bill, 2013 pending in the Rajya Sabha, and approved amendments proposed in the Bill. The recommendations of the Standing Committee of Parliament on Urban Development and suggestions of various stakeholders (consumer organizations, industry associations, academia, experts etc.) have also been included after extensive consultations.
The Real Estate (Regulation and Development) Bill is a pioneering initiative to protect the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects.
The Bill provides for a uniform regulatory environment, to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector. The Bill contains provisions for registration of real estate projects and registration of real estate agents with the Real Estate Regulatory Authority; functions and duties of promoters and allottees; establishment of Real Estate Regulatory Authority; establishment of fast track dispute resolution mechanism through adjudication; establishment of a Real Estate Appellate Tribunal; offences and penalties etc.
These measures are expected to boost domestic and foreign investment in the sector and help achieve the objective of the Government of India to provide ‘Housing for All by 2022’, through enhanced private participation.
The Bill ensures mandatory disclosure by promoters to customers through registration of real estate projects as well as real estate agents with the Real Estate Regulatory Authority. The Bill aims at restoring the confidence of the general public in the real estate sector; by instituting transparency and accountability in real estate and housing transactions. This, in turn, will enable the sector to access capital and financial markets essential for its long-term growth. The Bill will promote orderly growth through consequent efficient project execution, professionalism, and standardization.
The Bill is expected to ensure greater accountability towards consumers, and to significantly reduce frauds and delays. The Bill is also expected to promote regulated and orderly growth through efficiency, professionalism, and standardization. It seeks to ensure consumer protection, without adding another stage in the procedure for sanctions.
The salient features of the Bill are as under:
1. Applicability of the Bill:
The proposed initial Bill was applicable for residential real estate. It is now proposed to cover both residential and commercial real estate;
2. Establishment of Real Estate Regulatory Authority:
Establishment of one or more Real Estate Regulatory Authority in each State/ Union Territory (UT), or one Authority for two or more States/UT, by the Appropriate Government for oversight of real estate transactions,
To appoint one or more adjudicating officers to settle disputes and impose compensation and interest;
3. Registration of Real Estate Projects and Registration of Real Estate Agents:
Mandatory registration of real estate projects and real estate agents who intend to sell any plot, apartment or building, with the Real Estate Regulatory Authority;
4. Mandatory Public Disclosure of all project details:
Mandatory public disclosure norms for all registered projects such as details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals and disclosure of proforma agreements, names and addresses of real estate agents, contractors, architect, structural engineer etc.;
5. Functions and Duties of Promoter:
Disclosure of all relevant information of project;
Adherence to approved plans and project specifications;
Obligations regarding veracity of the advertisement for sale or prospectus;
Rectify structural defects;
Refund money in cases of default;
6. Compulsory deposit of 50 percent:
To compulsorily deposit 50 percent (or such lesser percent as notified by the Appropriate Government) of the amounts realized for the real estate project from the allottees in a separate account in a scheduled bank within a period of fifteen days to cover the cost of construction to be used for that purpose;
7. Adherence to declared plans:
To bar the promoter from altering plans, structural designs, and specifications of the plot, apartment or building without the consent of two-third allottees after disclosure;
However, minor additions or alterations permissible due to architectural and structural reasons;
8. Functions of Real Estate Agents:
Real estate agents to sell properties registered with the Authority;
Maintain books of accounts, records, and documents;
Not to involve in any unfair trade practices;
9. Rights and Duties of Allottees:
Right to obtain stage-wise time schedule of project;
Claim possession as per promoter declaration;
Refund with interest and compensation for default by the promoter;
Allottees to make payments and fulfill responsibilities as per agreement;
10. Functions of Real Estate Regulatory Authority:
The Authority to act as the nodal agency to coordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate Government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector;
11. Fast Track Dispute Settlement Mechanism:
Fast track dispute resolution through adjudicating officers (District Judge);
Appellate Tribunal to hear appeals;
12. Establishment of Central Advisory Council:
To advise the Central Government on implementation of the Act, recommend policy, protection of consumer interest and to foster growth and development of the real estate sector;
13. Establishment of Real Estate Appellate Tribunal:
Real Estate Appellate Tribunal to hear appeals from orders of the Authority and the adjudicating officer. The Appellate Tribunal is to be headed by a sitting or retired Judge of the High Court, with one judicial and one administrative/technical member;
14. Punitive Provisions:
Punitive provisions including de-registration of the project and penalties in case of contravention of provisions of the Bill or the orders of the Authority or Tribunal;
Banker to an issue A scheduled bank carrying on all or any of the issue related activities namely acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of a dividend or interest warrants.
Collective investment scheme Any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilized with a view to receiving profits, income, produce or property, and is managed on behalf of the investors is a Collective Investment Scheme. Investors do not have a day to day control over the management and operation of such scheme or arrangement.
Credit rating agency Credit rating agency means a body corporate which is engaged in or proposes to be engaged in, the business of rating of securities offered by way of public or rights issue.
Custodian An organization, usually a bank or any other approved institutions, that hold the securities and other assets of mutual funds and other institutional investors.
Depository A system of organization, which keeps records of securities, deposited by its depositors. The records may be physical or simply electronic records.
Depository Participant An agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI.
Foreign institutional investor An institution established or incorporated outside India which proposes to make investment in India in securities; provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor.
Merchant banker Any person who is engaged in the business of issue management either by making arrangement regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management.
Portfolio Manager Any person who pursuant to a contract or agreement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client as the case may be.
Registrar to issue The person appointed by a body corporate or any person or group of persons to carry on the activities of collecting applications from investors in respect of an issue; keeping a proper record of applications and monies received from investors or paid to the seller of the securities and assisting body corporate or person or group of persons in- determining the basis of allotment of securities in consultation with the stock exchange; finalizing of the list of persons entitled to allotment of securities; processing and dispatching allotment letters, refund orders or certificates and other related documents in respect of the issue.
Share transfer agent Any person, who on behalf of any body corporate maintains the record of holders of securities issued by such body corporate and deals with all matters connected with the transfer and redemption of its securities. It can also be a department or division (by whatever name called) of a body corporate performing the above activities if, at any time the total number of the holders of securities issued exceed one lakh.
Sub-broker Any person not being a member of a stock exchange who acts on behalf of a stockbroker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock-brokers.
Trustee to trust deed Legal custodian who looks after all the monies invested in a unit trust or mutual fund. As per SEBI Debenture Trustee rules, the trust deed is a deed executed by the body corporate in favor of the trustees named therein for the benefit of the debenture holders.
Underwriter A financial organization that handles sales of new securities which a company or municipality wishes to sell in order to raise money. Typically the underwriters will guarantee subscription to securities say, an issue of equity from the company at a stated price, and are under an obligation to purchase securities up to the amount they have underwritten, should the public not subscribe for the issue.
Venture capital fund A fund established in the form of a trust or a company including a body corporate and registered under the SEBI venture capital fund regulations which – has a dedicated pool of capital, raised in a manner specified in the regulations and invests in venture capital undertaking in accordance with the regulations.
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