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.

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.

(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:

1. 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.

2. 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:

1. 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.

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.

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

   1. it has given up its small scale status;

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

   3. it complies with the ceilings specified in Annexure B.

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.

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.

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

   1. 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

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

   3. 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 the 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 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 -

   1. 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,

   2. deposits with branch outside India of an authorised dealer in India, and

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

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, where the issuing company is listed on any recognised stock exchange in India, and

2. 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.

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

1. the restriction under this paragraph shall not apply

   1. 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).

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

2. 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.

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.

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 -

1. by inward remittance through normal banking channels, or

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

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

1. not later than 30 days from the date of receipt of the amount of consideration, a report indicating:

   1. Name and address of the foreign investors

   2. Date of receipt of funds and their rupee equivalent

   3. Name and address of the authorised dealer through whom the funds have been received, and

   4. Details of the Government approval, if any.

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

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

      1. all the requirements of the Companies Act, 1956 have been complied with;

      2. terms and conditions of the Government approval, if any, have been complied with;

      3. the company is eligible to issue shares under these Regulations; and

      4. the company has all original certificates issued by authorised dealers in India evidencing receipt of amount of consideration in accordance with paragraph 9;

   2. 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.

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.

Note: Annexure "A", "B", "C" referred in this Schedule are not reproduced in this Website. Those interested may refer the text of these Annexure in the Website of RBI