Notification No. FEMA 20/2000-RB dated 3rd May 2000 - In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 ( 42 of 1999), the Reserve Bank makes the following regulations to prohibit, restrict or regulate, transfer or issue security by a person resident outside India, namely:

Short title and commencement :-

1. (1) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Fourth Amendment) Regulations, 2000.

   (2) They shall come into effect on the 1st day of June 2000.

4[(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by A Person Resident Outside India) (Ninth Amendment) Regulations, 2013.

(ii) Save as otherwise provided in these Regulations, they shall come into force from the February 13, 2009.]

^Old[¹[(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Sixth Amendment) Regulations, 2012.

(ii) Save as otherwise provided in these Regulations as to the coming into force of any particular provision, the provisions of these Regulations shall come into force from the date of publication of this notification.]]

^Old[1. (i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Fourth Amendment) Regulations, 2004.

(2) They shall come into force on the 30^th day of August, 2004]

2. Definitions :-

In these Regulations, unless the context requires otherwise, -

i. 'Act' means the Foreign Exchange Management Act,1999 (42 of 1999);

¹[(ia) 'Asset Reconstruction Company' (ARC) means a company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).]

1 Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Second Amendment) Regulation 2006.

²[ii. 'Capital' means equity shares, preference shares, convertible preference shares, and convertible debentures;]

2.Substituted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Second Amendment) Regulation 2008.

³[iia.‘entity incorporated outside India means an entity incorporated/registered under the relevant statutes, laws of the host country]

3 Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Second Amendment) Regulation 2003.

⁴[(iib) 'preference Share means compulsorily and mandatory convertible preference shares]

4.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Second Amendment) Regulation 2008.

⁵[(iic) Debenture means compulsorily and mandatory convertible debenture.]

iii. 'registered Foreign Institutional Investor (FII)' means the foreign institutional investor registered with SEBI;

⁷[iiia. 'Foreign Venture Capital Investor' means an investor incorporated and established outside India which proposes to make investment in Venture Capital Fund(s) or Venture Capital Undertaking(s) in India and is registered with SEBI under SEBI (Foreign Venture Capital Investors) Regulations, 2000;]

7.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulation 2000.

⁸[(iiib) 'Foreign Central Bank' means an institution/organization/body corporate established in a country outside India and entrusted with responsibility of carrying out central bank function under the law for the time being in force in that country;]

8.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulation 2007.

iv. 'Government approval' means approval from the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India or as the case may be , Foreign Investment Promotion Board (FIPB) of the Government of India,

v. 'Indian company' means a company incorporated in India;

⁹[va. 'Indian Venture Capital Undertaking' means a company incorporated in India whose shares are not listed on a recognized stock exchange in India and which is not engaged in an activity under the negative list specified by SEBI;"]

9.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulation 2000.

vi. 'Investment on repatriation basis' means an investment the sale proceeds of which are, net of taxes, eligible to be repatriated out of India, and the expression 'Investment on non-repatriation basis', shall be construed accordingly;

vii. Joint Venture (JV) and Wholly Owned Subsidiary shall have the meanings respectively assigned to them in the Foreign Exchange Management (Transfer and Issue of Foreign Security) Regulations, 2000;

¹⁰[(viia) NRI shall have the same meaning assigned to him under the Foreign Exchange Management (Deposit) Regulations, 2000.]

10. Substituted by FEM (Transfer or Issue of Security by a Person Resident Outside India) (Fourth Amendment) Regulations, 2004.

viii. [Non-resident Indian (NRI)'] ^omitted, 'Overseas Corporate Body (OCB)', shall have the meanings respectively assigned to them in the Foreign Exchange Management (Deposit) Regulations,2000.

²[(viiia)Qualified Foreign Investor (QFI) means 

1. resident of a country, that is compliant with the Financial Action Task Force (FATF) standards and is a signatory to the IOSCO Multilateral Memorandum of Understanding (MMoU); and

2. satisfied the KYC requirements stipulated by SEBI

Provided that such a person is not registered with SEBI as a Foreign Institutional Investor (FII) or Foreign Venture Capital Investor (FVCI).

(b) With effect from 16th day of July, 2012, a person who satisfies the following criteria at the relevant time:

(i) Resident in a country that is a member of FATF or a member of a group which is a member of FATF; and

(ii) Resident in a country that is a signatory to IOSCO MMoU (and referred to as Appendix A Signatories therein) 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 on jurisdictions having strategic AML/CFT deficiencies to which counter measures 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;

Provided that such person is not resident in India;

Provided further that such person is not registered with SEBI as a FII or Sub-Account of an FII or FVCI.

Explanation For the purposes of this clause :

1. bilateral MoU with SEBI shall mean a bilateral MoU between SEBI and the overseas regulator that, inter alia, provides for information sharing arrangements.

2. Member of FATF shall not mean an associate member of FATF ]

ix. 'SEBI' means the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992 ( 15 of 1992);

x.' Secretariat for Industrial Assistance" means Secretariat for Industrial Assistance in the Department of Industrial Policy and Promotion , Ministry of Commerce and Industry, Govt. of India;

xi. 'Transferable Development Rights (TDR)' shall have the same meaning as assigned to it in the Regulations made under sub-section (2) of section 6 of the Act;

¹¹[xia. 'Venture Capital Fund' means a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capital raised in a manner specified under the said Regulations and which invests in venture Capital Undertakings in accordance with the said Regulations;"]

11..Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulation 2000.

xii.The words and expressions used but not defined in these Regulations shall have the same meanings respectively assigned to them in the Act.

3. Restriction on issue or transfer of Security by a person resident outside India :-

Save as otherwise provided in the Act, or rules or regulations made there under, no person resident outside India shall issue or transfer any security:-

Provided that a security issued prior to, and held on, the date of commencement of these Regulations, shall be deemed to have been issued under these Regulations and shall accordingly be governed by these Regulations;

Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons, permit a person resident outside India to issue or transfer any security, subject to such conditions as may be considered necessary.

4. Restriction on an Indian entity to issue security to a person resident outside India or to record a transfer of security from or to such a person in its books :-

Save as otherwise provided in the Act or Rules or Regulations made there under, an Indian entity shall not issue any security to a person resident outside India or shall not record in its books any transfer of security from or to such person:-

Provided that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an entity to issue any security to a person resident outside India or to record in its books transfer of security from or to such person, subject to such conditions as may be considered necessary.

5. Permission for purchase of shares by certain persons resident outside India :-

¹⁹[(9) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the terms and conditions as specified in Schedule 9”]

 [These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017.]

^old [(1) ¹[(i)] A person resident outside India (other than a citizen of Bangladesh or Pakistan or [Sri Lanka] ^omitted or an entity ²[incorporated outside India] ^old [outside India] (other than an entity in Bangladesh or Pakistan) , may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions specified in Schedule 1.

1.Sub regulation (1) renumbered as clause (i) of sub-regulation (1) by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2007.

2.Substituted by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Third Amendment) Regulation 2003.

¹[(ii) Notwithstanding anything contained in sub-regulation (i) above , a person who is a citizen of Bangladesh or an entity incorporated in Bangladesh may, with the prior approval of the Foreign Investment  Promotion Board of the Government of India, purchase shares and convertible debentures of an Indian Company under Foreign Direct Investment Scheme, Subject to the terms and conditions specified in schedule1]

1.Inserted by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2007.

(2) A registered Foreign Institutional Investor (FII) may purchase shares or convertible debentures of an Indian company under the Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 2.

^omitted ["Provided that the FII shall not purchase shares or convertible debentures of an Indian company which is engaged in the print media sector".] 

(3) (i) A Non-resident Indian (NRI) may purchase shares or convertible debentures of an Indian Company on a Stock Exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3, ^omitted[ provided that the NRI shall not purchase shares or convertible debentures of an Indian Company which is engaged in Print Media sector]  

(ii) A non-resident Indian or an ^omitted[Overseas Corporate Body] may purchase shares or convertible debentures of an Indian company on non-repatriation basis other than under Portfolio Investment Scheme subject to the terms and conditions specified in Schedule 4, provided that the NRI or OCB shall not purchase shares or convertible debentures of an Indian Company which is engaged in Print Media sector.

^omitted["Provided that the NRI/OCB shall not purchase shares or convertible debentures of an Indian company which is engaged in the print media sector".]

¹[ A non-resident Indian or a registered FII or a foreign Central bank ²[or a QFI or any other person resident outside India] may purchase securities, other than shares or convertible debentures of an Indian company, subject to the terms and conditions specified in Schedule 5.]

^old[(4) A non-resident Indian or an overseas corporate body or a registered FII may purchase securities, other than shares or convertible debentures of an Indian company, subject to the terms and conditions specified in Schedule 5.]

1.Substituted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulation 2007.

²[(5) A Foreign Venture Capital Investor registered with SEBI may make investment in a Venture Capital Fund or an Indian Venture Capital Undertaking, in the manner and subject to the terms and conditions specified in Schedule 6.]

2.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulation 2000.

^omitted ["Provided that the Foreign Venture Capital Investor shall not purchase shares or convertible debentures of an Indian company which is engaged in the print media sector"]

³[(6) A registered Foreign Institutional Investor (FII) having valid approval under FERA, 1973 or under FEMA 1999 may trade in all exchange traded derivative contracts approved by SEBI/RBI from time to time subject to the limits and margin requirement pescribed by the RBI/SEBI as well as the stipulation regarding collateral securities as directed by the Reserve Bank from time to time.]

^old[(6) A registered Foreign Institutional Investor (FII) having valid approval under FERA, 1973 or under FEMA 1999 may trade in all exchange traded derivative contracts approved by SEBI from time to time subject to the limits as prescribed in by SEBI.]

3.Substituted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2008

.

(7) A Non-Resident Indian (NRI) may invest in exchange traded derivative contracts approved by SEBI from time to time out of INR funds held in India on non-repatriable basis subject to the limits prescribed by SEBI. Such investments will not be eligible for repatriation benefits.

²[(7A) A QFI may purchase equity shares of an Indian company subject to the terms and conditions specified in Schedule 8.”

(iii) after sub-regulation(7A), the following shall be inserted, namely:

“Explanation : For the purposes of sub-regulations (1) to (7) above, no class of investor referred to in those sub-regulations shall make investment, directly or indirectly, in any security, issued by an Indian company which is engaged or proposes to engage in any of the activities in which foreign investment is prohibited under sub-regulation (b) of Regulation 4 of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, as amended from time to time”.]

6. Acquisition of right shares :-

(1) A person resident outside India may purchase equity or preference shares or convertible debentures offered on right basis by an Indian company which satisfies the conditions specified in sub-regulation (2).

(2) An Indian company which satisfies the following conditions, may offer to a person resident outside India, equity or preference shares or convertible debentures on right basis, namely:-

i) The offer on right basis does not result in increase in the percentage of foreign equity already approved, or permissible under the Foreign Direct Investment Scheme in terms of these Regulations;

ii) The existing non-resident shareholders may apply for issue of additional shares, and the investee company may allot the same subject to the condition that the overall issue of shares to non-residents in the total paid-up capital does not exceed the sectoral cap.

iii) The existing shares or debentures against which shares or debentures are issued by the company on right basis were acquired and are held by the person resident outside India in accordance with these Regulations;

¹[(iv) The offer on right basis to the persons 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.

(b) in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is less than the price at which the offer on right basis is made to resident Shareholder.]

^old[iv) The offer on right basis to the persons resident outside India is at a price which is not lower than that at which the offer is made to resident shareholders;]

1.Substituted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Amendment) Regulation 2003.

(3) The right shares or debentures purchased by the person resident outside India shall be subject to same conditions including restrictions in regard to repatriability as are applicable to the original shares against which right shares or debentures are issued:-

Provided that the amount of consideration for purchase of right shares or debentures is paid by way of inward remittance in foreign exchange through normal banking channels or by debit to NRE/FCNR account, when the shares or debentures are issued on repatriation basis:-

Provided further that in respect of the shares or debentures issued on non-repatriation basis, the amount of consideration may also be paid by debit to NRO/NRSR/NRNR account.

¹[' 6A. Acquisition of Bonus shares :-

An Indian company may issue bonus shares to its non-resident shareholders, subject to the following conditions:

a.the shares against which bonus shares are issued by the company ( hereinafter referred to as ‘the original shares’) were acquired or held by the non-resident shareholder in accordance with the Rules/ Regulations applicable to such acquisition;

b.the bonus shares acquired by the non-resident shareholder shall be subject to the same conditions including restrictions in regard to repatriability as are applicable to the original shares.]

1.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2003.

6B. Report to RBI:-

 A company issuing rights shares or bonus shares in terms of these Regulations shall report to the Reserve Bank in form FC-GPR as stipulated in Paragraph 9 (1)(B) of Schedule 1 to these  Regulations.”

7. Issue and acquisition of shares after merger or de-merger or amalgamation of Indian companies :-

(1) Where a Scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of de-merger or otherwise of an Indian company, has been approved by a Court in India, the transferee company or, as the case may be, the new company may issue shares to the shareholders of the transferor company resident outside India , subject to the following conditions, namely:

a) the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank, or specified in these Regulations:-

Provided that where the percentage is likely to exceed the percentage specified in the approval or the Regulations, the transferor company or the transferee or new company may, after obtaining an approval from the Central Government, apply to the Reserve Bank for its approval under these Regulations.

b) the transferor company or the transferee or new company shall not engage in agriculture, plantation or real estate business or trading in TDRs; and

c) the transferee or the new company files a report within 30 days with the Reserve Bank giving full details of the shares held b persons resident outside India in the transferor and the transferee or the new company, before and after the merger/amalgamation/reconstruction, and also furnishes a confirmation that all the terms and conditions stipulated in the scheme approved by the Court have been complied with.

8. Issue of shares under Employees Stock Options Scheme to persons resident outside India :

(1) An Indian company may issue shares under the Employees' Stock Options Scheme, by whatever name called, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, directly or through a Trust:-

Provided that

a) the scheme has been drawn in terms of regulations issued under the Securities Exchange Board of India Act, 1992; and

b) face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company.

(2) The Trust and the issuing company shall ensure that value of shares held by persons resident outside India under the scheme does not exceed the limit specified in clause (b) of sub-regulation (1).

(3) The issuing company shall furnish to the Reserve Bank , within thirty days from the date of issue of shares under the scheme, a report giving the following particulars/documents, -

i) names of persons to whom shares are issued under the scheme and number of shares issued to each of them;

ii) a certificate from the Company Secretary of the issuing company that the value of shares issued under the scheme does not exceed 5% of the paid up capital of the issuing company and that the shares are issued in compliance with the regulations issued by the SEBI in this behalf.

9. Transfer of shares and convertible debentures of an Indian company by a person resident outside India :-

1. Subject to the provisions of sub-regulation (2), a person resident outside India holding the shares or debentures of an Indian company in accordance with these Regulations, may transfer the shares or debentures so held by him, in compliance with the conditions specified in the relevant Schedule of these regulations.

¹['(2) (i) A person resident outside India, not being a non- resident Indian or an overseas corporate body, may transfer by way of sale or gift, the shares or convertible debentures held by him or it to any person resident outside India;

(ii) A non-resident Indian ⁵[or an overseas corporate body] may transfer by way of sale or gift, the shares or convertible debentures held by him or it to another non-resident Indian ⁵[or overseas corporate body] only;

Provided that the person to whom the shares are being transferred, in terms of clause (i) and (ii), has obtained prior permission of Central Government to acquire the shares if he has previous venture or tie up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company whose shares are being transferred is engaged.

Provided further that the restriction in clauses (i) and (ii) shall not apply to the transfer of shares to International financial institutions such as Asian Development Bank(ADB), International Finance Corporation(IFC), Commonwealth Development Corporation (CDC), Deutsche Entwicklungs Gescelscchaft (DEG) and transfer of shares of an Indian company engaged in Information Technology sector.

(iii) A person resident outside India holding the shares or convertible debentures of an Indian company in accordance with these Regulations,

a. may transfer the same to a person resident in India by way of gift;

b. may sell the same on a recognized Stock Exchange in India through a registered broker.']

^OLD[2. i) A person resident outside India, not being a non-resident Indian or an overseas corporate body, may transfer by way of sale, the shares or convertible debentures held by him to any person resident outside India:-

Provided that the person to whom the shares are being transferred has obtained prior permission of Central Government to acquire the shares if he has previous venture or tie up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company whose shares are being transferred is engaged.

ii) A non-resident Indian or an overseas corporate body may transfer by way of sale, the shares or convertible debentures held by him or it to another non-resident Indian or an overseas corporate body only.

iii) A person resident outside India may transfer any security held by him, to a person resident in India by way of gift.]

1. Substituted by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2003.

10. ³[Permission] ^old[Prior permission] of Reserve Bank in certain cases for transfer of security 

 A Transfer by way of gift or sale by a person resident in India

A person resident in India who proposes to transfer to a person resident outside India ¹[not being erstwhile OCBs]

1.Inserted by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2005.

(a) (i) any security, by way of gift, shall make an application to the Reserve Bank for its approval.

(ii) The Reserve Bank may grant such approval on being satisfied of the following conditions:

a. The donee is eligible to hold such a security under Schedules 1, 4 and 5 of these Regulations.

b. The gift does not exceed 5% of the paid up capital of the Indian company/each series of debentures/each mutual fund scheme.

c. The applicable sectoral cap/foreign direct investment limit in the Indian company is not breached.

d. The donor and the donee are relatives as defined in section 6 of the Companies Act, 1956.

e. The value of security to be transferred by the donor together with any security transferred to any person residing outside India as gift in the calendar year does not exceed the rupee equivalent of USD 25,000.

f. Such other conditions as considered necessary in public interest by the Reserve Bank.

(iii) The application for approval referred to in sub clause (i) shall contain the following information/documents:

a. Name and address of the donor and the donee.

b. Relationship between the donor and the donee.

c. Reasons for making the gift.

d. In case of Government dated securities and treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such securities.

e. In 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.

f. In case of shares and debentures, a certificate from a Chartered Account on the value of such securities according to the guidelines issued by the Securities & Exchange Board of India or the erstwhile CCI with regard to listed companies and unlisted companies respectively.

g. Certificate from the concerned Indian company 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% of the paid up capital of the company.]

^old [a) any security, by way of gift, shall make an application to the Reserve Bank furnishing the following information, namely:

i) Name and address of the transferor and the proposed transferee

ii) Relationship between the transferor and the proposed transferee

iii) Reasons for making the gift.]

2. Substituted by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Fourth Amendment) Regulation 2005.

³[b) any shares or convertible debentures of an Indian company under the Foreign Direct Investment Scheme, whose activities fall under Annex B to Schedule 1, shall, subject to sectoral limits specified therein, transfer such shares or convertible debentures without prior approval of the Reserve Bank if the same is by way of sale, subject to the following:

(i) that the parties concerned adhere to the pricing guidelines, documentation and reporting requirements for such transfers, stipulated by the Reserve Bank from time to time.

(ii) where the transfer of shares or convertible debentures requires the prior approval of the Foreign Investment Promotion Board (FIPB) as per the extant Foreign Direct Investment (FDI) policy:

(a) the requisite approval of the FIPB has been obtained; and

(b) the transfer of shares or convertible debentures adheres with the pricing guidelines and documentation, reporting requirements as stipulated by the Reserve Bank from time to time.

(iii) where SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 are attracted, the pricing guidelines and documentation, reporting requirements as stipulated by SEBI are complied with.

Provided howsoever that in case the SEBI guidelines as aforesaid are not complied with, for the purposes of this Regulation, compliance with pricing guidelines, reporting and documentation requirements as stipulated by RBI shall be sufficient.

(iv) where the pricing guidelines under the Foreign Exchange Management Act, (FEMA) 1999 are not complied with -

(a) The resultant FDI is in compliance with the requirements of Schedule 1, other than pricing guidelines; and

(b) The pricing for the transaction is compliant with the applicable SEBI Regulations/guidelines; and

(c) Chartered Accountants Certificate to the effect that compliance with the applicable SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

(v) where the investee company is in the financial services sector

(a) No Objection Certificates (NOCs) are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

(b) The requirements of Schedule 1 are complied with.]

^old[b) any share/convertible debenture of an Indian company, by way of sale, shall obtain the Government approval for the transfer and thereafter apply to the Reserve Bank for its approval, which may be granted subject to such conditions as are considered necessary by Reserve Bank, including the price at which such sale may be made.]

1.Substituted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2005.

Explanation: For the purpose of this Regulation, 'financial services', shall mean service rendered by banking and non-banking companies regulated by the Reserve Bank, insurance companies regulated by Insurance Regulatory and Development Authority (IRDA) and other companies regulated by any other financial regulator, as the case may be. ']

²[“(d) any shares or convertible debentures by way of sale, shall make an application to the Reserve Bank for its approval if the non-resident acquirer proposes deferment of payment of the amount of consideration”.]

2.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2008.

B. Transfer by way of sale not covered by Regulation 9 by a person resident outside India

^omitted [1. Transfer by way of sale not covered by Regulation 9 by a person resident outside India of the shares/convertible debentures held by him to a person resident in India, shall require prior permission of the Reserve Bank, for which application in form TS 1 may be made to the Reserve Bank]

¹[2.A person resident outside India, may transfer share or convertible debenture of an Indian company ,without the prior permission of the Reserve Bank ,by way of sale, to a person resident in India subject to the adherence to pricing guidelines, documentation and reporting requirements for such transfers as may be specified by Reserve Bank from time to time.']

^old[2. While considering the grant of permission, the Reserve Bank shall take into account the following factors, namely:

a) where the shares of an Indian company are traded on stock exchange,

i) the sale is at the prevailing market price on stock exchange and is effected through a merchant banker registered with Securities and Exchange Board of India or through a stock broker registered with the stock exchange;

ii) if the transfer is other than that referred to in clause (i), the Reserve Bank will satisfy itself that the shares are proposed to be sold at a price arrived at by taking the average quotations (average of daily high and low) for one week preceding the date of application with 5 percent variation. Where, however, the shares are being sold by the foreign collaborator or the foreign promoter of the Indian company to the existing promoters in India with the objective of passing management control in favour of the resident promoters the proposal for sale will be considered at a price which may be higher by upto a ceiling of 25 percent over the price arrived at as above,

b) where the shares of an Indian company are not listed on stock exchange or are thinly traded,

i) if the consideration payable for the transfer does not exceed Rs.20 lakh per seller per company, at a price mutually agreed to between the seller and the buyer, based on any valuation methodology currently in vogue, on submission of a certificate from the statutory auditors of the Indian company whose shares are proposed to be transferred, regarding the valuation of the shares, and

ii) if the amount of consideration payable for the transfer exceeds Rs.20 lakh per seller per company, at a price arrived at, at the seller's option, in any of the following manner, namely:

A. a price based on earning per share (EPS linked to the Price Earning (P/E) multiple ,or a price based on the Net Asset Value (NAV) linked to book value multiple, whichever is higher,

B. the prevailing market price in small lots as may be laid down by the Reserve Bank so that the entire shareholding is sold in not less than five trading days through screen based trading system

(c) where the shares are not listed on any stock exchange, at a price which is lower of the two independent valuations of share, one by statutory auditors of the company and the other by a Chartered Accountant or by a Merchant Banker in Category 1 registered with Securities and Exchange Board of India.

Explanation:

i) A share is considered as thinly traded if the annualised trading turnover in that share, on main stock exchanges in India, during the six calendar months preceding the month in which application is made, is less than 2 percent (by number of shares) of the listed stock.

ii) For the purpose of arriving at Net Asset Value per share, the miscellaneous expenses carried forward, accumulated losses, total outside liabilities, revaluation reserves and capital reserves (except subsidy received in cash) shall be reduced from value of the total assets and the net figure so arrived at shall be divided by the number of equity shares issued and paid up. Alternatively, intangible assets shall be reduced form the equity capital and reserves (excluding revaluation reserves) and the figure so arrived at shall be divided by the number of equity shares issued and paid up. The NAV so calculated shall be used in conjunction with the average BV multiple of Bombay Stock Exchange National Index during the calendar month immediately preceding the month in which application is made and BV multiple shall be discounted by 40 per cent.

iii) For computing the price based on Earning Per Share, the earning per share as per the latest balance sheet of the company shall be used in conjunction with the average Price Earning Multiple of Bombay Stock Exchange National Index for the calendar month preceding the month in which application is made and Price Earning shall be discounted by 40 per cent.]

1(i) clause (1) shall be deleted and clause (2) shall be substituted by FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Second Amendment) Regulation 2005.

³[(3) Where pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not complied with, a person resident outside India, may transfer shares or convertible debentures of an Indian Company, by way of sale, to a person resident in India, without the prior permission of the Reserve Bank , subject to the following

(a) The original and resultant investment are in conformity with the requirements of Schedule 1, other than pricing guidelines; and

(b) The pricing for the transaction is compliant with the applicable SEBI regulations / guidelines; and

(c) Chartered Accountants Certificate to the effect that compliance with the applicable SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.]

11. Remittance of sale Proceeds :-

1. No remittance of sale proceeds of an Indian security held by a person resident outside India shall be made otherwise than in accordance with these Regulations and the conditions specified in the relevant Schedule.

2. An authorized dealer may allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller of shares resident outside India:-

Provided -

a) the security was held by the seller on repatriation basis;

b) either the security has been sold on a recognized stock exchange in India through a stock broker at the ruling market price as determined on the floor of the exchange, or the Reserve Bank's approval has been obtained in other cases for sale of the security and remittance of the sale proceeds thereof; and

c) a no objection/tax clearance certificate from the Income Tax authority has been produced.

¹[“12. Pledge of shares of company Incorporated in India

i) Any person being a promoter of a company registered in India  (borrowing company),  which has raised external commercial borrowing, may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the external commercial borrowing (ECB) raised by the borrowing company,

Provided that no person shall pledge any such share unless no-objection has been obtained from a bank which is an authorised dealer.

(ii)  A bank which is an  authorized dealer may grant 'no objection' for pledge of shares under clause (i) after satisfying itself of the following :

(a) the underlying ECB is strictly in compliance with the extant ECB guidelines,

(b) the loan agreement has been signed by both the lender and the borrower,

(c) there exists a security clause in the Loan Agreement requiring the borrower to create charge on financial securities, and 

(d) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank : (Amendment ) Rules, 2009.

Provided that the 'no objection' may be granted by a bank which is an authorised dealer subject to the following conditions, namely, -

1. the period of such pledge shall be co-terminus with the maturity of the underlying external commercial borrowing;

2. in case of invocation of pledge, transfer shall be in accordance with the extant FDI Policy and directions issued by the Reserve Bank;

3. the Statutory Auditor has certified that the borrowing company will utilized / has utilized  the proceeds of the external commercial borrowing for the permitted end –use/s only.”]

³[(iii) Any person being a non resident investor of a company registered in India (resident investee company) may pledge the shares or convertible debentures of that company to a bank in India to secure the credit facilities being extended to that company for bonafide purposes, subject to the AD bank satisfying itself of the compliance of the conditions stipulated by the Reserve Bank, from time to time, in this regard.

(iv) Any person being a non resident investor of a company registered in India (resident investee company) may pledge the shares or convertible debentures of that company to an overseas bank to secure the credit facilities being extended to the non resident investor or non resident promoter of the resident investee company or its overseas group company subject to the AD bank satisfying itself of the compliance of the conditions stipulated by the Reserve Bank from time to time in this regard."]

1.Inserted by the FEM (Transfer or Issue of Security by a Person Resident Outside India) ( Amendment) Regulation 2009.

SCHEDULE I

 

[See Regulation (5) (1)]

Foreign Direct Investment Scheme

Purchase by a person resident outside India of equity/preference/convertible preference shares and convertible debentures issued by an Indian company

1. (1) A person resident outside India referred to in sub-regulation (i) of Regulation 5, may purchase shares or convertible debentures issued by an Indian company up to the extent and subject to the terms and conditions set out in this schedule.


^old[1.A person resident outside India referred to in sub-regulation (1) of Regulation 5, may purchase shares or convertible debentures issued by an Indian company up to the extent and subject to the terms and conditions set out in this schedule.]


⁶[(2) If the person purchasing the shares under this Scheme pro­poses to be a collaborator or proposes to acquire the entire share­holding of a new Indian company, he should obtain prior permis­sion of Central Government if he has, as on January 12, 2005, an existing joint venture or technology transfer/trademark agreement in the same field as that of such Indian company.]

 

^Old[2. If the person purchasing the shares under this Scheme proposes to be collaborator or proposes to acquire the entire share holding of a new Indian company, he should obtain a prior permission of Central Government if he has a previous venture or tie-up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company issuing the shares is engaged.]

 

⁷[Provided that no prior permission of Central Government shall be required for investments to be made by Venture Capital Funds registered with SEBI; investments by multinational financial institutions; or where in the existing joint-venture investment by either of the parties is less than 3%; or where the existing joint venture/ collaboration is defunct or sick or for  transfer of shares of an Indian company engaged in Information Technology sector or in the mining sector, if the existing joint venture or technology transfer/trade mark agreement of the person to whom the shares are to be  transferred are also in the Information Technology sector or in the mining sector for same area/mineral]

2.

Automatic Route of Reserve Bank for Issue of shares by an Indian company

⁶[(1)  An Indian company, not engaged in any activity/sector mentioned in Annex A to this schedule, may issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed in Annex B to this schedule, in accordance with the Entry Routes specified therein and the provisions of Foreign Direct Investment Policy, as notified by the Ministry of Commerce & Industry, Government of India, from time to time.

Provided that the shares or convertible debentures are not being issued by the Indian company with a view to acquire existing shares of any Indian company.

 

Explanation: A company which proposes to embark on expansion  programme to undertake activities or manufacture items included in.

 

This Regulation is given retrospective effect from 12th  day of January, 2005, that is, from the date on which Press Note No. 1 (2005 Series) was issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

 

Annex B to this Schedule may issue shares or debentures out of fresh capital proposed to be issued by it for the purpose of financing expansion programme, up to the extent indicated in Annex B, subject to compliance with the provisions of this paragraph.]

 

 

^Old[(1) An Indian company which is not engaged in any activity, or in manufacturing of item included in Annexure 'A' to this Schedule, may issue shares or convertible debentures to a person resident outside India, referred to in paragraph 1 upto the extent specified in Annexure B, subject to compliance with the provisions of the Industrial Policy and Procedures as notified by Secretariat for Industrial Assistance (SIA) in the Ministry of Commerce and Industry, Govt. of India, from time to time.


Provided that:

i. the activity of the issuer company does not require an industrial licence under the provisions of the Industries (Development & Regulation) Act, 1951 or under the locational policy notified by Government of India under the Industrial Policy of 1991 as amended from time to time.

ii. the shares or convertible debentures are not being issued by the Indian company with a view to acquiring existing shares of any Indian company.

Explanation:

A company which proposes to embark on expansion programme to undertake activities or manufacture items included in Annexure B to this schedule may issue shares or debentures out of fresh capital proposed to be issued by it for the purpose of financing expansion programme , upto the extent indicated in Annexure B, subject to compliance with the provisions of this paragraph.]

⁸[(2)

A trading company incorporated in India may issue shares or convertible debentures to the extent of 51 per cent of its capital, to persons resident outside India referred to paragraph 1, subject to the condition that remittance of dividend to the shareholders outside India is made only after the company has secured registration as an Export/Trading/Star Trading /Super Trading House from the Directorate General of Foreign Trade, Ministry of Commerce, Government of India, New Delhi.]

 

⁶[(2)]^Old[(3)]

A company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of items included in Annexure A, may issue shares or convertible debentures to a person referred to in paragraph 1, to the extent of 24% of its paid-up capital;


Provided that such a company may issue shares in excess of 24% of its paid up capital if

(a) it has given up its small scale status;

(b) it is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, and

(c) it complies with the ceilings specified in Annexure B.

⁶[(3)]^Old[(4)]

Notwithstanding anything contained in clause (3) an Export Oriented Unit or a Unit in Free Trade Zone or in Export Processing Zone or in a Software Technology Park or in an Electronic Hardware Technology Park may issue shares or convertible debentures to a person resident outside India referred to in paragraph 1 in excess of 24 per cent provided it complies with the ceilings specified in Annexure B.

⁶[(4)]^Old[(5)]

An Indian company, otherwise eligible to issue shares under this Schedule may issue equity/preference shares,subject to pricing guidelines as given in paragraph 5 of this Schedule, to a person resident outside India,

        (i) being a provider of technology/technical know-how, against Royalty/Lumpsum fees due for payment;

(ii) against External Commercial Borrowing (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI Guidelines)

Provided, that the foreign equity in the company after the conversion of royalty/ lumpsum fee/ECB into equity is within the sectoral cap notified, if any'

 

⁶[3. Issue of shares by a company requiring the Government approval

An Indian company intending to issue shares to a person resident outside India in accordance with these Regulations shall obtain prior approval of the Foreign Investment Promotion Board of Government of India if the company;

(a) is engaged or proposes to engage, in any activity given in Annex A (A) to this schedule; or

(b) falls under the FIPB route as stipulated under the column "Entry Route" in Annex B to this schedule; or

(c) proposes to issue shares to a person resident outside India against considerations other than inward remittance i.e. against royalty/ lumpsum feedue for payment;or

(d) proposes to issue shares to a person resident outside India, on or after 28th day of November 2003, against External Commercial Borrowings(ECBs){excluding those deemed as ECBs} received in convertible foreign currency]

 

^Old[3.

Issue of shares by a company requiring the Government approval

A company which is engaged or proposes to engage in any activity specified in Annexure 'A' or which proposes to issue shares to a person resident outside India beyond the sectoral limits stipulated in Annexure 'B' or which is otherwise not eligible to issue shares to a person resident outside India, may issue shares to a person resident outside India referred to in paragraph 1, provided it has secured prior approval of Secretariat for Industrial Assistance or, as the case may be of the Foreign Investment Promotion Board of the Government of India and the terms and conditions of such an approval are complied with.]


 

4.

Issue of Shares by International offering through ADR and/or GDR


1. An Indian company may issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing Global Depository Receipts (GDRs) and/ or American Depository Receipts (ADRs),


Provided the Indian company issuing such shares

a) has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and

b) is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations, and

c) the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time.


2. The Indian company issuing shares under sub-paragraph (1), shall furnish to the Reserve Bank, full details of such issue in the⁶[Form DR] ^Old[form specified in Annexure 'C',] within 30 days from the date of closing of the issue.

3. The Indian company issuing shares against ADRs/GDRs shall furnish a quarterly return in the ⁶[Form DR-Quarterly] ^Old[ form specified in Annexure 'D',] to Reserve Bank within fifteen days of the close of the calendar quarter.

4. Pending repatriation or utilisation of foreign exchange resources raised in terms of clause (1) the Indian company may invest the foreign currency funds in -


⁹[(a) deposits with or Certificate of Deposit or other instruments offered by banks who have been rated by Standard and Poor, Fitch, IBCA or Moody's etc. and such rating not being less than the rating stipulated by Reserve Bank from time to time for the purpose.]

 

^Old[ a) deposits with or Certificate of Deposits or other instruments of banks who have been rated not less than A1+ by Standard and Poor or P1 by Moody's for short term obligations,]

b) deposits with branch outside India of an authorised dealer in India, and

c) treasury bills and other monetary instruments with a maturity or un-expired maturity of the instrument of one year or less.


4A. A registered broker in India may 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,

Provided that


i) the shares are purchased on a recognized stock exchange;

ii) the Indian company has issued ADRs/GDRs;

iii) the shares are purchased with the permission of Custodian of the ADRs/GDRs of the concerned Indian company and are deposited with the Custodian;

iv) the number of shares so purchased shall not exceed ADRs/GDRs converted into underlying shares and shall be subject to sectoral caps as applicable;

v) the non-resident investor, broker, Custodian and the overseas depository comply with the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued thereunder by the Central Government from time to time.

 

⁶[4B. An Indian company may sponsor an issue of ADRs/GDRs with an overseas depository against shares held by its shareholders at a price to be determined under the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and the reporting requirements as directed by Reserve Bank, from time to time.]


^Old[(4B) i) An Indian company may sponsor an issue of ADRs/GDRs with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager.

ii) The proceeds of the issue shall be repatriated to India within a period of one month.

iii) The sponsoring company shall comply with the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued thereunder by the Central Government from time to time;

iv) the sponsoring company shall furnish full details of such issue in a O[form specified in Annexure C to the Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai within 30 days from the date of closure of the issue.]

(Above para 4A. & 4B has been added vide Ntf. No. FEMA 41/2001-RB, dated 2nd March, 2001)

¹⁰[5. Issue price

Price of shares issued to persons resident outside India under this Schedule, shall not be less than -

1. the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India;

2. the fair valuation of shares done by a SEBI registered Category - I Merchant Banker or  a Chartered Accountant as per the discounted free cash flow method, where the shares of the company is not listed on any recognised stock exchange in India ; and

3. the price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment.]

^Old[5.

Issue price

Price of shares issued to persons resident outside India under this Schedule, shall not be less than


a) the price worked out in accordance with the SEBI guidelines, where the issuing company is listed on any recognised stock exchange in India, and

b) fair valuation of shares done by a chartered accountant as per the guidelines issued by the erstwhile Controller of Capital Issues, in all other cases.]

⁸[5A. Issue price of ADRs/GDRs

Price of ADRs/GDRs to be issued to a person resident outside India may be decided by the Indian company-

1. where the issue is on public offer basis, in consultation with the Lead Manager to the issue; and
2. in other cases , as provided in paragraph 5 above.

(Above paragraph 5A has been inserted vide Notification No. FEMA 94/2003-RB, DT. 18/06/2003)]

 

⁶[6. Issue price of ADRs/ GDRs

 

The pricing of ADRs/GDRs to be issued to a person resident outside India shall be determined under the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India from time to time.]

 

^Old[6.

Dividend Balancing

Where a company is engaged in any of the industries in the consumer goods sector, specified in Annexure E, or in any other activity where the condition of dividend balancing has been stipulated in terms of the provisions of Industrial Policy and Procedures notified by Secretariat for Industrial Assistance, the cumulative outflow of foreign exchange on account of payment of dividend over a period of seven years from the date of commencement of commercial production to investors outside India shall not exceed cumulative amount of export earning of the company during those years.

Provided that


a) the restriction under this paragraph shall not apply


i) in respect of shares held in such a company by International Finance Corporation (IFC), the Deustche Entwicklungs Gescelschaft (DEG), the Commonwealth Development Corporation (CDC) and Asian Development Bank (ADB).

ii) to a company that has completed a period of seven years from the date of commencement of commercial production,


b) in case of an existing company that has issued fresh equity to persons resident outside India under these Regulations, the restriction shall apply to the fresh shares from the date of their issue.]


 

7.

Rate of Dividend on Preference Shares

The rate of dividend on preference shares or convertible preference shares issued under these Regulations shall not exceed 300 basis points over the Prime Lending Rate of State Bank of India prevailing as on the date of the Board meeting of the company in which issue of such shares is recommended.


 

8.

Mode of payment for shares issued to persons resident outside India

A company in India issuing shares or convertible debentures under this Schedule to a person resident outside India shall receive the amount of consideration for such shares -


i) by inward remittance through normal banking channels, or

ii) by debit to NRE/FCNR account of the person concerned maintained with an authorised dealer/authorised bank.

 

¹¹[Explanation : Conversion of Royalty/Lumpsum fee due for payment or conversion of ECB, as given elsewhere in this Schedule, shall be treated as consideration for issue of shares within the meaning of this paragraph]

 

¹²[Provided that 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) account, the amount of consideration so received shall be refunded to the person concerned by outward remittance through normal banking channels or by credit to his NRE / FCNR(B) account, as the case may be;

Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons permit an Indian company to refund the amount of consideration received towards issue of security, if such amount is outstanding beyond a period of 180 days from the date of receipt]

9.

Report by the Indian company

(1)

An Indian company issuing shares or convertible debentures in accordance with these Regulations shall submit to Reserve Bank,


A. not later than 30 days from the date of receipt of the amount of consideration, a ⁶[report in form specified in Annex C to this schedule]^Old[report] indicating:


i) Name and address of the foreign investors

ii) Date of receipt of funds and their rupee equivalent

iii) Name and address of the authorised dealer through whom the funds have been received, and

iv) Details of the Government approval, if any.


B. not later than 30 days from the date of issue of shares, a report in form FC-GPR together with,


i) a certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that


a) all the requirements of the Companies Act, 1956 have been complied with;

b) terms and conditions of the Government 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 authorised dealers in India evidencing receipt of amount of consideration ⁶[in accordance with paragraph 8]^Old[in accordance with paragraph 9;]


ii) a certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

 

Refer: RBI/2010-11/199 A. P. (DIR Series) Circular No. 13 Dated 14/9/2010

 

¹¹[Provided that, in addition to above, the company shall report the conversion of ECB into equity, in ECB-2 Return of the respective month in case of full conversion of ECB. In case of partial conversion of ECB, the converted portion shall be reported in form FC-GPR to the concerned Regional Office of Reserve Bank and non-converted portion in Form ECB-2]

 

⁷[C) the amount of consideration received by Indian company as advance against equity shall  be reported to the Regional Office of the Reserve Bank under whose jurisdiction the Registered Office of the Company operates in the form  specified in “Annex C ” within 30 days of receipt thereof.]

 

10. Permission for retaining share subscription money received from persons resident outside India in a foreign currency account

Reserve Bank may, on an application made to it and on being satisfied that it is necessary so to do, permit an Indian company issuing shares to persons resident outside India under this Schedule, to retain the subscription amount in a foreign currency account, subject to such terms and conditions as it may stipulate.

Annexure A
(See paragraph 2)

List of activities or items for which automatic route of Reserve Bank for Investment from Persons Resident Outside India is not available

1. Banking

2. NBFC's activities in Financial Services Sector

3. Civil Aviation

4. Petroleum including exploration/refinery/marketing

5. Housing & Real Estate Development sector for investment from persons other than NRIs/OCBs.

6. Venture Capital Fund & Venture Capital Company

7. Investing companies in Infrasturcture & Service Sector

8. Atomic Energy & related projects

9. Defence and strategic industries

10. Agriculture (including plantation)

11. Print Media

12. Broadcasting

13. Postal services


 

Annexure B
(See paragraph 2)

Sectoral cap on Investments by Persons Resident Outside India



 

	Sector	Investment Cap		Description of Activity/Items/Conditions
1.	Telecommunications	49%	i)	In basic, Cellular Mobile, paging and Value Added Services, and Global Mobile Personal Communications by Satellite subject to the licence from Department of Telecommuni-cation of Government of India.
		100%	ii)	In manufacturing activities
2.	Housing and Real Estate	100%		ONLY NRIs/OCBs are allowed to invest in the areas listed below :
			a)	Development of serviced plots and construction of residential premises
			b)	Investment in real estate covering construction of residential and commercial premises including business centres and offices
			c)	Development of townships
			d)	City and regional level urban infrastructure facilities, including both roads and bridges.
			e)	Investment in manufacture of building materials
			f)	Investment in participatory ventures in (a) to (e) above
			g)	Investment in housing finance institutions
3.	Coal and Lignite	49%	i)	in Public Sector Undertakings (PSU) and
		50%	ii)	in other than PSUs
				a) Where Private Indian companies are setting up or operating power projects as well as coal or lignite mines for captive consumption;
				b) For setting up coal processing plants provided the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
				c) For exploration or mining of coal or lignite for captive consumption.
4.	Drugs & Pharmaceuticals	74%		For bulk drugs, their intermediaries and Formulations (except those produced by The use of recombinant DNA technology)
5.	Hotel & Tourism	51%	i)	Hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists.
			ii)	Tourism related industry includes travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment amusement, sports, and health units for tourists and Convention/ Seminar units and organisations.
6.	Mining	74%		Exploration and mining of diamonds and precious stones
		100%		Exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing
7.	Advertising	74%		Advertising sector
8.	Films	100%		Film industry (i.e. film financing, production, distribution, exhibition, marketing and associated activities relating to film industry) subject to the following:
			i)	Companies with an established track record in films, TV, music, finance and insurance
			ii)	The company should have a minimum paid up capital of US $ 10 million if it is the single largest equity shareholder and atleast US $ 5 million in other cases
			iii)	Minimum level of foreign equity investment would be US $ 2.5 million for the single largest equity shareholder and US$ 1 million in other cases
			iv)	Debt equity ratio of not more than 1:1 i.e., domestic borrowings shall not exceed equity
			v)	Provisions of dividend balancing would apply.
9.	Any other sector/ activity (other than those included in Annexure A)	100%		-----



 

Annexure C (Form GDR/ADR(Return))

Annexure D (Form GDR/ADR(Quarterly Return))

Annexure E

(See paragraph 6 of Schedule I)

List Of 22 Industries In Respect Of Which Dividend
Balancing Is Applicable


1. Manufacture of food and food products

2. Manufacture of dairy products

3. Grain mill products

4. Manufacture of bakery products

5. Manufacture and refining of sugar (vacuum pan sugar factories)

6. Production of common salt

7. Manufacture of Hydrogenated oil (Vanaspati)

8. Tea processing

9. Coffee

10. Manufacture of beverages, tobacco and tobacco products

11. Distilling, rectifying and blending of spirits, wine industries, malt liquors and malt, production of country liquors and toddy

12. Soft drinks and carbonated water industry

13. Manufacture of cigar, cigarettes, cheroot and cigarette tobacco

14. Manufacture of wood and wood products, furniture and fixtures

15. Manufacture of leather and fur/leather products

16. Tanning, curing, finishing, embossing and japanning of leather

17. Manufacture of footwear (excluding repair) except vulcanised for moulded rubber or plastic footwear

18. Manufacture of footwear made primarily of vulcanised or moulded products

19. Prophylactics (rubber contraceptive)

20. Motor cars

21. Entertainment electronics(VCRs, Colour TVs, CD Players, Tape Recorders)

22. White goods(Domestic Refrigerators, Domestic Dishwashing Machines, Programmable Domestic Washing Machines, Microwave Ovens, Airconditioners).


 

SCHEDULE 2

[See Regulation 5 (2)]

Purchase/sale of shares and/or convertible debentures of an Indian company by a registered Foreign Institutional Investor under Portfolio Investment Scheme


 

1.

Purchase/sale of shares and/or convertible debentures


(1) A registered Foreign Institutional Investor (FII) may purchase the shares and convertible debentures of an Indian company under Portfolio Investment Scheme.

(2) The purchase of shares /convertible debentures under sub-paragraph (1) shall be made through registered broker on recognized stock exchange in India.

(Above sub-paragraphs (1) & (2) has been substituted vide NTF. NO. FEMA 108/2004-RB, DT. 01/01/2004)

 

(3)

The amount of consideration for purchase of shares / debentures shall be paid out of inward remittance from abroad through normal banking channels or out of funds held in an account maintained with the designated branch of an authorised dealer in India, in accordance with these Regulations.


 

(4)

The total holding by each FII/SEBI approved sub-account of FII shall not exceed 10% (ten per cent) of the total paid-up equity capital or 10% (ten per cent) of the paid-up value of each series of convertible debentures issued by an Indian company and the total holdings of all FIIs/sub-accounts of FIIs put together shall not exceed 24 per cent of paid-up equity capital or paid up value of each series of convertible debentures.

Provided that the limit of 24% referred to in this paragraph may be increased up to the sectoral cap/statutory ceiling, as applicable, by the Indian company concerned by passing a resolution by its Board of Directors followed by passing of a special resolution to that effect by its General Body.

(Above provisions has been substituted vide Ntf. No. FEMA 45/2001-RB, dt. 20/9/2001)

Explanation:

For arriving at the ceiling on holdings of FIIs, shares/ convertible debentures acquired both through primary as well as secondary market will be included. However, the ceiling will not include investment made by FII through off-shore Funds, Global Depository receipts and Euro-Convertible Bonds.


 ¹³[(5) A registered FII is permitted to purchase shares/convertible debentures of an Indian company through offer/private placement, subject to the ceiling specified in sub-paragraph (4) of this paragraph and the Indian company is permitted to issue such shares;

Provided that –

1. in case of Public Offer, the price of the shares to be issued is not less than the price at which shares are issued to residents, and

   ii. in case of issue by private placement, the price is not less than the price arrived in terms of SEBI guidelines or guidelines issued by erstwhile Controller of Capital Issues, as applicable.]

^Old[(5)

A registered FII may also be permitted to purchase shares/ convertible debentures of an Indian company through private placement/ arrangement, subject to the ceilings specified in sub-paragraph (4) of this paragraph.]

 

¹⁴[(6) A registered FII may, undertake short selling as well as lending and borrowing of securities subject to such conditions as may be stipulated by the Reserve Bank of India and the SEBI from time to time.]

2.

Maintenance of account by a registered FII for routing transactions of purchase and sale of shares / convertible debentures

. A registered Foreign Institutional Investor may open a Foreign Currency Account and/or a Special Non-Resident Rupee Account with a designated branch of an authorized dealer for routing the receipt and payment for transaction relating to purchase and sale of shares/convertible debentures under this Scheme, subject to the following conditions:

 

(i) The Account shall be funded by inward remittance through normal banking channels or by credit of sale proceeds (net of taxes) of the shares/convertible debentures sold on stock exchange.

(ii) The funds in the account shall be utilized for purchase of shares convertible debentures in accordance with the provisions of paragraph 1 of this Scheme or for remittance outside India.

(iii) The funds from Foreign Currency Account of the registered FII may be transferred to Special Non-Resident Rupee account of the same FII and vice-versa.

 

(Above paragraph 2 has been substituted vide NTF. NO. FEMA 108/2004-RB, DT. 01/01/2004)

 

3.

Remittance of sale proceeds of shares / convertible debentures

The designated branch of an authorised dealer may allow remittance of net sale proceeds (after payment of taxes) or credit the net amount of sale proceeds of shares / convertible debentures to the foreign currency account or a Non-resident Rupee Account of the registered Foreign Institutional Investor concerned.


 

4.

Investment by certain other investors


(1) A domestic asset management company or portfolio manager, who is registered with SEBI, as a foreign institutional investor for managing the fund of a sub-account may make investment under the Scheme on behalf of

(i) a person resident outside India who is a citizen of a foreign state, or

(ii) a body corporate registered outside India;

Provided [that] such investment is made out of funds raised or collected or brought from outside through normal banking channel.
 


(2) Investments permitted to be made under sub-paragraph (1) shall not exceed 5% (five per cent) of the total paid-up equity capital or 5% (five per cent) of the paid-up value of each series of convertible debentures issued by an Indian company, and shall also not exceed the over-all ceiling specified in sub-paragraph (4) of paragraph 1 of this Schedule.


(Above sub-paragraph (2) has been deleted & (3) re-numbered as (2) vide NTF. NO. FEMA 108/2004-RB, DT. 01/01/2004)

 

SCHEDULE 3

[See Regulation 5 (3) (i)]

Purchase/sale of shares and/or convertible debentures by an NRI on a Stock Exchange In India on repatriation and/or non-repatriation basis under Portfolio Investment Scheme


(In above heading bold words has been substituted vide Ntf. No. FEMA 46/2001-RB, dated 29/11/2001)

 

1.

A Non-resident Indian (NRI) may purchase/sell shares and/or convertible debentures of an Indian company, through a registered broker on a recognised stock exchange, subject to the following conditions :


(In above [para 1.] the above bold words has been substituted vide Ntf. No. FEMA 46/2001-RB, dated 29/11/2001)

 

¹⁵[(i) NRIs may purchase and sell shares/convertible debentures under the Portfolio Investment Scheme through a branch designated by an Authorised Dealer for the purpose and duly approved by the Reserve Bank of India.]

 

^Old[i) the NRI designates a branch of an authorised dealer for routing his  transactions relating to purchase and sale of shares/convertible debentures under this Scheme, and routes all such transactions only through the branch so designated;]

ii) the paid-up value of shares of an Indian company, purchased by each NRI both on repatriation and on non-repatriation basis, does not exceed 5 percent of the paid-up value of shares issued by the company concerned;

iii) the paid-up value of each series of convertible debentures purchased by each NRI  both on repatriation and non-repatriation basis does not exceed 5 percent of the paid-up value of each series of convertible debentures issued by the company concerned;

iv) the aggregate paid-up value of shares of any company purchased by all NRIs  does not exceed 10 percent of the paid up capital of the company and in the case of purchase of convertible debentures the aggregate paid-up value of each series of debentures purchased by all NRIs does not exceed 10 percent of the paid-up value of each series of convertible debentures;

Provided that the aggregate ceiling of 10 per cent referred to in this clause may be raised to 24 per cent if a special resolution to that effect is passed by the General Body of the Indian company concerned;

v) the NRI investor takes delivery of the shares purchased and gives delivery of shares sold;

vi) payment for purchase of shares and/or debentures is made by inward remittance in foreign exchange through normal banking channels or out of funds held in NRE/FCNR account maintained in India if the shares are purchased on repatriation basis and by inward remittance or out of funds held in NRE/FCNR/NRO/NRNR/NRSR account of the NRI  concerned maintained in India where the shares/debentures are purchased on non-repatriation basis;

vii) Omitted


(In above [sub-para. (i) to (vi)] the above old bold words has been substituted by new bold words and omitted [sub-para. (vii)] vide Ntf. No. FEMA 46/2001-RB, dated 29/11/2001)


 

2.

Report to Reserve Bank

The link office of the designated branch of an authorised dealer referred to in paragraph 1 shall furnish to the Chief General Manager, RBI, FED, Central Office, Mumbai, a report on daily basis on PIS transactions undertaken by it, such report to be furnished on line or on floppy or in hard copy in a format supplied by Reserve Bank.

 

¹⁵[3. Remittance/credit of sale/maturity proceeds of shares and/or debentures.

The net sale/maturity proceeds (after payment of taxes) of shares and/or debentures of an Indian company purchased by NRI ⁵[or OCB] under this scheme, may be allowed by the designated branch of an authorised dealer referred to in paragraph 1,

a. to be credited to NRO account of the NRI⁵[/OCB] investor where the payment for purchase of shares and/or debentures sold was made out of funds held in NRO account or where the shares and/or debentures were purchased on non-repatriation basis, or

b. at the NRI ⁵[or OCB] investor’s option, to be remitted abroad or credited to his/its NRE/FCNR/NRO account of the NRI, where shares and/or debentures were purchased on repatriation basis.]

^Old[3.

Remittance/credit of sale/maturity proceeds of shares and/or debentures

The net sale/maturity proceeds (after payment of taxes) of shares and/or debentures of an Indian company purchased by NRI or OCB under this Scheme, may be allowed by the designated branch of an authorised dealer referred to in paragraph 1,


a) to be credited to NRSR account of the NRI or OCB investor where the payment for purchase of shares and/or debentures sold was made out of funds held in NRSR account, or

b) at the NRI or OCB investor’s option, to be credited to his/its NRO or NRSR account, where the shares and/or debentures were purchased on non-repatriation basis, or

c) at the NRI or OCB investor’s option, to be remitted abroad or credited to his/its NRE/ FCNR/ NRO/NRSR account, where shares and/or debentures were purchased on repatriation basis.]


 

SCHEDULE 4

[See Regulation 5 (3) (ii)]

Purchase and sale of shares/ convertible debentures by a Non-resident Indian (NRI) ⁵[or an Overseas Corporate Body (OCB),] on non-repatriation basis


 

1.

Prohibition on purchase of shares/ convertible debentures of certain companies

No purchase of shares or convertible debentures of an Indian company shall be made under this Scheme if the company concerned is a Chit Fund or a Nidhi company or is engaged in agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights.

Explanation: For the purpose of this paragraph, real estate business shall not include development of township, construction of residential/ commercial premises, roads, bridges, etc.


 

2.

Permission to purchase and/or sell shares/ convertible debentures of an Indian company

Subject to paragraph 1, a Non-resident Indian ⁵[or an Overseas Corporate Body] may, without any limit, purchase on non-repatriation basis, shares or convertible debentures of an Indian company issued whether by public issue or private placement or right issue.

 

Provided that the person to whom the shares are being transferred, shall obtain prior permission of the Central Government to acquire the shares if he has, as on 12th day of January 2005, an existing joint venture or technology transfer/trademark agreement in the same field as that of the company of which the shares or convertible debentures to be acquired by him.

Provided further that no prior permission of Central Government shall be required for:

(a) transfer of shares to multinational financial institutions such as Asian Development Bank (ADB), International Finance Corporation (IFC), Commonwealth Development Corporation (CDC), Deutsche Entwicklungs Gescelscchaft (DEG).

(b) transfer of shares of an Indian company engaged in Information Technology sector or in the mining sector,  if the existing joint venture or technology transfer/trade mark agreement of the person to whom the shares are to be  transferred are also in the Information Technology sector or in the mining sector for same area/mineral.

(c) investments to be made by Venture Capital Funds registered with SEBI; investments by multinational financial institutions or where in the existing joint-venture investment by either of the parties is less than 3%; or where the existing joint venture/ collaboration is defunct or sick.

3.

Method of payment for purchase of shares/ convertible debentures

 

The amount of consideration for purchase of shares or convertible debentures of an Indian company on non-repatriation basis, shall be paid by way of inward remittance through normal banking channels from abroad or out of funds held in NRE/FCNR /NRO/NRSR/NRNR account maintained with an authorised dealer or as the case may be with an authorised bank in India.

 

Provided that in the case of an NRI ⁵[/OCB] resident in Nepal and Bhutan, the amount of consideration for purchase of shares or convertible debentures of an Indian company on non-repatriation basis, shall be paid only by way of inward remittance in foreign exchange through normal banking channels.

 

4.

Sale/ Maturity proceeds of shares or convertible debentures

i) The sale/maturity proceeds (net of applicable taxes) of shares or convertible debentures purchased under this Scheme shall be credited only to NRSR account where the purchase consideration was paid out of funds held in NRSR account and to NRO or NRSR account at the option of the seller where the purchase consideration was paid out of inward remittance or funds held in NRE/FCNR/NRO/NRNR account.

ii) The amount invested in shares or convertible debentures under this Scheme and the capital appreciation thereon shall not be allowed to be repatriated abroad.

SCHEDULE 5

[See Regulation 5 (4)]

Purchase and sale of securities other than shares or convertible debentures of an Indian company by a person resident outside India.

⁶[1. Permission to Foreign Institutional Investors for purchase of securities -

 

A registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by an Indian company and units of domestic mutual funds, Security Receipts issued by Asset Reconstruction Companies and Perpetual Debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital (the definitions of Tier I capital  and Tier II capital will be the same as clarified by Reserve Bank, Department of Banking Operations and Development  and modified from time to time); subject to the limits prescribed by RBI and SEBI from time to time; either directly from the issuer of such securities or through a registered stock broker on a recognised Stock Exchange in India:

 

Provided that;


          ¹⁶[ i)) the FII shall restrict allocation of its total investment between equity and debt instruments (including dated                Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30;

 

ii) if the FII desires to invest up to 100 per cent in dated Government Securities including Treasury Bills, listed non-convertible debentures/ bonds issued by an Indian company, it shall form a 100% debt fund and get such fund registered with SEBI;]

 

¹⁷[i)]^Old[iii)] The total holding by a single FII in each tranche of scheme of Security Receipts shall not exceed 10 per cent of the issue and the total holdings of all FIIs put together shall not exceed 49 percent of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies; and

 

¹⁷[ii)]^Old[iv)]  The investment by all FIIs in 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 per cent of each issue. The investment by FIIs in Debt capital instruments (Tier II) shall be within the limits stipulated by SEBI for FII investment in corporate debt.

 

Provided further that FIIs may offer such securities as permitted by the Reserve Bank from time to time as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts as specified in sub-Regulation 6.]

 

^Old[1.

Permission to Foreign Institutional Investors for purchase of securities

A registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government securities/treasury bills, non-convertible debentures/bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India;

Provided that

i) the FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30, and

ii) if the FII desires to invest upto 100 per cent in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company, it shall form a 100% debt fund and get such fund registered with SEBI.]


 

2.

Permission to Non-resident Indian ⁵[and Overseas Corporate Body] for purchase of securities

⁶[1A.   A Non-resident Indian may, without limit, purchase on repatriation basis,

 i) Government dated 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;

iii) shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance  with the terms and conditions stipulated in the notice inviting bids.

 

1B.  A Non-resident Indian may purchase on repatriation basis perpetual debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital, as stipulated by Reserve Bank from time to time. The investments by all NRIs in 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. Investment by NRIs in Debt capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.]


^Old[1. A Non-resident Indian or an Overseas Corporate Body may, without limit, purchase on repatriation basis,


i) Government dated 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;

iii) shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.]


2. A Non-resident Indian ⁵[or an Overseas Corporate Body] may, without limit, purchase on non-repatriation basis, dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds in India, or National Plan/Savings Certificates.

 

3. A Multilateral Development Bank which is specifically permitted by Government of India to float rupee bonds in India may purchase Government dated securities.

(Above sub-paragraph 3. has been added vide NTF. NO. FEMA 106/2003-RB, DT. 27/10/2003)
 

¹⁸[2A. A person resident outside India, being central bank of any country under the law for the time being in force in that country, may purchase and sell dated Government securities / treasury bills subject to the conditions as may be stipulated by Reserve Bank from time to time]

 

3.

Method of payment of purchase consideration


1. A registered Foreign Institutional Investor who purchases securities under the provisions of this Schedule shall make the payment for purchase of such securities either by inward remittance through normal banking channels or out of funds held in Foreign Currency Account or Non-resident Rupee Account maintained by the Foreign Institutional Investor with a designated branch of an authorised dealer with the approval of Reserve Bank in terms of paragraph 2 of Schedule 2.

2. A Non-resident Indian ⁵[or an Overseas Corporate Body] who purchases securities on repatriation basis, under sub-paragraph (1) of paragraph 2 of this Schedule, shall make payment either by inward remittance through normal banking channels or out of funds held in his/its NRE/FCNR account.

3. A Non-resident Indian ⁵[or an Overseas Corporate Body] who purchases securities on non-repatriation basis, under sub-paragraph (2) of paragraph 2 of this Schedule, shall make payment either by inward remittance through normal banking channels or out of funds held in his/its NRE/FCNR/NRO/NRSR/NRNR account.

4. A Multilateral Development Bank which purchases Government dated securities under this Schedule, shall make payment either by inward remittance through normal banking channels or out of funds held in the account opened with the specific approval of RBI.

(Above sub-paragraph 4. has been added vide NTF. NO. FEMA 106/2003-RB, DT. 27/10/2003)
 


 

4.

Permission for Sale of Securities

A person resident outside India who has purchased securities in accordance with this Schedule may (a) sell such securities through a registered stock broker on a recognised stock exchange or (b) tender units of mutual funds to the issuer for repurchase or for payment of maturity proceeds or (c) tender Government securities/treasury bills to the Reserve Bank for payment of maturity proceeds.


 

5.

Remittance/credit of sale/maturity proceeds


i. In the case of a registered Foreign Institutional Investor who has sold securities in accordance with paragraph 4, the designated branch of an authorised dealer referred to in sub-paragraph (1) of paragraph 3 may allow remittance of net sale/ maturity proceeds (after payment of taxes) or credit the net amount of sale/ maturity proceeds of such securities to the foreign currency account or Non-resident Rupee Account of the FII investor maintained in accordance with the provisions of paragraph 2 of Schedule 2.

ii. In the case of a Non-resident Indian ⁵[or an Overseas Corporate Body] who has sold securities in accordance with paragraph 4, the net sale/ maturity proceeds (after payment of taxes) of such securities, may be


a) credited only to NRSR account of the NRI investor where the payment for purchase of securities sold was made out of funds held in NRSR account, or

b) credited, at the NRI ⁵[or OCB] investor’s option, to his/its NRO or NRSR account, where the payment for the purchase of the securities sold was made out of funds held in NRO account, or

c) remitted abroad or at the NRI ⁵[or OCB] investor’s option, credited to his/its NRE/FCNR /NRO/NRSR/NRNR account, where the securities were purchased on repatriation basis in accordance with sub-paragraph (1) of paragraph 2 and the payment for purchase of the securities sold was made by inward remittance through normal banking channels or out of funds held in NRE/FCNR account.


(iii) in the case of sale of Government dated securities by a Multilateral Development Bank, the net maturity proceeds (after payment of taxes) may be remitted abroad or credited to fund account opened with the prior permission of the Reserve Bank.


(Above Clouse (iii) has been added vide NTF. NO. FEMA 106/2003-RB, DT. 27/10/2003)
 


 

SCHEDULE 6
[See Regulation 5(5)]

Investment in an Indian Venture Capital Undertaking by a registered Foreign Venture Capital Investor


 

1.

Investment by Foreign Venture Capital Investor.


1. A registered Foreign Venture Capital Investor (FVCI) may, through the Securities and Exchange Board of India, apply to the Reserve Bank of permission to invest in Indian Venture Capital Undertaking (IVCU) or in a VCF or in a scheme floated by such VCFs. Permission may be granted by Reserve Bank subject to such terms and conditions as may be considered necessary

2. The registered FVCI permitted by Reserve Bank under sub-paragraph (1), may purchase equity/ equity linked instruments/ debt/ debt instruments, debentures of a IVCU or of a VCF through Initial Public Offer or Private Placement or in units of schemes/funds set up by a VCF.

3. The amount of consideration for investment in VCFs/IVCUs shall be paid out of inward remittance from abroad through normal banking channels or out of funds held in an account maintained with the designated branch of an authorised dealer in India in accordance with Para 2.


 

2.

Maintenance of account by the registered FVCI for investment in IVCUs/ VCFs or schemes/funds set up by the VCFs.

The Reserve Bank may, on applications, permit a FVCI which has received 'in principle' registration from SEBI to open a Foreign Currency Account and/or a Rupee Account with a designated branch of an authorised dealer with the following permissible transactions:


i. Crediting inward remittance received through normal banking channels or the sale proceeds (net of taxes) of investments.

ii. Making investment in accordance with the provisions of paragraph 1 above.

iii. transferring funds from the Foreign Currency Account of the FVCI to their own Rupee account.

iv. Remitting funds from the Foreign Currency of rupee account subject to payment of applicable taxes.

v. Meeting local expenses of the FVCI.


 

3.

Forward Cover

Authorised Dealers may offer forward cover to FVCIs to the extent of total inward remittance. In case the FVCI has made any remittance by liquidating some investments, original cost of the investments will be deducted from the eligible cover.


 

4.

Valuation of Investments

The FVCI may acquire by purchase or otherwise or sell shares/convertible debentures/units or any other investment held by it in the IVCUs or VCFs or schemes/funds set up by the VCFs at a price that is mutually acceptable to the buyer and the seller/issuer. The FVCI may also receive the proceeds arising of the liquidation of VCFs or schemes/funds set up by the VCFs.


 

5.

Adherence to SEBI Guidelines

FVCIs shall abide by the relevant regulations/guidelines issued by Securities and Exchange Board.


(Above SCHEDULE 6 has been added vide Ntf. No. FEMA 32/2000-RB, dated 26th December, 2000)

 

FORM TS 1



(Note:- see
1. AP(DIR Sr.)Cir. No.13/2001-RB, dt.29/11/2001
2. AP(DIR Sr.)Cir. No.21/2002-RB, dt. 13/02/2002)

 

 ¹⁹[“Schedule 9
 [See Regulation 5 (9)]

 The Scheme shall be called Foreign Direct Investment (FDI-LLP) in Limited Liability Partnerships (LLP) formed and registered under the Limited Liability Partnership Act, 2008.

1. Eligible Investors:

A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP.

 2. Eligible investment

 Contribution to the capital of an LLP would be an eligible investment under the scheme. Note: Investment by way of 'profit share' will fall under the category of reinvestment of earnings

3. Eligibility of a LLP FDI in LLPs is permitted, subject to the following conditions:

 i. FDI is permitted under the automatic route in LLPs operating in sectors / activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions. For ascertaining such sectors, reference shall be made to Annex B to Schedule 1 of these Regulations

 ii. An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP engaged in sectors in which 100% FDI is allowed under the automatic route and there are no FDI linked performance conditions. Onus shall be on the Indian company / LLP accepting downstream investment to ensure compliance with the above conditions.

 iii. FDI in LLP is subject to the compliance of the conditions of Limited Liability Partnership Act, 2008.

iv. A company having foreign investment can be converted into an LLP under the automatic route only if it is engaged in a sector where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions.

 4. Pricing FDI in a LLP either by way of capital contribution or by way of acquisition / transfer of profit shares, would have to be more than or equal to the fair price as worked out with any valuation norm which is internationally accepted / adopted as per market practice (hereinafter referred to as "fair price of capital contribution / profit share of an LLP") and a valuation certificate to that effect shall be issued by the Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.

 In case of transfer of capital contribution / profit share from a resident to a non-resident, the transfer shall be for a consideration equal to or more than the fair price of capital contribution / profit share of an LLP. Further, in case of transfer of capital contribution / profit share from a non-resident to resident, the transfer shall be for a consideration which is less than or equal to the fair price of the capital contribution / profit share of an LLP.

5. Mode of payment Payment by an investor towards capital contribution in LLPs shall be made:

 (i) by way of inward remittance through banking channels; or

 (ii) by debit to NRE / FCNR(B) account of the person concerned, maintained with an AD Category - I bank in accordance with Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.

6. Reporting

 (i) Reporting of foreign investment in LLPs and disinvestment/transfer of capital contribution or profit shares between a resident and a non-resident may be made in a manner as prescribed by Reserve Bank of India from time to time.

(ii) All LLPs which have received Foreign Direct Investment in the previous year(s) including the current year shall submit to the Reserve Bank of India, on or before the 15th day of July of each year, a report titled 'Annual Return on Foreign Liabilities and Assets' as specified by the Reserve Bank from time to time.”]

 

1 Amendment Vide Notification No. FEMA 242/2012-RB Dated 19/10/2012 

2 Inserted Vide Notification No. FEMA 242/2012-RB Dated 19/10/2012 

3 Substituted Vide Notification No. FEMA 242/2012-RB Dated 19/10/2012 

4 Amendment Vide Notification No. FEMA 278/2013-RB Dated 7/7/2013

5 Omitted Vide Words or an overseas corporate body (OCB), Omitted by the Foreign Exchange Management [With drawal of General Permission to Overseas Corporate Bodies (OCBs)] Regulations, 2003 w.e.f 3/10/2003

6 Substituted Vide Notification No. FEMA 179 / 2008-RB Dated 22/8/2008

7 Inserted Vide      Notification No. FEMA 179 / 2008-RB Dated 22/8/2008

8 Omitted Vide      Notification No. FEMA 179 / 2008-RB Dated 22/8/2008

9 Substituted Vide Notification No.FEMA.118/2004-RB dated 16/6/2004

10 Substituted Vide Notification No. FEMA 205/2010- RB Dated 7/4/2010

11 Inserted Vide      Notification No.FEMA.125/2004-RB dated 27/11/2004

12 Inserted Vide      Notification No. FEMA 170 /2007-RB  Dated 13/11/2007

13 Substituted Vide Notification No.FEMA. 94/2003-RB dated 18/6/2003

14 Inserted Vide      Notification No.FEMA. 175/2008-RB Dated 22/2/2008

15 Substituted Vide Notification No.FEMA. 94/2003-RB dated 18/6/2003

16 Omitted Vide      Notification No. FEMA 202/2009- RB Dated 10/11/2009

17 Substituted Vide Notification No. FEMA 202/2009- RB Dated 10/11/2009

18 Inserted Vide      Notification No. FEMA. 153/2007-RB Dated 31/5/2007

19 Substituted Vide  Notification No. FEMA. 385/2017-RB Dated 03/03/2017