FOREIGN EXCHANGE MANAGEMENT TRANSFER OR ISSUE OF ANY FOREIGN SECURITY REGULATIONS, 2004
(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of any Foreign Security)* Regulations, 2004.
(ii) They shall come into force the date of their publication in the Official Gazette.
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1. Vide G.S.R. 757 (E), dated 17th July, 2004, published in the Gazette of India, Extra., Pt. II, Sec. 3(i), dated 19th November, 2004.
In these Regulations, unless the context otherwise requires,—
(a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) “authorised dealer” means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Act;
(c) “American Depository Receipt” (ADR) means a security issued by a bank or a depository in United States of America (USA) against underlying rupee shares of a company incorporated in India;
(d) “Core Activity” means activity carried on by an Indian entity turnover wherefrom constitutes not less than 50% of its total turnover in the pervious accounting year;
(e) “Direct investment outside India” means investment by way of contribution to the
Save as otherwise provided in the Act or rules or regulations made or directions issued thereunder, no person resident in India shall issue or transfer any foreign security:
Provided that the Reserve Bank may, on application made to it, permit any person resident in India to issue or transfer any foreign security.
A person resident in India—
(a) may purchase a foreign security out of funds held in Resident Foreign Currency (RFC) account maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts) Regulations, 2000;
(b) may acquire bonus shares on the foreign securities held in accordance with the provisions of the Act or rules or regulations made thereunder;
(c) when not permanently resident in India, may purchase a foreign security from out of his foreign currency resources outside India;
(d) may sell the foreign security purchased or acquired under clause (a), (b) or (c).
Explanation.—For the purpose of this clause, ‘not permanently resident’ means a person resident in India f
Save as otherwise provided in the Act, rules or regulations made or directions issued thereunder, or with prior approval of the Reserve Bank—
(1) no person resident in India shall make any direct investment outside India; and
(2) no Indian party shall make any direct investment in a foreign entity engaged in real estate business or banking business.
(1) Subject to the conditions specified in sub-regulation (2), (and regulation 7 in case investment in financial services sector) an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India.
(2) (i) The total financial commitment of the Indian party in Joint Ventures/Wholly Owned subsidiaries shall not exceed 1[200 per cent.] of the net worth of the Indian Party as on the date of the last audited balance sheet;
2[Explanation.—For the purpose of determining ‘total financial commitment’ within the limit of 1[200 per cent.] of the net worth], the following shall be reckoned, namely:—]
2[(a) remittance by market purchases, namely, in freely convertible currencies; in case of Bhutan, investment made in freely convertible currencies or equivalent Indian R
(1) Mutual funds registered with the Securities and Exchange Board of India, may invest within specified limits, in the shares or the rated bonds/fixed income securities of an overseas company listed on a recognised stock exchange or in Exchange Traded Funds, or other securities as may be stipulated by the Reserve Bank of India from time to time.
(2) Every transaction relating to purchase and sale of foreign security by Mutual Funds shall be routed through the designated branch of an authorised dealer in India.]
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1. Ins. by G.S.R. 535(E), dated 21st August, 2006 (w.r.e.f. 26-7-2006).
1[A person resident in India, being an individual or a listed Indian company], may invest in—
(a) the shares of an overseas company which is listed on recognised stock exchange and has in its name share holding of not less than 10% in any listed Indian company as on 1st January of the year of Investment;
(b) the rated bonds/fixed income securities issued by companies at (a) above:
Provided that—
(i) in the case of investment by the listed Indian company, the investment shall not exceed 25% of its net worth as on the date of its last audited balance sheet;
2[***]
3[(ii)] every transaction relating to purchase and sale of
A person resident in India being a company incorporated in India or a partnership firm registered under Indian Partnership Act, 1932, may undertake agricultural operations including purchase of land incidental to such activity either directly or through their Overseas Offices;
Provided that—
(a) the Indian party is otherwise eligible to make investment under regulation 6 and that such investment is within the overall limits as specified in regulation 6.
(b) for the purposes of investment under this regulation by acquisition of land overseas the valuation of the land is certified by a certified valuer registered with the appropriate valuation authority in the host country.
(1) Subject to the regulations in Part I, an Indian party may make investment in an entity outside India engaged in the financial services activities:
Provided that the Indian party—
(i) has earned net profit during the preceding three financial years from the financial services activities;
(ii) is registered with the regulatory authority in India for conducting the financial services activities;
(iii) has obtained approval from the concerned regulatory authorities both in India and abroad, for venturing into such financial sector activity;
(iv) has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India.
(1) An Indian party may acquire shares of a foreign company, engaged in bonafide business activity, in exchange of ADRs/GDRs issued to the latter in accordance with the scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued thereunder from time to time by the Central Government:
Provided that—
(a) the Indian party has already made an ADR and/or GDR issue and that such ADRs/GDRs are currently listed on any stock exchange outside India;
such investment by the Indian party does not exceed amount equivalent to 10 times the export earnings of the Indian party during preceding financial year as reflected in its audited balance-sheet, inclusive of all investments made under the regulations in Part I.<
(1) An Indian party, which does not satisfy the eligibility norms under regulations 6 or 7 or 8, may apply to the Reserve Bank for approval.
(2) Application for direct investment in Joint Venture/Wholly Owned Subsidiary outside India, or by way of exchange for shares of a foreign company, shall be made in Form ODI, or in Form ODB, as applicable.
(2A) An application made under sub-regulation (2) in Form ODI—
(a) for the purposes of investment by way of remittance from India, in an existing company outside India, shall be accompanied, by the valuation of shares of the company outside India, made—
(i) where the investment is more than USD 5 (Five) million, by a Category I Merchant Banker registered with SEBI or an Investment Banker/Merchant Banker
Reserve Bank will allot a Unique Identification Number for each Joint Venture or Wholly Owned Subsidiary outside India and the Indian party shall quote such number in all its communications and reports to the Reserve Bank and the authorised dealer.
An Indian party may make direct investment outside India in accordance with the Regulations in Part I by way of capitalisation in full or part of the amount due to the Indian party from the foreign entity towards:—
(i) payment for export of plant, machinery, equipment and other goods/software to the foreign entity;
(ii) fees, royalties, commissions or other entitlements due to the Indian Party from the foreign entity for the supply of technical know-how, consultancy, managerial or other services:
Provided that where the export proceeds have remained unrealised beyond a period of six months from the date of export, and fees, royalties, commissions or other entitlements of the Indian party have remained unrealsied from the date on which such payment is due, such proceeds shall not be capital
(1) An Indian party exporting goods/software/plant and machinery from India towards equity contribution in a Joint Venture or Wholly Owned Subsidiary outside India shall declare it on Gr/sdf/softex form, as the case may be, which shall be superscribed as “Exports against equity participation in the Jv/wos abroad”, and also quoting Identification Number, if already allotted by Reserve Bank.
(2) Notwithstanding anything contained in regulation 11 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, the Indian party shall, within 15 days of effecting the shipment of the goods, submit to the Reserve Bank a custom certified copy of the invoice through the branch of an authorised dealer designated by it.
(3) An Indian party capitalising exports under regulation 11 shall, within six months from the date of export
(1) A JV/WOS set up by the Indian party as per the regulations may diversify its activities/set up step down subsidiary/after the shareholding pattern in the overseas entity:
Provided the Indian party reports to the Reserve Bank, the details of such decisions taken by the JV/WOS within 30 days of the approval of those decisions by the competent authority concerned of such JV/WOS in terms of local laws of the host country, and, include the same in the Annual Performance Report required to be forwarded annually to the Reserve Bank in terms of regulation 15.
(1) On being approached by an Indian party, which is eligible under the regulations to make investment outside India, an authorised dealer may allow remittance towards earnest money deposit or issue a bid bond guarantee on its behalf for participation in bidding or tender procedure for acquisition of a company incorporated outside India.
(2) On the Indian party winning the bid—
(i) the authorised dealer may allow further remittances towards acquisition of the foreign company, subject to the ceilings specified in regulation 6; and
(ii) the Indian party shall submit through the authorised dealer concerned a report to the Reserve Bank in Form ODA within 30 days of effecting the final remittance.
(3) For participation in bidding or tender procedure
An Indian party, which has acquired foreign security in terms of the Regulations in Part I, shall—
(i) receive share certificates or any other document as an evidence of investment in the foreign entity to the satisfaction of the Reserve Bank within six months, or such further period as Reserve Bank may permit, from the date of effecting remittance or the date on which the amount to be capitalised became due to the Indian party or the date on which the amount due was allowed to be capitalised;
(ii) repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical fees etc., within 60 days of its falling due, or such further period as the Reserve Bank may permit;
1[Provided that in case of investment in securities in Bhutan made in freely convertible curren
(1) An Indian party may transfer by way of sale to another Indian party who complies with the provisions of regulation 6 above, or to a person resident outside India, any share or security held by him in a Joint Venture or Wholly Owned Subsidiary outside India:
Provided that—
(i) The sale does not result in any write off of the investment made,
(ii) the sale is effected through a stock exchange where the shares of the overseas Joint Venture or Wholly Owned Subsidiary are listed;
(iii) if the shares are not listed on the stock exchange, and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant /Certified Public Accountant as the fair value of the shares based on th
Where the transfer by way of sale of shares or security referred to in sub-regulation (1) of regulation 16 by any Indian party listed on any stock exchange in India, is for a price less than the amount invested in the share or the security transferred,—
1. where the difference between the said value and the sale price does not exceed the percentage approved by the Reserve Bank, from time to time, of the Indian party’s actual export realisation of the previous year, the Indian party may write-off to the extent of the difference, the capital invested in the overseas JV/WOS;
2. where such difference is more than the percentage approved by the Reserve Bank, from time to time, of the Indian party’s actual export realisation of the previous year, the Indian party shall apply to the Reserve Bank for permission to write -off the capital inve
An Indian party may transfer, by way of pledge, shares held in a Joint Venture or Wholly Owned Subsidiary outside India as a security for availing of fund based or non-fund based facilities for itself or for the Joint Venture or Wholly Owned Subsidiary from an authorised dealer or a public financial institution in India.
A proprietary concern in India may apply to the Reserve Bank in Form ODB for permission to accept shares of a company outside India in lieu of fees due to it for professional services rendered to the said company.
Provided that—
(a) the value of the shares accepted from each company outside India shall not exceed fifty per cent. of the fees receivable by the Indian concern from that company; and
(b) the Indian concern’s shareholding in any one company outside India by virtue of shares accepted as aforesaid shall not exceed ten per cent. of the paid-up capital of the company outside India, whose shares are accepted.
(1) A Resident individual may apply to the Reserve Bank for permission to acquire shares in a foreign entity offered as consideration for professional services rendered to the foreign entity.
(2) Reserve Bank may, after taking into account, inter alia the following factors, grant permission subject to such terms and conditions as are considered necessary:—
(i) credentials and net worth of the individual and the nature of his profession;
(ii) the extent of his forex earnings/balances in his EEFC and/or RFC account;
(iii) financial and business track record of the foreign entity;
(iv) potential for forex inflow to the country;
(v) other likely benefits
(1) Save as otherwise provided in the Act or in sub-regulation (2), no person resident in India shall issue or transfer a foreign security.
(2) A person resident in India, being an Indian Company or a Body Corporate created by an Act of Parliament,—
(i) may issue FCCBs not exceeding USD 500 million to a person resident outside India in accordance with and subject to the conditions stipulated in Schedule I;
(ii) may issue FCCBs beyond US $ 500 milllion with the specific approval of the Reserve Bank.
(3) The company/body corporate referred to in sub-regulation (2), issuing the FCCBs shall, within 30 days from the date of issue, furnish a report to the Reserve Bank giving the details and documents as under:
(1) A person resident in India being an individual may acquire foreign securities—
(i) by way of gift from a person resident outside India; or
(ii) issued by a company incorporated outside India under Cashless Employees Stock Option Scheme:
Provided it does not involve any remittance from India, or
(iii) by way of inheritance from a person whether resident in or outside India.
1[(2) A person resident in India, being an individual, who is an employee or a director of an Indian office or branch of a foreign company or of a subsidiary in India of a foreign company or of an Indian company in which the foreign equity holding, either directly or indirectly, is not less than 51 per cent., may purchase t
A person resident in India, who has acquired or holds foreign securities in accordance with the provisions of the Act, rules or regulations made thereunder, may transfer them by way of pledge for obtaining fund based or non-fund based facilities in India from an authorised dealer.
(1) A person resident in India being an individual may—
(a) acquire foreign securities as qualification shares issued by a company incorporated outside India for holding the post of a director in the company:
Provided that,—
(i) the number of shares so acquired shall be the minimum required to be held for holding the post of director and in any case shall not exceed 1 per cent. of the paid-up capital of the company, and
(ii) the consideration for acquisition of such shares does not exceed the ceiling as stipulated by RBI from time to time.
(b) acquire foreign securities by way of rights shares in a company incorporated outside India:
Provided tha
A person resident in India being an individual seeking to acquire qualification shares in a company outside India beyond the limits laid down in the proviso to clause (a) of sub-regulation (1) of regulation 24 shall apply to the Reserve Bank for prior approval.
1[The purchase of foreign securities by Mutual Funds shall be subject to these regulations, and such other terms and conditions as may be notified by the SEBI from time to time.]
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1. Subs. by G.S.R. 535(E), dated 21st August, 2006, for the words “Mutual Funds may purchase foreign securities subject to such terms and conditions as it may be notified by SEBI from time to time.” (w.r.e.f. 26-7-2006).
Schedule I
[See regulation 21(2)(i)]
(i) The FCCBs to be issued will have to conform to the Foreign Direct Investment Policy (including Sectoral Cap and Sectors where FDI is permissible) of the Government of India as announced from time to time and the Reserve Banks Regulations/directions issued from time to time.
(ii) The issue of FCCBs shall be subject to a ceiling of US D 500 million in any one financial year.
(iii) Public issue of FCCBs shall be only through reputed lead managers in the international capital market. In case of private placement, the placement shall be with banks, or with multilateral and bilateral financial institutions, or foreign collaborators, or foreign equity holder having a mi
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