c



    

` Ê Direct investment outside India means investment by way of contribution to the capital or
subscription to the Memorandum of `ssociation of a foreign entity but does not include
portfolio investment

c 

  

` Ê esident corporate entities and partnership firms registered under the Indian Partnership
`ct, 1932 are eligible to make investment abroad in Joint Ventures/ Wholly Owned
Subsidiaries esident individuals may also invest abroad as detailed in Q 3

c        

 

` Ê esident individuals are permitted to make overseas portfolio investments without any
limit in listed overseas companies that have at least 10% share in an Indian company
listed in a recognized stock exchange in India as on 1st January of the year of investment

c 
    
  
  

` Ê Œhese guidelines have been notified by eserve Bank of India in its Notification FEM`
No 19 dated 3rd May 2000 as amended from time to time which can be accessed at the
eserve Bank¶s website fema rbi org in‘

c 
  
 
     
  

` Ê `ny clarification in respect of specific cases could be obtained from the eserve Bank¶s
Central office at the following address:

Overseas Investment Division,

Exchange Control Department,
Central office,
eserve Bank of India,
Mumbai 400001
or
e-mail: oid@rbi org in

c  
     

` Ê `n Indian company can make overseas investment in any activity (except those that are
specifically prohibited) in which it has experience and expertise However, for
undertaking activities in the financial sector, certain additional conditions specified in
egulation 7 may be adhered to (Please refer to Q 9)

c !

 

  
 ` Ê eal estate sector and Banking are the prohibited sectors for overseas investment
However, Indian banks operating in India can set up JV/WOS abroad provided they
obtain clearance under the Banking egulation `ct 1949

c " #

  


 

` Ê eal estate business means buying and selling of real estate or trading in transferable
development rights (ŒDs) but does not include development of township, construction
of residential/commercial premises, roads and bridges

c $        %&'()

 *++  
   



` Ê Only an Indian Company engaged in financial sector activities can make investment in
the financial services sector provided it fulfills the following norms besides complying
with the parameters indicated at `nswers to the Question Nos 14 and 28

iÊ has earned net profit during the preceding three financial years from the financial
services activities;
ii Ê is registered with the appropriate regulatory authority in India for conducting
financial services activities;
iii Ê has a minimum net worth of s 15 crores as on the date of the last audited balance
sheet; and
iv Ê has fulfilled the prudential norms relating to capital adequacy as prescribed by the
concerned regulatory authority in India

c
,



  
  

` Funding for overseas investment could be made by one or more of the following
sources:

1 Ê the balances held in Exchange Earners Foreign Currency account of the Indian
party maintained with an authorised dealer,
2 Ê proceeds of `D/GD issues,
3 Ê market purchases of foreign exchange,
4 Ê share swap (refers to the acquisition of the shares of an overseas entity by way of
exchange of the shares of the Indian entity)
5 Ê Capitalisation of exports, royalties, etc

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` Ê oes, capitalization of export proceeds is permitted subject to compliance of certain

guidelines i e the exports have not remained outstanding beyond the stipulated period of
realisation etc
c

 
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(+  ) 

 

` Ê Broadly there are two schemes under which one can set up a JV/WOS abroad, namely
automatic route and normal route

c



` Ê nder the automatic route, a company does not require any prior approval from the
regulatory authority for setting up a JV/WOS abroad

c




    



` Ê Œhe criteria for investment under the automatic route are as under:

iÊ Œhe total financial commitment of the Indian party in Joint Ventures/Wholly

Owned Subsidiaries in any country other than Nepal, Bhutan and Pakistan is up to
S$ 100 million or its equivalent in any one financial year or 100% of the net
worth whichever is lower, and the investment is in a lawful activity permitted by a
host country Œhe financial commitment in respect of Joint Ventures/Wholly
Owned Subsidiaries in Myanmar and S``C countries (other than Nepal,
Bhutan and Pakistan) is up to S$ 150 million or its equivalent in any one
financial year (Please also see answer to Question No 20)
ii Ê Œhe Indian party is not on the eserve Bank caution/defaulters list or under
investigation by the Enforcement Directorate
iii Ê Œhe Indian party routes all the transactions relating to the investment in a Joint
Venture/Wholly Owned Subsidiary through only one branch of an authorised
dealer to be designated by it
iv Ê In respect of investments in non-core activities (refer Ques 15) the investing
company has a proven track record

c

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` Ê In respect of direct investment in Nepal or Bhutan, the total financial commitment is

permitted up to Indian upees 700 crores in any one financial year

c



` Ê Core activity means activities carried by an Indian party, which constitutes at least 50%
of its average turnover in the previous accounting year

c
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` Ê Financial commitment means the amount of direct investment outside India by way of
contribution to equity and loans and 50% of the amount of guarantee issued by an Indian
party to or on behalf of its overseas JV/WOS
c
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 + 1

   

` Ê No Loan and guarantee could be extended to an overseas entity only if there is already
an equity participation by the Indian party in such entity

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` Ê oes, the limit of S$ 100 million will not be applicable in case of investments made out
of `D/GD proceeds and investments could be made up to the total amount raised out
of the `D/GD proceeds

c ,       




` Ê oes, a company can make investment beyond the stipulated limit after exhausting the
available limit by obtaining a specific permission from eserve Bank under a block
allocation

c 
3

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` Ê oes, market purchases together with capitalisation of exports or other entitlements is

restricted up to 100% of the net worth of the investing company for investment proposed
to be made under the automatic route

c   +



` Ê Net worth means paid-up capital and free-reserves of the Indian company

c 
 
+        
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` Ê Œhe company intending to make investment under automatic route is required to fill in
the form OD` supported by documents listed therein, i e , Board esolution, Statutory
`uditor¶s certificate, Valuation report (in case of acquisition of an existing company) and
approach an `uthorised Dealer for making the investment

c 
 



 +4
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` Ê No, once the report of remittance in form OD is received by the eserve Bank through
the designated `uthorised Dealer, an identification number for that particular investment
is issued for the purpose of future reference Subsequent investment in the same project
will be permitted to be made only after allotment of the identification number
c 
 
  



` Ê oes Companies, which are under the investigation by the Enforcement Directorate or are
in the eserve Bank¶s caution/defaulters list, are not eligible to make investment under
the automatic route

c /




` Ê Proposals not covered by the conditions under the automatic route require the prior
clearance of the regulatory authority for which a specific application in form ODI is
required to be made to the eserve Bank of India

c !
 
+ 
  
   

/
4

` Ê `n application for direct investment in a JV/WOS may be made in form ODI to:

Œhe Chief General Manager,

Overseas Investment Division,
Exchange Control Department,
eserve Bank of India, Central Office,
`mar Building, Sir P M oad,
Mumbai 400 001

c "



  
 
 
 



` Ê equests under the normal route are considered by taking into account the prima facie
viability of the proposal, business track record of the promoters, experience and expertise
of the promoters, benefits to the country, etc

c $
 
 
 



` Ê Proposals under the normal route are approved by the Special Committee on Indian
Direct Investment `broad, which consists of the representatives of the Ministry of
Finance, Ministry of External `ffairs and Ministry of Commerce of the Government of
India and the eserve Bank of India

c ,     

 
+
+

` Ê oes, requests for direct investment outside India in a JV/WOS by way of share swap
arrangement are considered under the Normal oute

c 

 
  +
+
 ` Ê oes, there is a specific scheme, which permits acquisition by an eligible entity of shares
of a foreign company engaged in a similar activity in exchange of issue of its own
`D/GDs to the latter on an automatic basis

c 
 

   
354'654+

` Ê Œhe norms for investment under the `D/GD stock swap scheme are as follows:

a Ê the Indian party has already made an `D and/or GD issue and such
`Ds/GDs are currently listed on any stock exchange outside India;
b Ê such investment by the Indian party does not exceed the higher of the following
amounts, namely: -

iÊ amount equivalent of S$ 100 mn or

ii Ê amount equivalent to 10 times the export earnings of the Indian party
during the preceding financial year as reflected in its audited balance
sheet, inclusive of all investments made under the automatic route in the
same financial year

c Ê the `D and/or GD issue for the purpose of acquisition is backed by underlying
fresh equity shares issued by the Indian party;
d Ê the total holding in the Indian party by persons resident outside India in the
expanded capital base, after the new `D and/or GD issue, does not exceed the
sectoral cap prescribed under the relevant regulations for such investment;
e Ê the valuation of the shares of the foreign company is made: -

iÊ as per the recommendations of the Investment Banker if the shares are not
listed on any stock exchange; or
ii Ê based on the current market capitalisation of the foreign company arrived
at on the basis of monthly average price on any stock exchange abroad for
the three months preceding the month in which the acquisition is
committed and over and above, the premium, if any, as recommended by
the Investment Banker in its due diligence report in other cases

c 

 

1
 
   
354'654
+

` Ê `n applicant company satisfying the above norms may make such investment on an
automatic basis and subsequently report the same in form ODG to the eserve Bank

c         

354'654
+

` Ê oes, such requests are considered by the Special Committee on case-to-case basis Indian
companies desirous of making such investment are required to submit an application in
form ODB to eserve Bank for the purpose
c 
 
+ 
1 +
+


  
 *+   
*354'654+


` Ê Œhe company will have to make an application to the eserve Bank of India in form ODI
along with necessary documents under the Normal oute

c  


  
 



` Ê Partnership firms engaged in providing professional services, such as chartered

accountancy, legal practice and related services, information technology and
entertainment software related services and medical and healthcare services are eligible
for investment abroad on an automatic basis by filing form OD` with the `D without
prior approval of the eserve Bank up to an amount of S$ 1 million Partnership firms,
which do not conform to the above parameters, are required to obtain specific approval of
the eserve Bank by filing an application in form ODI (to the extent applicable)

c !
 



  
 

 




` Ê Œhe investing firm will have to be the member of the respective all-India professional
organisation / body and the investment amount should not exceed S$ 1 million or its
equivalent in one financial year

c "
 
+ 
 


   
 



` Ê ` partnership firm which fulfills the conditions stipulated under the automatic route may
make the investment without prior approval and submit a report containing the following
details through an authorised dealer with in 30 days of making such investments ±

iÊ Name and full address and registration of partnership

ii Ê Full details of investment abroad
iii Ê Date and amount of remittance/amount of capitalisation of fees/other entitlements
due
iv Ê Name and address of the foreign concern together with its line of activities
vÊ Identification number (if already allotted by the eserve Bank)

c $
 
+ 
 

*+
 
 
34

` Ê Partnership firms, which are not eligible under the `utomatic oute, are required to make
an application in form ODI to the eserve Bank for necessary approval


c , 
 
 

 

  


` Ê It will be in order for individual partners to hold shares for and on behalf of the firm in
overseas JV/WOS provided the entire funding for the investment is done by the firm and
if the host country regulations or operational requirements warrant such holding

c 
3

 

 
   
  

` Ê Indian parties which have majority share holding in a foreign entity abroad are required
to seek specific approval of eserve Bank of India for setting up of a second generation
company in case:

iÊ the foreign entity has been in operation for a period of less than two years; or
ii Ê the Indian party has not repatriated the amount of dividends, fees and royalties
due to it from the foreign entity; or
iii Ê proceeds of exports to the foreign entity have not been realised in accordance with
the Foreign Exchange Management (Export of Goods and Services) egulations,
2000; or
iv Ê additional capital contribution is required from India

c 

%&'()
    

  
 

` Ê Œhe shares of a JV/WOS can be pledged as a security for availing fund based or non-fund
based facility for the concerned entity or for the JV/WOS from an authorised dealer/
public financial institution in India

c 
 
+ 
   #    
%&'()

` Ê Disinvestment of holding in a JV/WOS abroad requires prior approval of the eserve

Bank of India for which the holder will have to submit an application furnishing the
reasons /justifications for such disinvestment along with a Chartered `ccountant¶s
valuation certificate, latest audited financial statements of the JV/WOS, Board esolution
approving the disinvestment and Chartered `ccountant¶s certificate regarding position of
dues of the WOS and total amount to be received by parent company on disinvestment

c 
   
*+  
  
  

` Ê `n Indian Party will have to comply with the following: -

iÊ receive share certificates or any other documentary evidence of investment in the

foreign entity to the satisfaction of the eserve Bank within six months, failing
which an application for extension of time citing reasons for non-receipt will have
to be made to the eserve Bank
 ii Ê 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 eserve Bank may permit
iii Ê submit to the eserve Bank every year within 60 days from the date of expiry of
the statutory period as prescribed by the respective laws of the host country for
finalisation of the audited accounts of the Joint Venture/Wholly Owned
Subsidiary outside India an `nnual Performance eport in form `P in respect
of each Joint Venture or Wholly Owned Subsidiary outside India set up or
acquired by the Indian party Œhis `P should inevitably be accompanied by

a Ê Copies of FICs in support of inward remittances on account of dividend, royalty,

etc
b Ê `udited Financial Statements of the overseas venture
c Ê C`¶s certificate in support of realization of export proceeds
d Ê ` note on the working of the JV/WOS during the previous year highlighting the
ups and downs, reasons for non-performance, etc in monetary terms In case the
promoter company is unable to submit `Ps within the stipulated time, an
application on the due date should be made to the eserve Bank of India seeking
extension, giving reasons for the same

c 
 
  7 384

` Ê eserve Bank takes a serious view on non-submission of such reports and can take such
measures against the delinquent company as it deems fit including reference to
Enforcement Directorate

c   
      1

 
+




` Ê esident individuals in India can acquire foreign securities without prior approval in the
following cases: -

iÊ by way of gift from a person outside India; or

ii Ê issued by a company incorporated outside India under Cashless Employees Stock
Option Scheme which does not involve any remittance from India; or
iii Ê by way of inheritance from a person whether resident in or outside India; or
iv Ê purchase of foreign securities out of funds held in the esident Foreign Currency
`ccount maintained in accordance with the Foreign Exchange Management
(Foreign Currency `ccount) egulations, 2000; or
vÊ bonus shares on the foreign securities already held by them; or
vi Ê esident individuals are permitted to make overseas investments without any
limit in listed overseas companies that have at least 10% share in an Indian
company listed in a recognized stock exchange in India as on 1st January of the
year of investment


c !3

 

 +    1


 
 

` Ê oes, a person resident in India, being an individual, who is an employee or a director of

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 foreign equity holding is not less than 51 per
cent, may purchase the equity shares offered by the said foreign company: -

Provided that the shares are offered at a concessional price

c "  1


    



` Ê oes, eserve Bank has given general permission to a person resident of India to acquire
foreign security to the extent of the minimum number of qualification shares required to
be held for holding the post of Director and this amount shall not exceed 1% of the paid-
up capital of the company subject to a limit of SD 20,000 in a calendar year

c $ 
    


 

` Ê oes, eserve Bank on an application may permit a person resident in India to acquire
foreign securities by way of rights shares issued by a company incorporated outside India
up to an amount not exceeding S$ 20,000 in a block of five calendar years in case the
existing shares were held in accordance with the provisions of the law

c ,3

 
# 
  ' 

    
    +

1 
 
%&'()
 

` Ê oes, eserve Bank on an application will permit the individual employees/directors of an

Indian promoter company engaged in the field of software for acquisition of shares of a
JV/WOS abroad provided -

iÊ the consideration for purchase does not exceed S$ 10,000 or its equivalent per
employee in a block of five calendar years,
ii Ê the shares so acquired do not exceed 5% of the paid-up capital of the Joint
Venture or Wholly Owned Subsidiary outside India, and
iii Ê after allotment of such shares, the percentage of shares held by the Indian
promoter company, together with shares allotted to its employees is not less than
the percentage of shares held by the Indian promoter company prior to such
allotment

Further, eserve Bank may also on an application made to it by an Indian

company engaged in the field of software allow its resident employees (including
working directors) to purchase foreign securities under the `D/GD linked
stock option scheme provided the consideration for purchase does not exceed S$
50,000 or its equivalent in a block of five calendar years
c 

 

 1


 

` Ê eserve Bank has given general permission to mutual funds approved by SEBI to
purchase foreign securities, subject to such terms and conditions as may be stipulated