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Indian Direct Investment in JVs/WOS abroad(Part: 2)
Approval of the Reserve Bank (Paragraph B7)
In all other cases of direct investment abroad which are not covered under the previous paragraphs including investment by Partnership firms not eligible under the automatic route and investment under swap or exchange of shares other than covered under B.4 above, prior approval of the Reserve Bank would be required. For this purpose, applications together with documents should be made in :
Reserve Bank, inter alia, would take into account following factors while considering such applications:
Investment in the Financial Services Sector (Paragraph B8)
In terms of Regulation 7 of the Notification, an Indian party seeking to make investment in an entity engaged in the financial sector should also fulfill the following additional conditions:
Capitalisation of exports and other dues (Paragraph B9)
Indian parties are also permitted to capitalise the payments due from the foreign entity towards exports made to it, fees, royalties or any other entitlements due from the foreign entity for supplying technical know-how, consultancy, managerial and other services within the ceilings applicable. Export proceeds remaining unrealised beyond a period of six months from the date of export will require the prior approval of Reserve Bank before capitalisation.
Indian software exporters are permitted to receive 25 per cent of the value of their exports to an overseas software company in the form of shares without entering into Joint Venture Agreements, with the approval of the Reserve Bank.
Post investment changes/additional investment in existing JVs/WOS (Paragraph B10)
A JV/WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary alter the shareholding pattern in the overseas entity subject to the Indian party reporting 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.
Acquisition of a foreign company through bidding or tender procedure (Paragraph B11)
An Indian party may remit earnest money deposit or issue a bid bond guarantee for acquisition of a foreign company through bidding and tender procedure and also make subsequent remittances through an authorised dealer in accordance with the provisions of Regulation 14 of the Notification.
Obligations of Indian Party (Paragraph B12)
An Indian party which has made direct investment abroad is under obligation to (a) receive share certificates or any other document as an evidence of investment, (b) repatriate to India the dues receivable from foreign entity and (c) submit the documents/Annual Performance Report to the Reserve Bank, in accordance with the provisions specified in Regulation 15 of the Notification.
Transfer by way of sale of shares of a JV/WOS (Paragraph B13)
An Indian party may transfer by way of sale to another Indian party, which complies with the provisions of Regulation 6/Regulation 17B of the FEMA Notification 19/RB-2000 dated May 3, 2000 or to a person resident outside India, any share or security held by it in a joint venture or wholly owned subsidiary outside India subject to the conditions and reporting requirements indicated in A-9 of Part II of this circular.
Indian listed companies are however, permitted to disinvest in a JV/WOS abroad even in cases where such disinvestment may result in a write-off of the capital invested to the extent of 10% of their previous year’s export realisation.
An Indian party, which does not satisfy the conditions laid down, and proposals which seek "write off" of the investment, shall have to apply to the Reserve Bank for prior permission.
Pledge of Shares (Paragraph B14)
An Indian party may pledge the shares of JV/WOS to an authorised dealer or a financial institution in India for availing of any credit facility for itself or for the JV/WOS abroad in terms of Regulation 17 of the Notification.
Hedging of Overseas Direct Investments(Paragraph B15)
Resident entities having overseas direct investments are permitted to hedge the exchange risk arising out of such investments. Authorised Dealers may enter into forward/option contracts with residents who wish to hedge their overseas direct investments (in equity and loan), subject to verification of such exposure and provided further that the contracts are completed by delivery or rolled over on the due date.
If a hedge becomes naked in part or full owing to shrinking of the market value of the overseas direct investment, the hedge may continue to the original maturity. Rollovers on the due date are permitted upto the extent of market value as on that date.
Investment in Foreign Securities other than by way of Direct Investment (Section C)
Permission for purchase/acquisition of foreign securities in certain cases (Paragraph C1)
General permission has been granted to a person resident in India who is an individual -
Transfer of a foreign security by a person resident in India (Paragraph C2)
The shares acquired by persons resident in India in accordance with the provisions of Foreign Exchange Management Act, 1999 or Rules or Regulations made thereunder are allowed to be pledged for obtaining credit facilities in India from an authorised dealer.
General permission in certain cases (Paragraph C3)
Residents are permitted to acquire foreign securities, if it represents –
Note: Part II of the Master Circular relate to guidelines regarding internal operational procedures to be followed by Authorised Dealers. This is omitted since it is not relevant for public information.
[Source: RBI Master Circular referred above]