CONSOLIDATED FDI POLICY.

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....STMENT 3.1  Origin of Investment in India 3.2. Types of Instruments 3.3  Eligibility of FDI in Resident Entities 3.4  Conditions on Issue/Transfer of Shares 3.5  Issue of Instruments CHAPTER-4 CALCULATION, ENTRY ROUTE, CAPS, ENTRY CONDITIONS ETC. OF INVESTMENT 4.1  Calculation of Total Foreign Investment i.e. Direct and Indirect Foreign Investment in Indian Companies 4.2  Entry Routes for Investment 4.3  Caps on Investments 4.4   Entry conditions on Investment 4.5   Other conditions on Investment besides entry conditions 4.6   Downstream Investment by Indian Companies 4.7   Guidelines for consideration of FDI Proposals by FIPB 4.8   Constitution of FIPB 4.9  Approval Levels for cases under Government Route 4.10  Cases which do not require fresh Approval CHAPTER-5 POLICY ON ROUTE, CAPS AND ENTRY CONDITIONS 5.1  Prohibition on Investment In India AGRICULTURE 5.2  Agriculture & Animal Husbandry 5.3  Tea plantation INDUSTRY MINING 5.4 Mining 37 MANUFACTURING 5.5  Manufacture of items reserved for....

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....-3 Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift Annex-4 Definition of "relative" as given in Section 6 of Companies Act, 1956 Annex-5 Report by the Indian company receiving amount of consideration for issue of shares / convertible debentures under the FDI scheme Annex-6 Know Your Customer (KYC) Form in respect of the non-resident investor Annex-7 Form FC-TRS Annex-8 Form DR Annex-9 Form DR - Quarterly CHAPTER 1: INTENT AND OBJECTIVE 1.1 INTENT AND OBJECTIVE 1.1.1 'Investment' is usually understood as financial contribution to the equity capital of an enterprise or purchase of shares in the enterprise. 'Foreign investment' is investment in an enterprise by a Non-Resident irrespective of whether this involves new equity capital or re-investment of earnings. Foreign investment is of two kinds - (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment. 2. 1.1.2 International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) define FDI similarly as a category of cross border investment made by a resident in one economy (the....

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....es/Clarifications issued by DIPP and reflects the current 'policy framework' on FDI. It is clarified that this is a consolidation/compilation and comprehensive listing of most matters on FDI and is not intended to make changes in the extant regulations. This Consolidation deals comprehensively with all aspects of FDI Policy which are covered under the various Press Notes/Press Releases/ Clarifications issued by DIPP.  1.1.6 It has been decided that from now onwards a consolidated circular would be issued every six months to update the FDI policy.  This consolidated circular will, therefore, be superseded by a circular to be issued on September 30, 2010.   1.1.7 All earlier Press Notes/Press Releases/Clarifications on FDI issued by DIPP which were in force and effective as on March 31, 2010 stand rescinded as on March 31, 2010. The present circular consolidates and subsumes all such/these Press Notes/Press Releases/Clarifications as on March 31, 2010. 1.1.8 Notwithstanding the rescission of earlier Press Notes/Press Releases/Clarifications, anything done or any action taken or purported to have been done or taken under the rescinded Press Notes/Press Rel....

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....iabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6 of FEMA. 2.1.7 A company is considered as "Controlled" by resident Indian citizens if the resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens, have the power to appoint a majority of its directors in that company. 2.1.8 An entity is considered as 'Controlled' by 'non resident entities', if non-residents have the power to appoint a majority of its directors 2.1.9 'Depository Receipt' (DR) means a negotiable security issued outside India by a Depository bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded anywhere/elsewhere are known as Global Depository Receipts (GDRs). 2.1.10 'Erstwhile Overseas Corporate Body' (OCB) means a company, partnership firm, society and other corporate body owned directly or indi....

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.... incorporated in India under the Companies Act, 1956. 2.1.20 'Indian Venture Capital Undertaking' (IVCU) means an Indian company:- (i) whose shares are not listed in a recognised stock exchange in India; (ii) which is engaged in the business of providing services, production or manufacture of articles or things, but does not include such activities or sectors which are specified in the negative list by the SEBI, with approval of Central Government, by notification in the Official Gazette in this behalf. 2.1.21 'Investing Company' means an Indian Company holding only investments in another Indian company, directly or indirectly, other than for trading of such holdings/securities. 2.1.22 'Investment on repatriable basis' means investment, the sale proceeds of which, net of taxes, are eligible to be repatriated out of India and the expression 'investment on non-repatriable basis' shall be construed accordingly. 2.1.23 'Joint Venture' (JV) means an Indian entity incorporated in accordance with the laws and regulations in India in whose capital a foreign entity makes an investment. 2.1.24 'Non resident entity' means a 'person resident outside India' as defined under....

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....ntion to stay in India for an uncertain period;  (ii) any person or body corporate registered or incorporated in India, (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India. 2.1.32 'Person resident outside India' means a person who is not a Person resident in India. 2.1.33 'RBI' means the Reserve Bank of India established under the Reserve Bank of India Act, 1934. 2.1.34 'Resident Entity' means 'Person resident in India' excluding an individual. 2.1.35 'Resident Indian Citizen' shall be interpreted in line with the definition of 'person resident in India' as per FEMA, 1999, read in conjunction with the Indian Citizenship Act, 1955. 2.1.36 'SEBI' means the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992. 2.1.37 'SEZ' means a Special Economic Zone as defined in Special Economic Zone Act, 2005. 2.1.38 'SIA' means Secretariat of Industrial Assistance in DIPP, Ministry of Commerce & Industry, Government of India. 2.1.39 'Transferable Development Ri....

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....Form FC-GPR (Annex-1) (Post-issue pattern of shareholding) so that the details could be suitably reconciled for statistical/monitoring purposes. (iii) A daily statement in respect of all transactions (except derivative trade) have to be submitted by the custodian bank in floppy / soft copy in the prescribed format directly to RBI to monitor the overall ceiling/sectoral cap/statutory ceiling. 3.1.5 No person other than registered FII/NRI as per Schedules II and III of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations of FEMA 1999, can invest/trade in capital of Indian Companies in the Indian Stock Exchanges directly i.e. through brokers like a Person Resident in India. 3.1.6 A Foreign Venture Capital Investor (FVCI) may contribute upto 100% of the capital of a Venture Capital Fund/Indian Venture Capital Undertaking and may also set up a domestic asset management company to manage the fund. All such investments are allowed under the automatic route subject to SEBI & RBI regulations and FDI Policy. However FVCIs are also allowed to invest as non-resident entities in other companies subject to FDI Policy. 3.2 TYPES OF....

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....is earlier. ADRs / GDRs are issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager to the issue. The proceeds so raised have to be kept abroad till actually required in India. Pending repatriation or utilization of the proceeds, the Indian company can invest the funds in:- (a) Deposits, Certificate of Deposits or other instruments offered by banks rated by Standard and Poor, Fitch, IBCA ,Moody's, etc. with rating not below the rating stipulated by Reserve Bank from time to time for the purpose; (b) Deposits with branch/es of Indian Authorized Dealers outside India; and (c) Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less. (iv) There are no end-use restrictions except for a ban on deployment / investment of such funds in real estate or the stock market. There is no monetary limit up to which an Indian company can raise ADRs / GDRs. (v) The ADR / GDR proceeds can be utilized for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategi....

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....Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADRs / GDRs. 3.3 ELIGIBILITY OF FDI IN RESIDENT ENTITIES 3.3.1 FDI in an Indian Company (i) Indian companies including those which are micro and small enterprises can issue capital against FDI. 3.3.2 FDI in Partnership Firm / Proprietary Concern: (i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided; (a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers / Authorized banks. (b) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector. (c) Amount invested shall not be eligible for repatriation outside India. (ii) Investments with repatriation benefits: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation benefits. The application will be decided in consultation with the ....

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....Currency Account, with the prior approval of RBI. 3.4.4 Transfer of shares and convertible debentures - (i) Subject to FDI sectoral policy, foreign investors can also invest in Indian companies by purchasing/acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the following: (a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs). (b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI. In both the above cases, the 'Existing Venture/tie-up condition' as defined in para 4.2.2 would apply.   (c) A person resident outside India can transfer any security to a person resident in India by way of gift. (d) A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant bank....

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....k carrying out the transaction along with the Form FCTRS. (iii) Escrow: AD Category - I banks have been given general permission to open Escrow account and Special account of non-resident corporate for open offers / exit offers and delisting of shares. The relevant SEBI (SAST) Regulations or any other applicable SEBI Regulations/ provisions of the Companies Act, 1956 will be applicable. 3.4.5 Prior permission of RBI in certain cases for transfer of capital instruments - (i) The following instances of transfer of capital instruments from resident to non-residents by way of sale require prior approval of RBI: (a) Transfer of capital instruments of an Indian company engaged in financial services sector (i.e. Banks, NBFCs, Asset Reconstruction Companies, CICs, Insurance companies, infrastructure companies in the securities market such as Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.). (b) Transactions which attract the provisions of SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997. (c) The activity of the Indian company whose capital instruments are being transferred falls outside the automatic route and the ....

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.... interest from time to time. 3.4.6 Conversion of ECB/Lumpsum Fee/Royalty into Equity. (i) Indian companies have been granted general permission for conversion of External Commercial Borrowings (ECB) (excluding those deemed as ECB) in convertible foreign currency into shares/preference shares, subject to the following conditions and reporting requirements. (a) The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government approval for foreign equity in the company; (b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if any; (c) Pricing of shares is as per SEBI regulations or erstwhile CCI guidelines in the case of listed or unlisted companies respectively;   (d) Compliance with the requirements prescribed under any other statute and regulation in force; and (e) The conversion facility is available for ECBs availed under the Automatic or Government Route and is applicable to ECBs, due for payment or not, as well as secured/unsecured loans availed from non-resident collaborators. (ii) General permission is also available for issue of shares/preference shares against lu....

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....nditions that: (i) the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap, and (ii) the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI policy . 3.5.5 Issue of shares under Employees Stock Option Scheme (ESOPs) - (i) Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to citizens of Bangladesh with the prior approval of FIPB. Shares under ESOPs can be issued directly or through a Trust subject to the condition that: (a) The scheme has been drawn in terms of relevant regulations issued by the SEBI, and (b) The face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5 per cent of the paid-up capital of the issuing company. (ii) Unlisted companies have to follow the provisions of the Companies Act, 1956. The Indian company can issue ESOPs to employees....

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.... company is owned or controlled by 'non resident entities', the entire investment by the investing company into the subject Indian Company would be considered as indirect foreign investment,  Provided that, as an exception, the indirect foreign investment in only the 100% owned subsidiaries of operating-cum-investing/investing companies, will be limited to the foreign investment in the operating-cum-investing/ investing company. This exception is made since the downstream investment of a 100% owned subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company.  This exception, however, is strictly for those cases where the entire capital of the downstream subsidy is owned by the holding company. Illustration To illustrate, if the indirect foreign investment is being calculated for Company X which has investment through an investing Company Y having foreign investment, the following would be the method of calculation:  (A) where Company Y has foreign investment less than 50%- Company X would not be taken as having any indirect foreign investment through Comp....

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....bsp; (A) For this purpose, the equity held by the largest Indian shareholder would have to be at least 51% of the total equity, excluding the equity held by Public Sector Banks and Public Financial Institutions, as defined in Section 4A of the Companies Act, 1956. The term 'largest Indian shareholder', used in this clause, will include any or a combination of the following: (I) In the case of an individual shareholder, (aa) The individual shareholder, (bb) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956. (cc) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest.  (II) In the case of an Indian company,  (aa) The Indian company (bb) A group of Indian companies under the same management and ownership control. (B) For the purpose of this Clause, "Indian company" shall be a company which must have a resident Indian or a relative as defined under Section 6 of the Companies Act, 1956/ HUF, either singly or in combination holding at least 51% of the shares.  (C) Provided that, in case of a combination of all or any of the entities mentioned ....

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....desiring to set up another joint venture or a wholly owned subsidiary in the same field of economic activity.  The policy is, however, expected to protect the interest of the joint venture partner where the agreement had been entered prior to January 12, 2005. 4.2.2.2 Where a foreign investor has an existing joint venture/ technology transfer/ trademark agreement in the same field, prior to January 12, 2005, the proposal for fresh investment/technology transfer/technology collaboration/trademark agreement in a new joint venture for technology transfer/ technology collaboration/trademark agreement would have to be under the Government approval route through FIPB/ Project Approval Board. The onus to provide requisite justification that the new tie-up would not jeopardize the existing joint venture or technology transfer/ trademark partner, would lie equally on the foreign investor/ technology supplier and the Indian partner. 4.2.2.3 The following investments, however, will be exempt from the requirement of Government approval even though the foreign investor may be having a joint venture or technology transfer/ trademark agreement in the same filed: (a) Investments to b....

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....ransfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc. (v) It is clarified that these guidelines will not apply for sectors/activities where there are no foreign investment caps, that is, 100% foreign investment is permitted under the automatic route.  (vi) It is also clarified that Foreign investment shall include all types of foreign investments i.e. FDI, investment by FIIs, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and fully, mandatorily & compulsorily convertible preference shares/debentures, regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. 4.3 CAPS ON INVESTMENTS 4.3.1 Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as provided/permitted in the FDI policy. Thus while investment are prohibited in some sectors/activities, there are restrictions/conditions/caps on the investment in certain other sector/activities. The caps in various sector(s)/activity are detailed ....

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....on of indirect foreign investment with conditions specified in para 4.1.3 (v) (iv) 'Foreign Investment' would have the same meaning as in Para 4.1 4.6.4 Guidelines for downstream investment by Investing Indian Companies 'owned or controlled by non resident entities' as per Para 4.1: (i) The Policy on downstream investment comprises policy for (a) only operating companies (b) operating-cum-investing companies (c) only investing companies as below: (ii) Only operating companies: Foreign investment in such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in which such companies are operating. (iii) Operating-cum-investing companies: Foreign investment into such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in which such companies are operating. Further, the subject Indian companies into which downstream investments are made by such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps in regard of the sector in which the subject Indian ....

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....ould be ensured that comments of the administrative ministries are placed before the Board either prior to/or in the meeting of the Board. 4.7.3 Proposals should be considered by the Board keeping in view the time frame of thirty (30) days for communicating Government decision . 4.7.4 In cases in which either the proposal is not cleared or further information is required in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to. 4.7.5 While considering cases and making recommendations, FIPB should keep in mind the sectoral requirements and the sectoral policies vis-a-vis the proposal (s). 4.7.6 FIPB would consider each proposal in its totality  4.7.7 The Board should examine the following while considering proposals submitted to it for consideration. (i) whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into; (ii) whether the proposal involves any export projection and if so the items of export and the projected destinations. (iii)Whether the proposal has any strategic or defence related considerations. 4.7.8 While consi....

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.... (e.g. import of plastic scrap or recycled plastics). 4.7.10 No condition specific to the letter of approval issued to a foreign investor would be changed or additional condition imposed subsequent to the issue of a letter of approval.  This would not prohibit changes in general policies and, regulations applicable to the industrial sector. 4.8 CONSTITUTION OF FIPB: 4.8.1 FIPB comprises of the following Core Group of Secretaries to the Government of India: (i) Secretary to Government, Department of Economic Affairs, Ministry of Finance - Chairperson (ii) Secretary to Government, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry (iii) Secretary to Government, Department of Commerce, Ministry of Commerce & Industry (iv) Secretary to Government, Economic Relations, Ministry of External Affairs (v) Secretary to Government, Ministry of Overseas Indian Affairs. 4.8.2 The Board would be able to co-opt other Secretaries to the Central Government and top officials of financial institutions, banks and professional experts of Industry and Commerce, as and when necessary. 4.9 APPROVAL LEVELS FOR CASES UNDER GOVERNMENT ROUTE 4.9.1....

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....mbling and Betting including casinos etc. (e) Business of chit fund (f) Nidhi company (g) Trading in Transferable Development Rights (TDRs) (h) Real Estate Business or Construction of Farm Houses  (i) Activities / sectors not opened to private sector investment. Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities. AGRICULTURE 5.2 Agriculture & Animal Husbandry 5.2.1 100% FDI is allowed under automatic route in Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture and Cultivation of Vegetables & Mushrooms under controlled conditions and services related to agro and allied sectors.   Note: Besides the above, FDI is not allowed in any other agricultural sector/activity. 5.2.2 For companies dealing with development of transgenic seeds/vegetables, the following conditions apply: (i) When dealing with genetically modified seeds or planting material the company shall comply with safety requirements in acc....

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....each sand minerals in the coastal stretches around the country. Titanium bearing minerals viz. Ilmenite, rutile and leucoxene, and Zirconium bearing minerals including zircon are some of the beach sand minerals which have been classified as "prescribed substances" under the Atomic Energy Act, 1962.   (ii) Under the Industrial Policy Statement 1991, mining and production of minerals classified as "prescribed substances" and specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 were included in the list of industries reserved for the public sector. Vide Resolution No. 8/1(1)/97-PSU/1422 dated 6th October 1998 issued by the Department of Atomic Energy laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon).   (iii) Vide Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of "prescribed substances" under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile a....

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.....8 Coffee & Rubber processing and warehousing: 100% FDI is allowed under the automatic route. 5.9 Defence Industry 5.9.1 FDI is permissible up to 26%, under Government route subject to Industrial license under the Industries (Development & Regulation) Act 1951 and the following conditions: (i) Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence. (ii) Cases involving FDI will be considered by the FIPB and licences given by the Department of Industrial Policy & Promotion in consultation with Ministry of Defence. (iii) The applicant should be an Indian company / partnership firm. (iv) The management of the applicant company / partnership should be in Indian hands with majority representation on the Board as well as the Chief Executives of the company / partnership firm being resident Indians. (v) Full particulars of the Directors and the Chief Executives should be furnished along with the applications. (vi) The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including the....

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.... or group of items manufactured by the licensee.  Such permission would be for a fixed period and subject to renewals. (xiv) Purchase preference and price preference may be given to the Public Sector organizations as per guidelines of the Department of Public Enterprises. (xv) Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons / entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to institute a verifiable system of removal of all goods out of their factories. Violation of these provisions may lead to cancellation of the licence.   (xvi) Government decision on applica....

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....aking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934; (ii) "Aerodrome" means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto; (iii)"Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights. (iv)"Air Transport Undertaking" means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward. (v) "Aircraft component" means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment; (vi)"Helicopter" means a heavier-than -air aircraft supported in flight by the reactions of the air on one or more power driven roto....

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....ment by Non-resident Indians (NRI) up to 100% allowed. FDI in on the automatic route upto 49% and on the Government route beyond 49% and upto 74%. (c) Helicopter services/seaplane services requiring DGCA approval- FDI up to 100% allowed on the automatic route.  (iv) FDI ceilings in other services under Civil Aviation sector (a) Ground Handling Services- FDI up to 74% and investment by Non-resident Indians (NRI) up to 100% allowed. FDI under the automatic route upto 49% and through the Government route beyond 49% and upto 74%. This will be subject to sectoral regulations and security clearance. (b) Maintenance and Repair organizations; flying training institutes; and technical training institutions - FDI up to 100% allowed on the automatic route. 5.15.4 The policy for FDI in the Civil Aviation Sector would be subject to the Aircraft Rules, 1934 as amended from time to time, Civil Aviation Requirements, and Aeronautical Information Circulars as notified by the Ministry of Civil Aviation. 5.16. Asset Reconstruction Companies: 5.16.1 'Asset Reconstruction Company' (ARC) means a company registered with the Reserve Bank of India under Section 3 of the Securitisa....

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....which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body. (a) Thus, the FII investment limit will continue to be within 49 per cent of the total paid-up capital. (b) In the case of NRIs, as hitherto, individual holding is restricted to 5 per cent of the total paid-up capital both on repatriation and non-repatriation basis and aggregate limit cannot exceed 10 per cent of the total paid-up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non-repatriation basis provided the banking company passes a special resolution to that effect in the General Body. (c) Applications for foreign direct investment (FDI route) in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance....

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....amentary approvals. 5.18 Banking- Public Sector 5.18.1 FDI and Portfolio Investment in nationalized Banks are subject to overall statutory limit of 20% under Government route as per section 3(2D) of the Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. The same ceiling is also applicable to the State Bank of India and its associate Banks. 5.19 Broadcasting 5.19.1 Terrestrial Broadcasting FM (FM Radio): Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 20% equity for FM Radio's Broadcasting Services with prior approval of the Government subject to such terms and conditions as specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations.  5.19.2 Cable Network: Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49%  for Cable Networks under Government route subject to Cable Television Network Rules, 1994 and other conditions as specified from time to time by Ministry of Information and Broadcasting.  5.19.3 Direct-to-Home: Foreign investment, including ....

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....Information & Broadcasting from time to time. 5.20 Business Services-100% FDI under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing& Analysis services. 5.21 Commodity Exchanges 5.21.1 Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market.  With a view to infuse globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges.  5.21.2 For the purposes of this chapter, (i) "Commodity Exchange" is a recognized association under the provisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities. (ii) "recognized association" means an association to which recognition for the time being has been granted by the Central Government under Section 6 of the Forward....

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....owed under the automatic route for: (i) Leasing of existing assets of ports (ii) Construction/creation and maintenance of assets such as-container terminals bulk/break bulk/multipurpose and specialized cargo berths, warehousing, container freight stations, storage facilities and tank farms, cranage/ handling equipment, setting up of captive power plants, dry docking and ship repair facilities. (iii) Leasing of equipment for port handling and leasing of floating crafts (iv) Captive facilities for port based industries. 5.22.5 FDI upto 100% is permitted on the automatic route for Mass Rapid Transport Systems in all Metropolitan Cities including associated commercial development of real estate.  The conditions at para 5.23.1, 5.23.2 and 5.23.3 would not apply. 5.23 Development of Townships, Housing, Built-up infrastructure and Construction-development projects.  5.23.1 FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city an....

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.... Body concerned. 5.23.6 The State Government/ Municipal/ Local Body concerned, which approves the building / development plans, would monitor compliance of the above conditions by the developer. 5.23.7 The conditions as at paras 5.23.1, 5.23.2 and 5.23.3 would not apply to Hotels & Tourism, Hospitals and SEZ's.  5.23.8 For investment by NRIs, the conditions at paras 5.23.1, 5.23.2 and 5.23.3 would not apply. 5.23. 9 100% FDI is allowed under the automatic route in development of Special Economic Zones (SEZ) without the conditionalities at paras 5.23.1, 5.23.2 and 5.23.3 above. This will be subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce. 5.23.10 FDI is not allowed in Real Estate Business. 5.24 Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898. 5.24.1 100% FDI is allowed under the Government route. 5.24.2 This will be subject to existing Law i.e Indian Post Office Act 1898 and exclusion of activity relating to the distribution of letters. 5.25. Credit Information Companies (CIC) 5.25.1 Foreign investment....

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....in the Industrial Park and includes roads (including approach roads), water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power, air conditioning. (iii) "Common Facilities" refer to the facilities available for all the units located in the industrial park, and include facilities of power, roads (including approach roads), water supply and sewerage, common effluent treatment, common testing, telecom services, air conditioning, common facility buildings, industrial canteens, convention/conference halls, parking, travel desks, security service, first aid center, ambulance and other safety services, training facilities and such other facilities meant for common use of the units located in the Industrial Park. (iv)"Allocable area" in the Industrial Park means-   (a) in the case of plots of developed land- the net site area available for allocation to the units, excluding the area for common facilities. (b) in the case of built up space- the floor area and built up space utilized for providing common facilities. (c) in the case of a combination of developed land and built-up space- the net site and floor ....

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....Consultancy (vi) Stock Broking (vii) Asset Management (viii) Venture Capital (ix) Custodian Services (x) Factoring (xi) Credit Rating Agencies (xii) Leasing & Finance (xiii) Housing Finance (xiv) Forex Broking (xv) Credit Card Business (xvi) Money Changing Business (xvii) Micro Credit (xviii) Rural Credit 5.31.2 Investment would be subject to the following minimum capitalisation norms: (i) US $0.5 million for foreign capital upto 51% to be brought upfront (ii) US $ 5 million for foreign capital more than 51% and upto 75% to be brought upfront (iii)US $ 50 million for foreign capital more than 75% out of which US$ 7.5 million to be brought upfront and the balance in 24 months. (iv)100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million can set up step down subsidiaries for specific NBFC activities, without any restriction on number of operating subsidiaries and without bringing in additional capital. (v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable m....

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....lation and Petroleum refining in the private sector. This will be subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. 5.32.2 FDI up to 49% is permitted under the Government route in petroleum refining by the Public Sector Undertakings (PSU). This should not involve any divestment or dilution of domestic equity in the existing PSUs. 5.33. Print Media 5.33.1 Publishing of Newspaper and periodicals dealing with news and current affairs: Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26%, is permitted under the Government route.  5.33.2 Publication of Indian editions of foreign magazines dealing with news and current affairs:  (i) Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26%, is permitted under the Government route.  (ii) 'Magazine', for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news.  (iii) Foreign investm....

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.... would be restricted to a maximum of 49% under the Government route. 5.36 Satellites - Establishment and operation:  5.36.1 FDI upto 74% is allowed under Government route. 5.36.2 This will be subject to the sectoral guidelines of Department of Space/ISRO. 5.37 Storage and Warehouse Services: 100% FDI is allowed under the automatic route in Storage and Warehousing including warehousing of agricultural products with refrigeration (cold storage). 5.38 Telecommunication 5.38.1 Telecom services: Foreign Direct Investment limit in telecom services is 74 percent subject to the following conditions: (i) This is applicable in case of Basic, Cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added Services. (ii) Both direct and indirect foreign investment in the licensee company shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs)....

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....e Company shall not transfer the following to any person/place outside India:-  (a) Any accounting information relating to subscriber (except for international roaming/billing) (Note: it does not restrict a statutorily required disclosure of financial nature) ; and (b) User information (except pertaining to foreign subscribers using Indian Operator's network while roaming). (ix) The Company must provide traceable identity of their subscribers. However, in case of providing service to roaming subscriber of foreign Companies, the Indian Company shall endeavour to obtain traceable identity of roaming subscribers from the foreign company as a part of its roaming agreement.  (x) On request of the licensor or any other agency authorised by the licensor, the telecom service provider should be able to provide the geographical location of any subscriber (BTS location) at a given point of time. (xi) The Remote Access (RA) to Network would be provided only to approved location(s) abroad through approved location(s) in India. The approval for location(s) would be given by the Licensor (DOT) in consultation with the Security Agencies (IB). (xii) Under no circumstance....

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....mentioned above shall not be separately enforced on OSPs. 5.38.3 The conditions at para 5.39.2 above shall also be applicable to the companies operating telecom service(s) with the FDI cap of 49%. 5.38.4 All the telecom service providers shall submit a compliance report on the aforesaid conditions to the licensor on 1st day of July and January on six monthly basis.  5.38.5 (i) FDI upto 74% is allowed in following activities (a) ISP with gateways (b) ISP's not providing gateways i.e without gate-ways (both for satellite and marine cables) Note: The new guidelines of August 24, 2007 Department of Telecommunications provide for new ISP licenses with FDI upto 74%.   (c) Radio paging (d) End-to-End bandwidth (ii) FDI upto 49% would be allowed under the automatic route and above that under the Government route. (iii) This will be subject to licensing and security requirements notified by the Department of Telecommunications. 5.38.6 (i) FDI upto 100% is allowed for the following activities (a) Infrastructure provider providing dark fibre, right of way, duct space, tower (IP Category I) (b) Electronic Mail (c) Voice Mail (ii) The ....

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....self/ himself/herself engaged in a business involving commercial activity; or (III) Entities holding permits/license etc. for undertaking retail trade (like tehbazari and similar license for hawkers) from Government Authorities/Local Self Government Bodies; or (IV) Institutions having certificate of incorporation or registration as a society or registration as public trust for their self consumption. Note: An Entity to whom WT is made, may fulfill any one of the 4 conditions.   (c) Full records indicating all the details of such sales like name of entity, kind of entity, registration/license/permit etc. number, amount of sale etc. should be maintained on a day to day basis. (d) WT of goods would be permitted among companies of the same group. However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture and the wholesale made to the group companies should be for their internal use only. (e) WT can be undertaken as per normal business practice, including extending credit facilities subject to applicable regulations. (f) A Wholesale/Cash & carry trader cannot open retail shops to sell to the cons....

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....fied guidelines, before being considered by the FIPB for Government approval.   5.40. Transport and Transport Support Services: 100% FDI under the automatic route is allowed for: 5.40.1 Pipeline transport, ocean and water transport, inland water transport. 5.40.2 Transport Support Services: (i) Support services to land transport like operation of highway bridges, toll roads, and vehicular tunnels. (ii) Support services to water transport like operation and maintenance of piers, loading and discharging of vessels. (iii) Services incidental to transport like cargo handling incidental to land, water and air transport (iv) Rental and leasing of - motor vehicles without operator for passenger transport and freight transport, refrigerated/cold transport. (v) Renting of -transport equipment without operator, of other transport equipment.   5.41. In sectors/Activities not listed above, FDI is permitted upto 100% on the automatic route subject to applicable laws/sectoral rules/regulations. CHAPTER 6: REMITTANCE, REPORTING AND VIOLATION 6.1 REMITTANCE AND REPATRIATION 6.1.1 Remittance of sale proceeds/Remittance on winding up/Liquidatio....

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....cable taxes). The repatriation is governed by the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.                               6.2. REPORTING OF FDI 6.2.1 Reporting of Inflow (i) An Indian company receiving investment from outside India for issuing shares / convertible debentures / preference shares under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank not later than 30 days from the date of receipt in the Advance Reporting Form enclosed as Annex-5. (ii) Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares / convertible debentures, through an AD Category - I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report (enclosed as Annex-6) on the non-resident investor from the overseas bank remitting the amount. The report would be acknowledged by the Regional ....

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....ny which is outstanding as on the balance sheet date. The details of overseas investments in the company both under direct / portfolio investment may be separately indicated. (e) Issue of bonus/rights shares or stock options to persons resident outside India directly or on amalgamation / merger/demerger with an existing Indian company, as well as issue of shares on conversion of ECB / royalty / lumpsum technical know-how fee / import of capital goods by units in SEZs has to be reported in Form FC-GPR. 6.2.3 Reporting of transfer of shares Reporting of transfer of shares between residents and non-residents and vice- versa is to be done in Form FC-TRS (Annex-7). The Form FC-TRS should be submitted to the AD Category - I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India. The AD Category - I bank, would forward the same to its link office. The link office would consolidate the Form FC-TRS and submit a monthly report to the Reserve Bank. 6.2.4 Reporting of Non-Cash Details of issue of shares against conversion of ECB h....

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....ON FDI is a capital account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA. Reserve Bank of India administers the FEMA and Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA. The Directorate takes up investigation in any contravention of FEMA. 6.3.1 Penalties (i) If a person violates/contravenes any FDI Regulations, by way of breach/non-adherence/non-compliance/contravention of any rule, regulation, notification, press note, press release, circular, direction or order issued in exercise of the powers under FEMA or contravenes any conditions subject to which an authorization is issued by the Government of India/FIPB/Reserve Bank of India, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contraventions where such amount is quantifiable, or up to two lakh Rupees where the amount is not quantifiable, and where such contraventions is a continuing one, further penalty which may extend to five thousand Rupees for every day after the first day during which the contraventions continues. (ii) Where a person committing a contravention o....

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....contravention. The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings. The Compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerns as expeditiously and not later than 180 days from the date of application made to the Compounding Authority. Compounding Authority shall issue order specifying the provisions of the Act or of the rules, directions, requisitions or orders made there under in respect of which contravention has taken place along with details of the alleged contraventions.     Click here to download the circular ============= Document 1 Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India CONSOLIDATED FDI POLICY (EFFECTIVE FROM APRIL 1, 2010) SUBJECT: Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion (FC Section) CIRCULAR 1 OF 2010 CONSOLIDATED FDI POLICY. The "Consolidated FDI Policy" is attached. 2. This circular will take effect from April 1, 2010. (Gopal Krishna) Joint Secre....

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....lectric Generation, Transmission, Distribution and Trading 41 SERVICES SECTOR 5.14 Advertising and Films 5.15 Civil Aviation Sector 5.16 Asset Reconstruction Companies 5.17 Banking-Private sector 5.18 Banking- Public Sector 5.19 Broadcasting 5.20 Business Services 41 41 42 44 44 46 46 48 5.21 Commodity Exchanges 48 5.22 Construction and Maintenance 49 5.23 Development of Townships, Housing, Built-up infrastructure and Construction-development projects 50 5.24 Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898 51 5.25 Credit Information Companies (CIC) 5.26 Health and Medical Services 5.27 Hotels and Tourism related Industry 5.28 Industrial Parks both setting up and in established Industrial Parks 5.29 Insurance 5.30 Infrastructure Company in the Securities Market 5.31 Non-Banking Finance Companies (NBFC) 5.33 Print Media 5.32 Petroleum & Natural Gas Sector 5.34 Research and Development Services excluding basic Research and setting of 57 R&D/ academic institutions which would award degree....

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....ise to ensure the significant degree of influence by the direct investor in the management of the direct investment enterprise. Direct investment allows the direct investor to gain access to the direct investment enterprise which it might otherwise be unable to do. The objectives of direct investment are different from those of portfolio investment whereby investors do not generally expect to influence the management of the enterprise. In the Indian context, FDI is defined in Para 2.1.12 of this Circular. 1.1.3 It is the policy of the Government of India to attract and promote productive FDI from non- residents in activities which significantly contribute to industrialization and socio-economic development. FDI supplements the domestic capital and technology. 1.1.4 The Legal basis: Foreign Direct Investment by non-resident in resident entities through transfer or issue of security to person resident outside India is a ‘Capital account transaction' and Government of India and Reserve Bank of India regulate this under the FEMA, 1999 and its various regulations. Keeping in view the current requirements, the Government from time to time comes u....

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....s circular and shall be valid and effective. 1.1.9 It is the intent and objective of the Government to promote foreign direct investment through a policy framework which is transparent, predictable, simple and clear and reduces regulatory burden. The system of periodic consolidation and updation is introduced as an investor friendly measure. While this circular consolidates FDI Policy Framework, the legal edifice is built on 6 notifications issued by RBI under FEMA. Therefore, any changes notified by RBI from time to time would have to be complied with and where there is a need / scope of interpretation, the relevant FEMA notification will prevail. 1.1.10 This circular will take effect from April 1, 2010. 7 CHAPTER 2: DEFINITIONS 2.1 DEFINITIONS: The definitions of terms used in this circular are as follows:- 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 'AD Category-I Bank' means a bank( Scheduled Commercial, State or Urban Cooperative) which are authorized under Section 10(1) of FEMA to undertake all current and capital account transactions according to the directions issued by the RBI from time to time. ‘A....

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....sixty percent by non-resident Indian and includes overseas trust in which not less than sixty percent beneficial interest is held by non-resident Indian directly or indirectly but irrevocably and which was in existence on the date of commencement of the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003 (the Regulations) and immediately prior to such commencement was eligible to undertake transactions pursuant to the general permission granted under the Regulations. 'Foreign Currency Convertible Bonds' (FCCB) means a bond issued by an Indian company expressed in foreign currency, the principal and interest of which is payable in foreign currency. FCCBs are issued in accordance with the Foreign Currency Convertible Bonds and ordinary shares (through depository receipt mechanism) Scheme 1993 and subscribed by a non-resident entity in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part. ‘FDI' means investment by non-resident entity/person resident outside India in the capital of the Indian company under....

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....es an investment. 'Non resident entity' means a 'person resident outside India' as defined under FEMA 'Non Resident Indian' (NRI) means an individual resident outside India who is a citizen of India or is an individual of Indian origin. 10 2.1.26 2.1.27 2.1.28 A company is considered as 'Owned' by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and / or Indian companies, which are ultimately owned and controlled by resident Indian citizens; An entity is considered as ‘Owned' by 'non resident entities', if more than 50% of the capital in it is beneficially owned by non-residents. 'PAB' means Project Approval Board in DIPP, Ministry of Commerce & Industry, Government of India. 2.1.29 'Person' includes 2.1.30 2.1.31 (i) an individual (ii) a Hindu undivided family, (iii) a company (iv) a firm (v) an association of persons or a body of individuals whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub- clauses, and (vii) any agency, office, or branch owned or controlled by such pe....

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....t of Industrial Assistance in DIPP, Ministry of Commerce & Industry, Government of India. 2.1.39 "Transferable Development Rights' (TDR) means certificates issued in respect of 12 2.1.40 category of land acquired for public purposes either by the Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole. 'Venture Capital Fund' (VCF) means a Fund established in the form of a Trust, a company including a body corporate and registered under Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996, which (i) has a dedicated pool of capital; (ii) raised in the manner specified under the Regulations; and (iii) invests in accordance with the Regulations 13 CHAPTER 3: ORIGIN, TYPE, ELIGIBILITY, CONDITIONS AND ISSUE/TRANSFER OF INVESTMENT 3.1 ORIGIN OF INVESTMENT IN INDIA 3.1.1 A non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI P....

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....d under the automatic route subject to SEBI & RBI regulations and FDI Policy. However FVCIs are also allowed to invest as non-resident entities in other companies subject to FDI Policy. 3.2 TYPES OF INSTRUMENTS. 3.2.1 Indian companies can issue equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares subject to pricing guidelines/valuation norms prescribed under FEMA Regulations. The pricing of the capital instruments should be decided/determined upfront at the time of issue of the instruments. 3.2.2 Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are considered as debt. Accordingly all norms applicable for ECBs relating to eligible borrowers, recognized lenders, amount and maturity, end-use stipulations, etc. shall apply. Since these instruments would be denominated in rupees, the rupee interest rate will be based on the swap equivalent of London Interbank Offered Rate (LIBOR) plus the spread as permissible for ECBS of cor....

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.... company can raise ADRs/GDRs. (v) The ADR / GDR proceeds can be utilized for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategic importance. (vi) Voting rights on shares issued under the Scheme shall be as per the provisions of Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. Voting rights in the case of banking companies will continue to be in terms of the provisions of the Banking Regulation Act, 1949 and the instructions issued by the Reserve Bank from time to time, as applicable to all shareholders exercising voting rights. (vii) Erstwhile OCBs who are not eligible to invest in India and entities prohibited from buying, selling or dealing in securities by SEBI will not be eligible to subscribe to ADRs/GDRs issued by Indian companies. (viii)The pricing of ADR / GDR issues should be made at a price determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and ....

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....l estate business or print media sector. (c) Amount invested shall not be eligible for repatriation outside India. (ii) Investments with repatriation benefits: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation benefits. The application will be decided in consultation with the Government of India. 17 (iii)Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIS/PIO may make an application and seek prior approval of Reserve Bank for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India. (iv) Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business (i.e. dealing in land and immovable property with a view to earning profit or earning income there from) or engaged in Print Media. 3.3.3—–—– FDI in Trusts: FDI in Trusts other than VCF i....

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....convertible debentures held by them to another NRI. In both the above cases, the 'Existing Venture/tie-up condition' as defined in para 4.2.2 would apply. (c) A person resident outside India can transfer any security to a person resident in India by way of gift. (d) A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI. (e) A person resident in India can transfer by way of sale, shares/convertible debentures (including transfer of subscriber's shares), of an Indian company in sectors other than financial services sectors (i.e. Banks, NBFC, Insurance, ARCS, CICs, infrastructure companies in the securities market viz. Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.) under private arrangement to a person resident outside India, subject to the guidelines given in Annex-2. (f) General permission is also available for transfer of shares/convertible debentures, by way of sale under private arrangement by a person resident outsi....

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....require prior approval of RBI: (a) Transfer of capital instruments of an Indian company engaged in financial services sector (i.e. Banks, NBFCs, Asset Reconstruction Companies, CICs, Insurance companies, infrastructure companies in the securities market such as Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.). (b) Transactions which attract the provisions of SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997. (c) The activity of the Indian company whose capital instruments are being transferred falls outside the automatic route and the approval of the FIPB has been obtained for the said transfer. 20 (d) The transfer is to take place at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time. (e) Transfer of capital instruments where the non-resident acquirer proposes deferment of payment of the amount of consideration, prior approval of the Reserve Bank would be required, as hitherto. Further, in case approval is granted for a transaction, the same should be reported in Form FC-TRS, to an AD Category - I bank for necessary due diligen....

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....l for foreign equity in the company; (b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if any; (c) Pricing of shares is as per SEBI regulations or erstwhile CCI guidelines in the case of listed or unlisted companies respectively; (d) Compliance with the requirements prescribed under any other statute and regulation in force; and (e) The conversion facility is available for ECBs availed under the Automatic or Government Route and is applicable to ECBs, due for payment or not, as well as secured/unsecured loans availed from non-resident collaborators. (ii) General permission is also available for issue of shares/preference shares against lump sum technical know-how fee, royalty, under automatic route or SIA/FIPB route, subject to pricing guidelines of SEBI/CCI and compliance with applicable tax laws. 3.5 ISSUE OF INSTRUMENTS. - 3.5.1 Issue of Rights/Bonus Shares – FEMA provisions allow Indian companies to freely issue Rights/Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap, if any. However, such issue of bonus / rights shares has to be in accordance with....

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.... Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to citizens of Bangladesh with the prior approval of FIPB. Shares under ESOPs can be issued directly or through a Trust subject to the condition that: (a) The scheme has been drawn in terms of relevant regulations issued by the SEBI, and (b) The face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5 per cent of the paid-up capital of the issuing company. (ii) Unlisted companies have to follow the provisions of the Companies Act, 1956. The Indian company can issue ESOPs to employees who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to the citizens of Bangladesh with the prior approval of the FIPB. (iii)The issuing company is required to report the details of such issues to the Regional Office concerned of the Reserve Bank, within 30 days from the date of issue of shares. 23 ....

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....ating-cum-investing/investing companies, will be limited to the foreign investment in the operating-cum-investing/ investing company. This exception is made since 24 the downstream investment of a 100% owned subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company. This exception, however, is strictly for those cases where the entire capital of the downstream subsidy is owned by the holding company. Illustration To illustrate, if the indirect foreign investment is being calculated for Company X which has investment through an investing Company Y having foreign investment, the following would be the method of calculation: (A) where Company Y has foreign investment less than 50%- Company X would not be taken as having any indirect foreign investment through Company Y. (B) where Company Y has foreign investment of say 75% and: (I) invests 26% in Company X, the entire 26% investment by Company Y would be treated as indirect foreign investment in Company X; (II) Invests 80% in Company X, the indirect foreign investment in Company X woul....

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.... term 'largest Indian shareholder', used in this clause, will include any or a combination of the following: (I) In the case of an individual shareholder, (aa) The individual shareholder, (bb) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956. (cc) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest. (II) In the case of an Indian company, (aa) The Indian company (bb) A group of Indian companies under the same management and ownership control. (B) For the purpose of this Clause, “Indian company” shall be a company which must have a resident Indian or a relative as defined under Section 6 of the Companies Act, 1956/ HUF, either singly or in combination holding at least 51% of the shares. (C) Provided that, in case of a combination of all or any of the entities mentioned in Sub- Clauses (i) and (ii) of clause 4.1.3(v)(d)(1) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company. 26 46 (e) If a decla....

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....est of the joint venture partner where the agreement had been entered prior to January 12, 2005. 27 4.2.2.2 Where a foreign investor has an existing joint venture/technology transfer/ trademark agreement in the same field, prior to January 12, 2005, the proposal for fresh investment/technology transfer/technology collaboration/trademark agreement in a new joint venture for technology transfer/ technology collaboration/trademark agreement would have to be under the Government approval route through FIPB/ Project Approval Board. The onus to provide requisite justification that the new tie-up would not jeopardize the existing joint venture or technology transfer/ trademark partner, would lie equally on the foreign investor/ technology supplier and the Indian partner. 4.2.2.3 The following investments, however, will be exempt from the requirement of Government approval even though the foreign investor may be having a joint venture or technology transfer/ trademark agreement in the same filed: 4.2.2.4 (a) Investments to be made by Venture Capital Fund registered with the Securities and Exchange Board of India (SEBI); or (b) Investmen....

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.... through amalgamation, merger/demerger, acquisition etc. (v) It is clarified that these guidelines will not apply for sectors/activities where there are no foreign investment caps, that is, 100% foreign investment is permitted under the automatic route. (vi) It is also clarified that Foreign investment shall include all types of foreign investments i.e. FDI, investment by FIIS, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and fully, mandatorily & compulsorily convertible preference shares/debentures, regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. 4.3 CAPS ON INVESTMENTS 4.3.1 Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as provided/permitted in the FDI policy. Thus while investment are prohibited in some sectors/activities, there are restrictions/conditions/caps on the investment in certain other sector/activities. The caps in various sector(s)/activity are detailed out in Chapter 5 of this circular. 4.4 EN....

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....delines for calculation of indirect foreign investment with conditions specified in para 4.1.3 (v) (iv) 'Foreign Investment' would have the same meaning as in Para 4.1 30 4.6.4 Guidelines for downstream investment by Investing Indian Companies 'owned or controlled by non resident entities' as per Para 4.1: (i) The Policy on downstream investment comprises policy for (a) only operating companies (b) operating-cum-investing companies (c) only investing companies as below: (ii) Only operating companies: Foreign investment in such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in which such companies are operating. (iii) Operating-cum-investing companies: Foreign investment into such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in which such companies are operating. Further, the subject Indian companies into which downstream investments are made by such companies would have to comply with the relevant sectoral conditions on entry route, conditionalities and cap....

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....ions should be put up before the FIPB by its Secretariat within 15 days and it should be ensured that comments of the administrative ministries are placed before the Board either prior to/or in the meeting of the Board. 4.7.3 Proposals should be considered by the Board keeping in view the time frame of thirty (30) days for communicating Government decision. 4.7.4 In cases in which either the proposal is not cleared or further information is required in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to. 4.7.5 While considering cases and making recommendations, FIPB should keep in mind the sectoral requirements and the sectoral policies vis-à-vis the proposal (s). 4.7.6 FIPB would consider each proposal in its totality 4.7.7 The Board should examine the following while considering proposals submitted to it for consideration. (i) whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into; (ii) whether the proposal involves any export projection and if so the items of export and the projected destinations. ....

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....ions on the activity (x) Whether the proposal involves import of items which are either hazardous, banned or detrimental to environment (e.g. import of plastic scrap or recycled plastics). 4.7.10 No condition specific to the letter of approval issued to a foreign investor would be changed or additional condition imposed subsequent to the issue of a letter of approval. This would not prohibit changes in general policies and, regulations applicable to the industrial sector. 33 4.8 4.8.1 India: CONSTITUTION OF FIPB : FIPB comprises of the following Core Group of Secretaries to the Government of (i) Secretary to Government, Department of Economic Affairs, Ministry of Finance - Chairperson (ii) Secretary to Government, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry (iii)Secretary to Government, Department of Commerce, Ministry of Commerce & Industry (iv) Secretary to Government, Economic Relations, Ministry of External Affairs (v) Secretary to Government, Ministry of Overseas Indian Affairs. 4.8.2 The Board would be able to co-opt other Secretaries to the Central Government and top officials ....

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.... is prohibited in the following activities/sectors: (a) Retail Trading (except single brand product retailing) (b) Atomic Energy (c) Lottery Business including Government /private lottery, online lotteries, etc. (d) Gambling and Betting including casinos etc. (e) Business of chit fund (f) Nidhi company (g) Trading in Transferable Development Rights (TDRs) (h) Real Estate Business or Construction of Farm Houses (i) Activities / sectors not opened to private sector investment. Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities. 5.2 AGRICULTURE Agriculture & Animal Husbandry 5.2.1 100% FDI is allowed under automatic route in Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture and Cultivation of Vegetables & Mushrooms under controlled conditions and services related to agro and allied sectors. Note: Besides the above, FDI is not allowed in any other agricultural sector/activity. 5.2.2 For c....

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....hed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing. 5.4.3 Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities. (i) India has large reserves of beach sand minerals in the coastal stretches around the country. Titanium bearing minerals viz. Ilmenite, rutile and leucoxene, and Zirconium bearing minerals including zircon are some of the beach sand minerals which have been classified as "prescribed substances" under the Atomic Energy Act, 1962. 37 (ii) Under the Industrial Policy Statement 1991, mining and production of minerals classified as "prescribed substances" and specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 were included in the list of industries reserved for the public sector. Vide Resolution No. 8/1(1)/97-PSU/1422 dated 6th October 1998 issued by the Department of Atomic Energy laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmeni....

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.... of the Micro, Small and Medium Enterprises Development Act 2006. 5.6 Alcohol - Distillation & Brewing: 100% FDI is allowed under the automatic route. 5.7 Cigars & Cigarettes Manufacture: 100% FDI is allowed under Government route and subject to the obtaining of Industrial licence under the Industries (Development & Regulation) Act 1951. 5.8 Coffee & Rubber processing and warehousing: 100% FDI is allowed under the automatic route. 5.9 Defence Industry 5.9.1 FDI is permissible up to 26%, under Government route subject to Industrial license under the Industries (Development & Regulation) Act 1951 and the following conditions: (i) Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence. (ii) Cases involving FDI will be considered by the FIPB and licences given by the Department of Industrial Policy & Promotion in consultation with Ministry of Defence. (iii)The applicant should be an Indian company / partnership firm. (iv)The management of the applicant company / partnership should be in Indian hands with ....

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....to be provided by the licensee to the Government nominated quality assurance agency under appropriate confidentiality clause. The nominated quality assurance agency would inspect the finished product and would conduct surveillance and audit of the Quality Assurance Procedures of the licensee. Self-certification would be permitted by the Ministry of Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission would be for a fixed period and subject to renewals. (xiv) Purchase preference and price preference may be given to the Public Sector organizations as per guidelines of the Department of Public Enterprises. (xv) Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable....

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...., distribution, exhibition, marketing and associated activities related to film industry. 5.15 Civil Aviation Sector 5.15.1 The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions. 5.15.2 For the purposes of the Civil Aviation sector: (i) "Airport" means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934; (ii) "Aerodrome" means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto; (iii)"Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or se....

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....ng engaged in operating Scheduled, Non-Scheduled, and Chartered airlines. (c) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services. (iii)FDI ceilings in Air Transport Services: (a) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline - FDI up to 49% and investment by Non-resident Indians (NRI) up to 100% allowed on the automatic route. (b) Non-Scheduled Air Transport Service/ Non-Scheduled airlines, Chartered airlines, and Cargo airlines- FDI up to 74% and investment by Non-resident Indians (NRI) up to 100% allowed. FDI in on the automatic route upto 49% and on the Government route beyond 49% and upto 74%. (c) Helicopter services/seaplane services requiring DGCA approval- FDI up to 100% allowed on the automatic route. (iv) FDI ceilings in other services under Civil Aviation sector (a) Ground Handling Services- FDI up to 74% and investment by Non-resident Indians (NRI) up to 100% allowed. FDI under the automatic route upto 49% and through the 43 Government route beyond 49% and upto 74%. This will be subject to sectoral regulations and ....

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....nt of the paid up capital of the Bank. At all times, at least 26 per cent of the 44 paid up capital will have to be held by residents, except in regard to a wholly-owned subsidiary of a foreign bank. 5.17.3 The stipulations as above will be applicable to all investments in existing private sector banks also. 5.17.4 The permissible limits under portfolio investment schemes through stock exchanges for FIIS and NRIs will be as follows: (i) In the case of FIIs, as hitherto, individual FII holding is restricted to 10 per cent of the total paid-up capital, aggregate limit for all FIIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body. (a) Thus, the FII investment limit will continue to be within 49 per cent of the total paid-up capital. (b) In the case of NRIs, as hitherto, individual holding is restricted to 5 per cent of the total paid-up capital both on repatriation and non-repatriation basis and aggregate limit cannot exceed 10 pe....

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....ld by residents at all times consistent with para (i) (b) above. (e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks. (f) Guidelines for setting up a wholly-owned subsidiary of a foreign bank will be issued separately by RBI (g) All applications by a foreign bank for setting up a subsidiary or for conversion of their existing branches to subsidiary in India will have to be made to the RBI. (iii) At present there is a limit of ten per cent on voting rights in respect of banking companies, and this should be noted by potential investor. Any change in the ceiling can be brought about only after final policy decisions and appropriate Parliamentary approvals. Banking- Public Sector 5.18.1 FDI and Portfolio Investment in nationalized Banks are subject to overall statutory limit of 20% under Government route as per section 3(2D) of the Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. The same ceiling is also applicable to the State Bank of India and its associate Banks. 5.19 Broadcasting 5.19.1 Terrestrial Broadca....

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....0% would be allowed under the Government route for Up linking a Non- News & Current Affairs TV Channel; c) Foreign investment of FDI and FII up to 26% would be permitted under the Government route for Up-linking a News & Current Affairs TV Channel subject to the condition that 47 the portfolio investment from FII/ NRI shall not be “persons acting in concert" with FDI investors, as defined in the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997. (ii) The above will be further subject to the condition that the Company permitted to uplink the channel shall certify the continued compliance of this requirement through the Company Secretary at the end of each financial year. (iii) FDI for Up-linking TV Channels will be subject to compliance with the Up-linking Policy notified by the Ministry of Information & Broadcasting from time to time. 5.20 Business Services- 100% FDI under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing& Analysis services....

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....ses shall be restricted to secondary market only. No foreign investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies. Construction and maintenance 5.22.1 100% FDI is allowed under the automatic route in Construction and maintenance of-roads, rail-beds, bridges, tunnels, pipelines, ropeways, runways, waterways & water reservoirs, hydroelectric projects, power plants and industrial plants. 5.22.2 100% FDI is allowed under the automatic route in construction and maintenance of Roads and highways offered on BOT basis including collection of toll. 5.22.3 100% FDI is allowed under the automatic route in construction and maintenance of Rural Drinking Water Supply Projects, Package Water Treatment Plants, Rain and Rain Water Harvesting Structures, Waste-Water Recycling And Re-Use Techniques And Facilities, Rain-Water Re- Charging And Re-Use Techniques Of Ground Water. 5.22.4 Ports and Harbours: 100% FDI is allowed under the automatic route for: (i) Leasing of existing assets of ports (ii) Construction/creation and maintenance of assets such as-container terminals bulk/break bulk/multipurp....

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.... and other conveniences, as applicable under prescribed regulations, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. 5.23.4 The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned. 50 5.23.5 The investor/investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/ Municipal/Local Body concerned. 5.23.6 The State Government/ Municipal/ Local Body concerned, which approves the building....

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....Travel agencies, tour operating agencies and tourist transport operating agencies (ii) Units providing facilities for cultural, adventure and wildlife experience to tourists (iii)Surface, air and water transport facilities for tourists (iv) Convention/seminar units and organizations Industrial Parks - both setting up and already established Industrial Parks 5.28.1 FDI up to 100% is permitted under the automatic route in Industrial Parks. 5.28.2 FDI up to 100% on the automatic route is allowed in Construction development projects, etc. prescribing therein, inter-alia, the conditions for minimum capitalization, minimum area requirements and lock-in of original investment as per para 5.23 above. 5.28.3 For the purposes of this chapter: (i) “Industrial Park” is a project in which quality infrastructure in the form of plots of developed land or built up space or a combination with common facilities, is developed and made available to all the allottee units for the purposes of industrial activity. (ii) "Infrastructure” refers to facilities required for functioning of units located in the Industrial Park and includes roads (inclu....

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.... allocable area. Insurance 5.29.1 FDI up to 26% in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under the automatic route. 53 5.29.2 This will be subject to the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority for undertaking insurance activities. 5.30 Infrastructure Company in the Securities Market: 5.30.1 Foreign investment is permitted in infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations and subject to the following conditions: 5.31 (i) There is a composite ceiling of 49 per cent for Foreign Investment, with a FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital; (ii) FDI will be allowed under the Government route; and (iii)FII can invest only through purchases in the secondary market. Non-Banking Finance Companies (NBFC) 5.31.1 100% foreign investment in NBFC is allowed under the automatic route in the following activities: (i) Merchant Banking (ii) Under Writing (iii) Portfolio Ma....

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....Capital Undertaking and may also set up a domestic asset management company to manage the fund. All such investments can be made under automatic route in terms of Schedule 6 to Notification No. FEMA 20. A SEBI registered FVCI can 55 55 also invest in domestic venture capital fund registered under the SEBI (Venture Capital Fund) Regulations, 1996. Such investments would also be subject to RBI regulations and FDI policy. However, in case the entity undertaking venture capital fund activity is a Trust registered under the Indian Trust Act, 1882, foreign investment would be permitted under the Government route. FVCIS are also allowed to invest in other companies subject to FDI Regulations. 5.31.5 The NBFC will have to comply with the guidelines of the RBI. 5.32 Petroleum & Natural Gas Sector 5.32.1 FDI up to 100% under the automatic route is permitted in exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products, actual trading and marketing of petroleum products, petroleum product pipelines, natural gas/LNG pipelines, market study and formulation and Petroleum refining in the private s....

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....ws and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time. 5.34 Research and Development Services excluding basic Research and setting of R&D/ academic institutions which would award degrees/diplomas/certificates: 100% FDI is allowed under the automatic route 5.35 Security Agencies in Private sector The 'Private Security Agencies (Regulation) Act, 2005' regulates the operations of private security agencies. Under Section 6(2) of the above Act, “A company, firm or an association of persons shall not be considered for issue of a licence under this Act, if, it is not registered in India, or is having a proprietor or a majority shareholder, partner or director, who is not a citizen of India”. As such, under the provisions of this Act: 5.36 • a foreign company cannot be considered for a license under the Act • only a firm registered in India can be eligible for a license ● to be eligible for a license under the Act, a firm cannot have a foreign director/partner majority shareholder canno....

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....) could be provided on a need basis only to telecom equipment suppliers/manufacturers and the affiliate/parents of the licensee company. Clearance from the licensor (Department of 58 Telecommunications) would be required if such information is to be provided to anybody else. (iii)For security reasons, domestic traffic of such entities as may be identified /specified by the licensor shall not be hauled/routed to any place outside India. (iv) The licensee company shall take adequate and timely measures to ensure that the information transacted through a network by the subscribers is secure and protected. (v) The officers/officials of the licensee companies dealing with the lawful interception of messages will be resident Indian citizens. (vi) The majority Directors on the Board of the company shall be Indian citizens. (vii) The positions of the Chairman, Managing Director, Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO), if held by foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found....

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....vii)The telecom service providers should familiarize/train Vigilance Technical Monitoring (VTM)/security agency officers/officials in respect of relevant operations/features of their systems. (xviii) It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive area from the National Security angle. (xix) In order to maintain the privacy of voice and data, monitoring shall only be upon authorisation by the Union Home Secretary or Home Secretaries of the States/Union Territories. (xx) For monitoring traffic, the licensee company shall provide access of their network and other facilities as well as to books of accounts to the security agencies. (xxi) The aforesaid Security Conditions shall be applicable to all the licensee companies operating telecom services covered under this circular irrespective of the level of FDI. 60 60 (xxii)Other Service Providers (OSPs), providing services like Call Centres, Business Process Outsourcing (BPO), tele-marketing, tele-education, etc, and are registered with DoT as OSP. Such OSPs operate the service using the telecom infrastructure provided by licensed telecom ....

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....the purpose of personal consumption. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales. Wholesale trading would include resale, processing and thereafter sale, bulk imports with ex- port/ex-bonded warehouse business sales and B2B e-Commerce. 5.39.1.1 (ii) Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT): (a) (b) For undertaking WT, requisite licenses/registration/ permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local Self-Government Body under that State Government should be obtained. Except in case of sales to Government, sales made by the wholesaler would be considered as 'cash & carry wholesale trading/wholesale trading' with valid business customers, only when WT are made to the following entities: (I) Entities holding sales tax/ VAT registration/service tax/excise duty registration; or (II) Entities holding trade licenses i.e. a license/registration certificate/membership certificate/registration under Shops and Establishm....

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....nment route is allowed in retail trade of 'Single Brand' products. This is, inter alia, aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices. (i) FDI up to 51% in retail trade of 'Single Brand' products would be subject to the following conditions: (a) Products to be sold should be of a 'Single Brand' only. (b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India. 63 (c) 'Single Brand' product-retailing would cover only products which are branded during manufacturing. (ii) Application seeking permission of the Government for FDI in retail trade of ‘Single Brand’ products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The application would specifically indicate the product/ product categories which are proposed to be ....

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....ct to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act, 1956. AD Category – I banks shall allow the remittance provided the applicant submits: a. No objection or Tax clearance certificate from Income Tax Department for the b. remittance. Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for. C. Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, 1956. d. In case of winding up otherwise than by a court, an auditor's certificate to the effect that there are no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance. 6.1.2 Repatriation of Dividend: Dividends are freely repatriable without any restrictions (net after Tax deduction at source or Dividend Distribution Tax, if any, as the case may be). The 65 repatriation is governed by the provisions of the Foreign Exchange Management (Current ....

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....Regulations; and 66 (D) the company has all original certificates issued by authorized dealers in India evidencing receipt of amount of consideration. Note: For companies with paid up capital with less than Rs.5 crore, the above mentioned certificate can be given by a practicing company secretary. (b) A certificate from Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India. (c) The report of receipt of consideration as well as Form FC-GPR have to be submitted by the AD Category-I bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated. - (d) Part B of Form FC-GPR should be filed on an annual basis by the Indian company, directly with the Reserve Bank6. This is an annual return to be submitted by 31st of July every year, pertaining to all investments by way of direct/portfolio investments/reinvested earnings/other capital in the Indian company made during the previous years (i.e. the information in Part B submitted by 31st July will pertain to all the investments ma....

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....ECB-2. In the subsequent months, the outstanding balance of ECB shall be reported in Form ECB-2 to DSIM. 6.2.5 Reporting of FCCB/ADR/GDR Issues The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full details of such issue in the Form enclosed as Annex-8, within 30 days from the date of closing of the issue. The company should also furnish a quarterly return in the Form enclosed as Annex - 9, to the Reserve Bank within 15 days of the close of the calendar quarter. The quarterly return has to be submitted till the entire amount raised through ADR/GDR mechanism is either repatriated to India or utilized abroad as per the extant Reserve Bank guidelines. 6.3 ADHERENCE TO GUIDELINES/ORDERS AND CONSEQUENCES OF VIOLATION FDI is a capital account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA. Reserve Bank of India administers the FEMA and Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA. The Directorate takes up investigation in any contravention of FEMA. 6.3.1 Penalties (i) If a person violates/contravenes an....

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....ication Proceedings and Appeal) Rules, 2000, an Appealing Authority/ Appellate Tribunal to hear appeals against the orders of the adjudicating authority. 6.3.3 Compounding Proceedings Under the Foreign Exchange (Compounding Proceedings) Rules 2000, the Central Government may appoint 'Compounding Authority' an officer either from Enforcement Directorate or Reserve Bank of India for any person contravening any provisions of the FEMA. The Compounding Authorities are authorized to compound the amount involved in the contravention to the Act made by the person. No contravention shall be compounded unless the amount involved in 69 69 such contravention is quantifiable. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings. The Compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerns as expeditiously and not....

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....unded by foreign exchange assets, and which manages those assets separately from the official reserves of the monetary authorities. Particulars of Shares / Convertible Debentures Issued Nature and date of issue 02 Preferential allotment / private placement 03 Rights 04 Bonus 05 Conversion of ECB 06 Conversion of royalty (including lump sum payments) 73 07 Conversion against import of capital goods by units in SEZ 08 ESOPS 09 Share Swap 10 Total (b) Others (please specify) Type of security issued No. Nature of security 01 Equity 02 Compulsorily Convertible Debentures 03 Compulsorily Convertible Preference shares 04 Others (please specify) Number Maturity Face Premium value Issue Price per share Amount of inflow* Total i) In case the issue price is greater than the face value please give break up of the premium received. ii) * In case the issue is against conversion of ECB or royalty or against import of capital goods by units in SEZ, a Chartered Accountant's Certificate certifying the amount outstanding on....

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....this circular have been complied with. OR Foreign entity/entities―(other than individuals), to whom we have issued shares do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field. b) We are not an SSI unit. OR We are a SSI unit and the investment limit of 24 % of paid-up capital has been observed/ requisite approvals have been obtained. c) Shares issued on rights basis to non-residents are in conformity with Regulation 6 of the RBI Notification No FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time. Shares issued are bonus. OR OR Shares have been issued under a scheme of merger and amalgamation of two or more Indian companies or reconstruction by way of de-merger or otherwise of an Indian company, duly approved by a court in India. OR Shares are issued under ESOP and the conditions regarding this issue have been satisfied 3. Shares have been issued in terms of SIA /FIPB approval No. dated 77 4. We enclose the following documents in compliance with Paragraph 9 (1) (B) of Schedule 1 to Notification No. FEMA 20/2000-RB dated May 3, 2000....

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....y 30, 2008] (i) This part of Form FC-GPR is to be submitted to the Director, Balance of Payment Statistical Division, Department of Statistics and Information Management, Reserve Bank of India, C-8, 3rd Floor, Bandra- Kurla Complex, Bandra (E), Mumbai 400051; Tel: 2657 1265, 2657 2513, Fax: 26570848; email: [email protected] (ii) This is an annual return to be submitted by 31st of July every year by all companies, pertaining to all investments by way of direct/portfolio investments/re-invested earnings/others in the Indian company made during the previous years (e,g. the information in Part B submitted by 31st July 2008 will pertain to all the investments made in the previous years up to March 31, 2008). The details of the investments to be reported would include all foreign investments made into the company which is outstanding as on the date of the balance sheet. The details of overseas investments in the company both under Direct / portfolio investment may be separately indicated. Please use end-March Market prices/exchange rates for compiling the relevant information. Permanent Account Number (PAN) of the investee company given....

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.... the share holding of non-resident investors (Direct investors). Similarly under foreign assets outside India, the retained earnings of your company would be proportionate to your shareholding of ordinary shares in the non- resident enterprise. 7. Portfolio and Other Investment [Please furnish here the outstanding investments other than those mentioned under FDI above] Foreign Liabilities In India Outstanding Amount in Lakhs of Foreign Assets Outside Outstanding | Outstanding Outstanding at end- at end- at end- March of March of Current Year Previous Year March of Previous Year at end- March of Current Year 7.0 Equity Securities 7.1 Debt Securities 7.1.1 Bonds and 7.1.2 Money Market Instruments 7.2 Disinvestments during the year 8. Financial Derivatives (notional value) 9. Other Investment 00 9.1 Trade Credit 9.1.1 Short Term 9.1.2 Long Term 9.2 Loans 9.3 Others 00 9.3.1 Short Term 9.3.2 Long Term Please see the note below Note: As the details of the Loans availed of by your company are collected through Authorised Dealers separately....

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....(AD) branch and (e) Indian company, for recording the transfer of ownership in its books. 2. Pricing Guidelines 2.1 The under noted pricing guidelines are applicable to the following types of transactions: i. ii. Transfer of shares, by way of sale under private arrangement by a person resident in India to a person resident outside India. Transfer of shares, by way of sale under private arrangement by a person resident outside India to a person resident in India. 2.2 Transfer by Resident to Non-resident (i.e. to incorporated non-resident entity other than erstwhile OCB, foreign national, NRI, FII) Price of shares transferred by way of sale by resident to a non-resident shall not be less than (a) the ruling market price, in case the shares are listed on stock exchange, (b) fair valuation of shares done by a Chartered Accountant as per the guidelines issued by the erstwhile Controller of Capital Issues, in case of unlisted shares. The price per share arrived at should be certified by a Chartered Accountant. 2.3 Transfer by Non-resident (i.e. by incorporated non-resident entity, erstwhile OCB, foreign national, NRI....

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....re, 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. 85 Explanation: i) A share is considered as thinly traded if the annualized 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 from 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....

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.... non- repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of OCBs whose accounts have been blocked by Reserve Bank. 5. Documentation Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), the AD branch should arrange to obtain and keep on record the following documents: 5.1 For sale of shares by a person resident in India i. ii. iii. iv. V. vi. Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating the details of transfer i.e. number of shares to be transferred, the name of the investee company whose shares are being transferred and the price at which shares are being transferred. In case there is no formal Sale Agreement, letters exchanged to this effect may be kept on record. Where Consent Letter has been signed by their duly appointed agent, the Power of Attorney Document executed by the seller/buyer authorizing the agent to purchase/sell shares. The shareholding pattern of the investee company after the acquisition of shares by a person resident outside India showing equi....

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....The AD Category -I bank, would forward the same to its link office. The link office would consolidate the Forms and submit a monthly report to the Reserve Bank*. For the purpose the Authorized Dealers may designate branches to specifically handle such transactions. These branches could be staffed with adequately trained staff for this purpose to ensure that the transactions are put through smoothly. The ADs may also designate a nodal office to coordinate the work at these branches and also ensure the reporting of these transactions to the Reserve Bank. 6.2 When the transfer is on private arrangement basis, on settlement of the transactions, the transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer in its 88 books. 6.3 The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in....

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.... value of such securities according to the guidelines issued by the Securities& Exchange Board of India or the erstwhile CCI for listed companies and unlisted companies, respectively. vii. 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 per cent of the paid up capital of the company. viii. 22 An undertaking from the resident transferor that the value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 25,000 during a calendar year. 06 90 Annex-4 (Para 3.4.5(iii) (d)) DEFINITION OF "RELATIVE" AS GIVEN IN SECTION 6 OF COMPANIES ACT, 1956 A person shall be deemed to be a relative of another, if, and only if: (a) they are members of a Hindu undivided family; or (b) they are husband....

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....ra 6.2.1(ii)) KNOW YOUR CUSTOMER (KYC) FORM IN RESPECT OF THE NON-RESIDENT INVESTOR Registered Name of the Remitter / Investor (Name, if the investor is an Individual) Registration Number (Unique Identification Number* in case remitter is an Individual) Registered Address (Permanent Address if remitter Individual) Name of the Remitter's Bank Remitter's Bank Account No. Period of banking relationship with the remitter * Passport No., Social Security No, or any Unique No. certifying the bonafides of the remitter as prevalent in the remitter's country We confirm that all the information furnished above is true and accurate as provided by the overseas remitting bank of the non-resident investor. (Signature of the Authorised Official of the AD bank receiving the remittance) Date: Stamp: Place: 94 24 Annex-7 (Para 6.2.3) FORM FC-TRS Declaration regarding transfer of shares / compulsorily and mandatorily convertible preference shares (CMCPS) / debentures by way of sale from resident to non resident / non-resident to resident (to be submitted to the designated AD branch in quadruplicate within 60 days....

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.... Specify whether 1. Individual 2. Company 3. FII 4. FVCI 5. Foreign Trust 6. Private Equity Fund 7. Pension/ Provident Fund 8. Sovereign Wealth Fund (SWF*) 96 96 9. Partnership/ Proprietorship firm 10. Financial Institution 11. NRIS/PIOS 12. others Date and Place of Incorporation Address of the seller (including e-mail, telephone Number Fax no) 6 Particulars of earlier Reserve Bank / FIPB approvals 7 Details regarding shares / compulsorily and mandatorily convertible preference shares (CMCPS)/debentures to be transferred Date of the transaction Amount of considerati Number of shares CMCPS/ debenture Face value in Rs. Negotiated Price for the transfer**in on in Rs. Rs. 8 Foreign Investments in the company Before the transfer After the transfer 9 Where the shares/CMCPS / debentures are listed on Stock Exchange Name of the Stock exchange No. of shares Percentage Price Quoted on the Stock exchange Where the shares/CMCPS / debentures are Unlisted Price as per Valuation guidelines* Price as per Chartered ....

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.... Company 2. Address of Registered Office 3. Address for Correspondence 4. 5. Existing Business (please give the NIC Code of the activity in which the company is predominantly engaged) Details of the purpose for which GDRs/ADRs have been raised. If funds are deployed for overseas investment, details thereof 6. Name and address of the Depository abroad 7. Name and address of the Lead Manager/ Investment/Merchant Banker 8. Name and address of the Sub-Managers to the issue 9. Name and address of the Indian Custodians 10. 11. Details of FIPB approval (please quote the relevant NIC Code if the GDRs/ADRs are being issued under the Automatic Route) Whether any overall sectoral cap for foreign investment is applicable. If yes, please give details 12. Details of the Equity Capital (a) Authorised Capital (b) Issued and Paid-up Capital (i) Held by persons Resident in India Before Issue After Issue 99 66 13 14 15 56 (c) (ii) Held by foreign investors other than FIIS/NRIS/PIOs/ OCBs (a list of foreign investors holding more than 10 percent of th....