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Master Circular on Direct Investment by Residents in Joint Venture (JV) /Wholly Owned Subsidiary (WOS) Abroad
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....ated Master Circular on the subject. Click here to view the full Part I, II, III and IV ============= Document 1 PART-I Section A General A.1 Introduction (1) Overseas investments in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues for promoting global business by Indian entrepreneurs. Joint Ventures are perceived as a medium of economic co-operation between India and other countries. Transfer of technology and skill, sharing of results of R&D, access to wider global market, promotion of brand image, generation of employment and utilisation of raw materials available in India and in the host country are other significant benefits arising out of such overseas investments. They are also important drivers of foreign trade through increased exports of plant and machinery and goods and services from India and also a source of foreign exchange earnings by way of dividend earnings, royalty, technical know-how fee and other entitlements on such investments. (2) In keeping with the spirit of liberalisation, which has become the hallmark of economic policy in general, and Foreign Exchange regulations in particular, the....
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....5, Notification No. FEMA 139/2005-RB dated 11th August 2005, Notification No. FEMA 150/2006-RB dated 21st August 2006, Notification No. FEMA 164/2007-RB dated 9th October 2007, Notification No. FEMA173/2007-RB dated 19th December 2007, Notification No. FEMA 180/2008-RB dated 5th September 2008, Notification No. FEMA181/2008-RB dated 1st October 2008 and Notification No. FEMA196/2009-RB dated 30th September 2009 (hereinafter referred to as 'the Notification') General permission is also available to sell the shares so purchased or acquired Section B - Direct Investment Outside India B.1 Automatic Route (1) In terms of Regulation 6 of the Notification, an Indian party has been permitted to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), not exceeding 400 per cent of the net worth 2 of the Indian party, i.e. a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932, making investment in a JV/WOS abroad and includes any other entity in India excluding individuals as may be notified by the Reserve Bank as on the date of the last audited balance she....
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....ransactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party. In case of partial / full acquisition of an existing foreign company, where the investment is more than USD 5 million, valuation of the shares of the company shall be made by a Category | Merchant Banker registered with SEBI or an Investment Banker / Merchant e) f) g) Banker outside India registered with the appropriate regulatory authority in the host country; and, in all other cases by a Chartered Accountant or a Certified Public Accountant. In cases of investment by way of swap of shares, irrespective of the amount, valuation of the shares will have to be made by a Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Foreign Investment Promotion Board (FIPB) will also be a prerequisite for investment by swap of shares. In case of investment in overseas JV / WOS abroad by a registered Partnership firm, where entire funding for such investment is done by the firm, it will be in order for individual part....
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....matic Route in terms of Regulation 6 of the Notification, subject to the conditions that the Indian party is not included in the Reserve Bank's caution list or is under investigation by the Directorate of Enforcement or included in the list of defaulters to the banking system circulated by the Reserve Bank/any other Credit Information company as approved by the Reserve Bank. Indian parties whose names appear in the Defaulters' list require prior approval of the Reserve Bank for the investment. (ii) Setting up of an SPV under the Automatic Route is permitted for the purpose of making a investment in JV/WOS overseas. B.2 Investment in unincorporated entities overseas under the Automatic Route (1) Investments in unincorporated entities overseas in the oil sector (i.e. for exploration and drilling for oil and natural gas, etc.) by Navaratna PSUs, ONGC Videsh Ltd.(OVL) and Oil India Ltd.(OIL) may be permitted by AD Category - I banks, without any limit, provided such investments are approved by the competent authority. (2) Other Indian companies are also permitted under the Automatic Route to invest in unincorporated entities overseas in the oil sector up to 400 per cen....
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....s resident in India for purchase / acquisition of securities in the following manner : (i) out of funds held in RFC account; (ii) as bonus shares on existing holding of foreign currency shares; and (iii) when not permanently resident in India, out of their foreign currency resources outside India (para A.4 above) B.4 Capitalisation of exports and other dues (1) Indian party is permitted to capitalise the payments due from the foreign entity towards exports, fees, royalties or any other dues from the foreign entity for supply of technical know-how, consultancy, managerial and other services within the ceilings applicable. Capitalisation of export proceeds remaining unrealised beyond the prescribed period of realization will require prior approval of the Reserve Bank. (2) Indian software exporters are permitted to receive 25 per cent of the value of their exports to an overseas software start-up company in the form of shares without entering into Joint Venture Agreements, with prior approval of the Reserve Bank. B. 5. Investments in Financial Services Sector (1) In terms of Regulation 7 of the Notification, an Indian party seeking to make investment in an enti....
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....money market instruments rated not below investment grade; repos in the form of investment, where the counterparty is rated not below investment grade. The repos should not, however, involve any borrowing of funds by mutual funds; government securities where the countries are rated not below investment grade; viii) derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities; ix) ã• x) short-term deposits with banks overseas where the issuer is rated not below investment grade; and units/securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITS) listed on recognized stock exchanges overseas, or (c) unlisted overseas securities (not exceeding 10 per cent of their net assets). (2). A limited number of qualified Indian Mutual Funds, are permitted to invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds as may be permitted by SEBI. (3). Domestic Venture Capital Funds registered with SEBI may invest in equity and equity linked instruments of off-shore Vent....
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....n. (2) Investments by established proprietorship or unregistered partnership exporter firms will be subject to the following conditions: i) ii) iii) iv) The Partnership / Proprietorship firm is a DGFT recognized Star Export House. The AD Category - I bank is satisfied that the exporter is KYC (Know Your Customer) compliant and is engaged in the proposed business and meets the requirement as indicated at i) above. Exporter has proven track record i.e. overdue exports do not exceed 10 per cent of the average export realization of preceding three financial years. The exporter has not come under adverse notice of any Government agency like Directorate of Enforcement, CBI and does not appear in the exporters' caution list of the Reserve Bank or in the list of defaulters to the banking system in India. v) The amount of investment outside India does not exceed 10 per cent of the average of three financial years export realization or 200 per cent of the net owned funds of the firm, whichever is lower. B.10 Overseas investment by Registered Trust / Society Registered Trusts and Societies engaged in manufacturing / educational / hospital sector are allowed to make i....
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....cation in the case of financial services sector companies). The Indian party should report to the Reserve Bank through the AD Category - I bank, the details of such decisions within 30 days of the approval of those decisions by the competent authority of the JV/WOS concerned in terms of local laws of the host country and include the same in the Annual Performance Report (APR-Part III of form ODI) required to be forwarded to the AD Category-l bank. B.12 Acquisition of a foreign company through bidding or tender procedure An Indian party may remit earnest money deposit or issue a bid bond guarantee for acquisition of a foreign company through bidding and tender procedure and also make subsequent remittances through an AD Category I bank, in accordance with the provisions of Regulation 14 of the Notification. B.13 Obligations of Indian Entity (1) An Indian party which has made direct investment abroad is under obligation to (a) receive share certificate or any other document as an evidence of investment, (b) repatriate to India the dues receivable from foreign entity, and (c) submit the documents / Annual Performance Report to the Reserve Bank, in accordance with the....
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....s from the date of disinvestment. An Indian party, which does not satisfy the conditions laid down, shall have to apply to the Reserve Bank for prior permission. B.15 Pledge of Shares of JV/WOS An Indian party may pledge the shares of JV / WOS to an AD Category - I bank or a public financial institution in India for availing of any credit facility for itself or for the JV / WOS abroad in terms of Regulation 18 of the Notification. Indian party may also transfer by way of pledge, the shares held in overseas JV/WOS, to an overseas lender, provided the lender is regulated and supervised as a bank and the total financial commitments of the Indian party remain within the limit stipulated by the Reserve Bank for overseas investments, from time to time. B.16 Hedging of Overseas Direct Investments (1) - AD Resident entities having overseas direct investments are permitted to hedge the foreign exchange rate risk arising out of such investments. Category I banks may enter into forward / option contracts with resident entities who wish to hedge their overseas direct investments (in equity and loan), subject to verification of such exposure. Cancellation of such forward cont....
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....ny case not later than 90 days from the date of sale of such securities. Foreign companies are permitted to repurchase the shares issued to residents in India under any ESOP Scheme provided (i) the shares were issued in accordance with the Rules / Regulations framed under Foreign Exchange Management Act, 1999, (ii) the shares are being repurchased in terms of the initial offer document, and (iii) an annual return is submitted through the AD Category - I bank giving details of remittances / beneficiaries, etc. In all other cases, not covered by general or special permission, approval of the Reserve Bank is required to be obtained before acquisition of a foreign security. C.2 Pledge of a foreign security by a person resident in India The shares acquired by persons resident in India in accordance with the provisions of Foreign Exchange Management Act, 1999 or Rules or Regulations made thereunder are allowed to be pledged for obtaining credit facilities in India from an AD Category - I bank / Public Financial Institution. C.3 General permission in certain cases Residents are permitted to acquire a foreign security, if it represents - a) qualification shares for bec....
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....ntain party-wise record in respect of each JV/ WOS. - 2. Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004 AD Category - I banks may allow investments up to the permissible limits on receipt of application in form ODI together with form A-2, duly filled in, from the Indian party(ies) making investments in a JV/WOS abroad subject to their complying with the conditions specified in Regulation 6 of Notification FEMA No.120/RB-2004 dated July 7, 2004, as amended from time to time. Investment in financial services should also comply with the norms stipulated at Regulation 7 of the Notification ibid. While forwarding the report of remittance in respect of investment in financial services sector, AD Category - I banks may certify that prior approvals from the Regulatory Authorities concerned in India and abroad have been obtained. Before allowing the remittance, AD Category - I banks are required to ensure that the necessary documents, as prescribed in form ODI, have been submitted and found to be in order. 3 General procedural instructions (1) With effect from June 01, 2007, reporting system for overseas investment has been revised....
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....ent under the approval route would continue to be submitted to the Reserve Bank in physical form as hitherto, in addition to the on-line reporting of Part I as contemplated above, for approval purposes. In case of disinvestment / closure / winding up / voluntary liquidation under the Automatic Route, in terms of A. P. (Dir Series) Circular No. 29 dated March 27, 2006, a report should continue to be submitted by the designated AD Category - I bank, in Part IV of form ODI. In all other cases of disinvestment, an application along with the necessary supporting documents should be submitted to the Reserve Bank as per the existing procedure. e) As per the new reporting system, AD Category - I banks would be able generate the UIN on-line under the automatic route. However, subsequent remittances under the automatic route and remittances under the approval route should be made and reported on-line in Part II, only after receipt of the letter, confirming the UIN from the Reserve Bank. (4) In cases where the investment is being made jointly by more than one Indian party, form ODI is required to be signed jointly by all the investing entities and submitted to the designat....
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....nally required to submit to the Reserve Bank the details of transactions such as number of shares received / allotted, premium paid / received, brokerage paid received, etc., and also confirmation to the effect that the inward leg of transaction has been approved by FIPB and the valuation has been done as per the laid-down procedure and that the overseas company's shares are issued / transferred in the name of the Indian investing company. AD Category – I bank may also obtain an undertaking from the applicants to the effect that future sale / transfer of shares so acquired by Non-Residents in the Indian company shall be in accordance with the provisions of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. 7. Investments under Regulation 9 of Notification No. FEMA 120/2004-RB dated July 7, 2004 In terms of Regulation 9, investment in JV / WOS in certain cases requires the prior approval of the Reserve Bank. AD Category – I banks may allow remittances under these specific approvals granted by the Reserve Bank and report the same to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment....
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....from those for which approval under sub-regulation (3) was obtained, the Indian entity should obtain approval from the Reserve Bank by submitting form ODI. 10. Transfer by way of sale of shares of a JV / WOS outside India The Indian party should report details of the disinvestment through the AD Category - I bank within 30 days of disinvestment in Part IV of the Form ODI as indicated in para 3 (3) (c) above. Sale proceeds of shares / securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares / securities. 11. Verification of evidence of investment The share certificates or any other document as evidence of investment, where share certificates are not issued shall, henceforth, be submitted to and retained by the designated AD Category -I bank, who would be required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents so received. A certificate to this effect should be submitted by the designated AD Category - bank to the Reserve Bank along with the APR (Part III of Form ODI). PARTI For office use only Date of Receipt Inward No. ....
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....) Whether JV/WOS is SPV (Y/N)? # # If Y, Please furnish the details in Section D Proposed Capital Structure [a] Indian Party (ies) % stake [b] Foreign partner(s) % stake (1) (1) (2) (2) (3) (3) Section C: Details of Investment in Existing Project Indicate 13 digit Unique Identification Number issued by Reserve Bank (I) Purpose of Supplementary Investment (Please tick appropriate category) (a) Enhancement of Equity in existing JV/WOS overseas (b) Enhancement of Preference Equity/ Convertible Debt (c) Grant/Enhancement of Loan in existing JV/WOS (d) Extension/ Enhancement of Guarantees (e) Remittances to Unincorporated Entity (e) Others (II) Capital Structure [a] Indian Party (ies) % stake [b] Foreign partner(s) % stake (1) (1) (2) (2) (3) (3) Section D - Funding for JV/WOS (Amount in FCY 000's) | Full Value of the Overseas Acquisition Il Estimated cost of overseas acquisition for the Indian Party III Financial commitment * (in applicable FCY): FYC IV Method of Investment by Indian Party (i) Cash Remittance (a) EEFC (b) Market Purchase (ii) Capitalization of (a) Export of plant and machinery (b) Others (please Specify) (iii) ADRs/GDRs [rai....
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....is certified that: (i) the investment is not in real estate oriented or banking business, and (ii) the amount of foreign exchange proposed to be purchased for remittance towards the investment together with remittances for all overseas investments already made and exports and other dues capitalized / swap of shares / investment from ECB / FCCB balances for investment abroad under the Automatic Route is within the limit stipulated by the Reserve Bank from time to time. This has been verified with reference to the net worth of the Indian party (Name of the Indian Party) as on the date of last audited balance sheet, i. e.-------(date) (iii) has complied with the valuation norms prescribed for the investment (iv) has complied with the ECB guidelines # (v) that the Indian party (a) has made net profits during the preceding three years, (b) has fulfilled the prudential norms of capital adequacy as prescribed by the regulatory authority concerned; (c) has been registered with the appropriate regulatory authority in India and (d) has obtained approval for the investment in financial services sector activities from the regulatory authorities concerned in India and abroad *. ....
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....ank every year within 3 months of the closing of annual accounts of the JV / WOS as long as the JV/WOS is in existence) I. Date of APR: II. Unique Identification Number : (Please indicate 13 digit Unique Identification number issued by RBI) III. Changes in capital structure since last reporting Amount (new) Indian Foreign IV. Operational details of the JV/ WOS for the last two years i) Net Profit/ (Loss) ii) Dividend iii) Net worth Previous Year % share (new) (Amount in 000's FCY) Current Year V. Repatriation from the JV/WOS Foreign exchange earnings from Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) During the last year Since commencement of (i) Profit (ii) Dividend (iii) Retained Earnings* (iv) Investments into India ended business (v)Others** (Please specify) *(Represent part of the profits of the JV/WOS which is retained and reinvested in the JV/WOS). ** (Royalties, technical know-how fees, consultancy fees, etc.) VI. Investment in step down subsidiaries since last reporting Country Name of JV/WOS Amount of Investment Place: Date: Name:- Designation-- (Signature of authorised official) Stamp/Seal (Signature of the Statutory ....
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....the financing pattern of the overseas entity. Part II reports remittances certified by AD. Part III is the Annual Performance Report, which contains brief particulars of the performance of the overseas entity and Part IV is to be used at the time of disinvestment/liquidation/winding up. Section D of Part I is critical, since information regarding ownership structure and financing pattern have been included here. In addition to details of remittance from India, Part I must report full details of funding through SPVs / subsidiaries overseas, share of foreign partners, etc. (1) Part I (barring Section C) of the form is required to be filled up by the Indian party seeking to invest in JV / WOS overseas either under Automatic Route or Approval Route and submitted to the designated AD Category - I bank. Part I (Sections C and D) is required to be submitted, whenever the initial capital or financing structure of the JV / WOS reported to the Reserve Bank at the time of the initial remittance / approval undergoes changes by way of expansion, merger, infusion of additional capital, etc. (2) Under Automatic Route, in case of new proposals, immediately after effecting remittan....
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....ign concern:- (i) A copy of the certificate of incorporation of the foreign concern; (ii) Latest Annual Accounts, i.e. the Balance Sheet and Profit and Loss Account of the foreign concern along with Directors' Report; and (iii) A copy of the share valuation certificate from: â–¶a Category | Merchant Banker registered with SEBI, or, an Investment Banker / Merchant Banker registered with the appropriate regulatory authority in the host country, where the investment is more than USD 5 million (US Dollars Five million), and in all other cases, by a Chartered Accountant or a Certified Public Accountant. (d) A certified copy of the Resolution of the Board of Directors of the Indian party/ies approving the proposed investment. (e) Where investment is in the financial services sector, a certificate from a Statutory Auditor / Chartered Accountant to the effect that the Indian Party : (i) has earned net profits during the preceding three financial years from the financial service activity; (ii) is registered with the appropriate regulatory authority in India for conducting the financial services activity; (iii) has obtained approval for investment in financial sector ac....