Master Circular on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad.

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....t of underlying circulars / notifications is furnished in the Appendix. 3.       This Master Circular is issued with a sunset clause of one year. This circular will stand withdrawn on July 01, 2013 and be replaced by an updated Master Circular on the subject. Yours faithfully, (Dr. Sujatha Elizabeth Prasad) Chief General Manager- In-Charge ============= Document 1 ● भारतीय ESERVE जर्व बैंक - Vo BANK OF PART- SECTION A - GENERAL A.1 INTRODUCTION- A.2 STATUTORY BASIS A.3 PROHIBITIONS A.4 GENERAL PERMISSION INDEX SECTION B - DIRECT INVESTMENT OUTSIDE INDIA -3 B.1 AUTOMATIC ROUTE B.2 INVESTMENT IN UNINCORPORATED ENTITIES OVERSEAS UNDER THE AUTOMATIC ROUTE B.3 METHOD OF FUNDING 11 12 B.4 CAPITALISATION OF EXPORTS AND OTHER DUES B. 5. INVESTMENTS IN FINANCIAL SERVICES SECTOR- 13 13 B.6 INVESTMENT IN EQUITY OF COMPANIES REGISTERED OVERSEAS / RATED DEBT INSTRUMENTS B.7 APPROVAL OF THE RESERVE BANK B.8 INVESTMENTS IN ENERGY AND NATURAL RESOURCES SECTOR 14 16 17 B.9 OVERSEAS INVESTME....

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....ures (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 and business 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 Reserve Bank has been progressively relaxing the rules and simplifying the procedures both for current account as well as capital account transactions. A.2 ....

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....permanently resident in India, out of their foreign currency resources outside India. 1 as amended vide Notification No. FEMA 132/2005-RB dated 31st March 2005, Notification No. FEMA 135/2005-RB dated 17th May 2005, 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') Website: www.fema.rbi.org.in 4 Email : [email protected] ● भारतीय ESERVE रिजर्व BANK OF VIGN 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 worth² as on the date of las....

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....ment. The investments are subject to the following conditions: a) The Indian party / entity may extend loan / guarantee only to an overseas JV/WOS in which it has equity participation. 5 Proposals from the Indian party for undertaking financial commitment without equity contribution in JV / WOS may be considered by the Reserve Bank under the approval route. AD banks may forward the proposals from their constituents after ensuring that the laws of the host country permit incorporation of a company without equity participation by the Indian party. Indian entities may offer any form of guarantee - corporate or personal (including the personal guarantee by the indirect resident individual promoters of the Indian Party)/ primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India provided that: i) All financial commitments including all forms of guarantees are within the overall ceiling prescribed for overseas investment by the Indian party i.e. currently within 400 per cent of the net worth as on the date of the last audited balance sheet of the Indian party....

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.... approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body. All transactions 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 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. f) In case of investment in overs....

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....tible currencies. All dues receivable on investments made in freely convertible currencies, as well as their sale / winding up proceeds are required to be repatriated to India in freely convertible currencies only. The automatic route facility is not available for investment in Pakistan. B 1.1 Issue of guarantee by an Indian Party to step down subsidiary of JV /WOS (a) Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV /WOS set up by their JV / WOS operating as a Special Purpose Vehicle (SPV) under the Automatic Route, subject to the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment. It has been decided that irrespective of whether the direct subsidiary is an operating company or a SPV, the Indian promoter entity may extend corporate guarantee on behalf of the first generation step down operating company under the Automatic Route, within the prevailing limit for overseas direct investment. Such guarantees will have to be reported to the Reserve Bank in Form ODI, as hitherto, through the designated AD Catego....

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....in a consortium with other international operators to construct and maintain submarine cable systems on co-ownership basis under the automatic route. Accordingly, AD Category - | banks may allow remittances by Indian companies for overseas direct investment, after ensuring that the Indian company has obtained necessary licence from the Department of Telecommunication, Ministry of Telecommunication & Information Technology, Government of India to establish, install, operate and maintain International Long Distance Services and also by obtaining a certified copy of the Board Resolution approving such investment. Website: www.fema.rbi.org.in 11 Email : [email protected] ● भारतीय ESERVE रिजर्व BANK OF INDIA SER Accordingly, these transactions may be reported by the Indian entities investing in the consortium to the AD Category - I banks in form ODI for enabling on-line submission of the same by the AD Category - banks to the Reserve Bank for allotment of Unique Identification Number. B.3 Method of Funding (1) Investment in an overseas JV / WOS may be fund....

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....alised 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 entity outside India, which is engaged in the financial sector, should fulfill the following additional conditions: Website: www.fema.rbi.org.in 13 Email : [email protected] ● भारतीय ESERVE BANK OF (i) (ii) (iii) (iv) be registered with the regulatory authority in India for conducting the financial sector activities; has earned net profit during the preceding three financial years from the financial services activities; has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity; and has fulfilled th....

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....unds; government securities where the countries are rated not below investment grade; derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities; 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). Website: www.fema.rbi.org.in 15 Email : [email protected] ● भारतीय ESERVE BANK OF NDIA-SE (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 Venture Capital Undertakings, subject to an overall limit of USD 500 million....

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....th Floor, Fort, Mumbai 400 001, through the AD Category - I bank. AD Category - I banks may forward the applications to the Reserve Bank along with their comments and recommendations, for consideration. (2) Investments by established proprietorship or unregistered partnership exporter firms will be subject to the following conditions: i) The Partnership / Proprietorship firm is a DGFT recognized Star Export House. ii) iii) 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 17 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय ESERVE जर्व बैंक VI BANK OF iv) v) 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 Reser....

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....ce of any Regulatory / Enforcement agency like the Directorate of Enforcement, CBI etc. In addition to the registration, the AD Category - I bank should ensure that the special license / permission has been obtained by the applicant in case the activities require special license / permission either from the Ministry of Home Affairs, Government of India or from the relevant local authority, as the case may be. B.11 Post investment changes / additional investment in existing JV / WOS A JV / WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary / alter the shareholding pattern in the overseas entity (subject to compliance of Regulation 7 of the Notification in the case of financial services sector companies). The Indian party should report to the Website: www.fema.rbi.org.in 19 Email : [email protected] ● भारतीय ESERVE रिजर्व BANK OF 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 / WO....

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....igations 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 provisions specified in Regulation 15 of the Notification. The share certificate or any other document as evidence of investment has to be submitted to and retained by the designated AD Category - I bank, who is required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents. A certificate to this effect should be submitted by the designated AD category - I bank to the Reserve Bank along with the APR (Part III of Form ODI). (2) Reporting requirements including submission of Annual Performance Report are also applicable for investors in unincorporated entities in the oil sector. 3) 10 Where the law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS, the Annual Performance Report (APR) may be su....

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....t through its designated AD category-l bank within 30 days from the date of disinvestment. B. 16 Transfer by way of sale of shares of a JV/WOS involving Write off of the investment (1) Indian Parties may disinvest, without prior approval of the Reserve Bank, in any of the under noted cases where the amount repatriated after disinvestment is less than the original amount invested: i) in case where the JV / WOS is listed in the overseas stock exchange; ii) in cases where the Indian Party is listed on a stock exchange in India and has a net worth of not less than Rs. 100 crore; iii) iv) where the Indian Party is an unlisted company and the investment in the overseas venture does not exceed USD 10 million. and where the Indian Party is a listed company with net worth of less than Rs.100 crore but investment in an overseas JV/WOS does not exceed USD 10 million. (2) Such disinvestments shall be subject to the conditions listed at B.15 items (ii) to (vi) and B 15.2. (3) An Indian Party, which does not satisfy the conditions laid down above for undertaking any disinvestment in its JV/WOS abroad, shall have to app....

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.... India; to acquire shares by way of inheritance from a person whether resident in or outside India; to purchase equity shares offered by a foreign company under its ESOP Schemes, if he is an employee, or, a director of an Indian office or branch of a foreign company, or, of a subsidiary in India of a foreign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV) 11 irrespective of the percentage of the direct or indirect equity stake in the Indian company. AD Category - I banks are permitted to allow remittances for purchase of shares by eligible persons under this provision irrespective of the method of operationalisation of the scheme i.e where the shares under the scheme are offered directly by the issuing company or indirectly through a trust / a Special Purpose Vehicle (SPV) / step down subsidiary, provided (i) the shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and (ii) an Annual Return (Annex B) is submitted by the Indian company to 11 11 A.P. (DIR Series) Circular No. 97 dated March 28, 2012 ....

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....ion. The limit of acquiring such shares in terms of value is restricted to the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition; rights shares provided that the rights shares are being issued by virtue of holding shares in accordance with the provisions of law for the time being in force; purchase of shares of a JV / WOS abroad of the Indian promoter company by the employees/directors of Indian promoter company which is engaged in the field of software where the consideration for purchase does not exceed USD 10,000 or its equivalent per employee in a block of five calendar years; the shares so acquired do not exceed 5 per cent of the paid-up capital of the JV / WOS outside India; and after allotment of such shares, the percentage of shares held by the Indian promoter company, together with shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior to such allotment; and purchase of foreign securities under ADR / GDR linked stock option schemes by resident employees of Indian companies....

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....gulatory Authorities concerned in India and abroad have been obtained. Before allowing the remittance, AD Category - I banks are required to 28 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय रिजर्व ESERVE BANK OF NDIA 92 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. All the earlier forms have been subsumed into one form viz. ODI, comprising of four parts: Part I includes the following: Section A - Details of the Indian Party Section B - Details of Investment in New Project Section C - Details of Investment in Existing Project Section D – Funding for JV / WOS - Section E - Declaration by the Indian Party (to be retained by AD Category - I bank) Section F - Certificate by the Statutory Auditors of the Indian Party (to be retained by AD Category - I bank) Part II Reporting of Remittances Part III - Annual Performance Report (A....

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....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. 30 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय ESERVE BANK OF e) 14 4 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 auto generated e-mail from RBI confirming the UIN. - (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 designated branch of the AD Category I bank. AD Category - I banks should file on-line a consolidated form ODI indicating details of each party. The same procedure should be followed where the investment is ....

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....que Identification Number allotted to each JV or WOS abroad, is required to be quoted in all correspondence with the Reserve Bank. AD Category - I banks may allow additional investment in an existing overseas concern set up by an Indian party, in terms of Regulation 6 only after the Reserve Bank has allotted necessary Unique Identification Number to the overseas project. 6. Investment by way of share swap - In the case of investment by way of share swap, AD Category I banks are additionally 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 provis....

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....Category I banks, while permitting remittance towards EMD should advise the Indian party that in case they are not successful in the bid, they should ensure that the amount remitted is repatriated in accordance with Foreign Exchange Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000 (cf. Notification No. FEMA 9/2000- RB dated 3rd May 2000), as amended from time to time In cases where an Indian party, after being successful in the bid / tender decides not to proceed further with the investment, AD banks should submit full details of remittance allowed towards EMD / invoked bid bond guarantee, to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001. In case the Indian party is successful in the bid, but the terms and conditions of acquisition of a company outside India are not in conformity with the provisions of Regulations in Part I, or different 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. Tr....

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....à¤µ NDIA-SE BANK OF [If the Indian Party is engaged in Financial sector or falls under the category of Proprietorship, Unregistered Partnership or Financial sector, please furnish the details in Item VII below]. (VII) Financial particulars of the Indian Party for the last 3 years (Amt. in Rs. 000s) Particulars Year 1 31-3- Year 2 31-3 Year 3 31-3 Foreign exchange earnings (excluding equity exports to JV/WOS) Net profit Paid-up Capital Net worth of (a) Indian Party (b) Group Company@ @ In terms of Explanation to Regulation 6 (3) of Notification No. FEMA 120/ RB-2004 dated July 7, 2004 (VIII) Particulars of existing Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) already in operation or under implementation, of the Indian party and its group concerns: Sr. Name of Indian Party No. 1. 2. 3. Unique Identification Number allotted by Reserve Bank (IX) Whether the proposed investment is (Tick the appropriate box) * (a) New Project (b) Existing Project* (Please furnish the details in Section B) (Please furnish the details in Section C) Acquisition of stake in an....

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....) Others (please Specify) (iii) ADRs/GDRs [raised overseas] (iv) ECB/FCCB (V) Swap of shares (vi) Others (Please specify) Total A [Indian Party] V. Whether JV/WOS is SPV (Y/N) (a) If Y, purpose of SPV: i) Full value of the overseas acquisition ii) Direct/Indirect infusion by SPV ii) Funds raised overseas with guarantee/ counter guarantee from Indian party iii) Funds raised overseas without guarantee/ counter guarantee from Indian Party iv) Funds contributed in the form of equity/ preference equity/ shareholder's loans by foreign investors v) Securitisation vi) Any other mode (please specify) Total Amount VI. Guarantees/ Other Non fund based Commitments Note* Financial Commitment as defined in FEMA 120/RB-2004 dated July 7, 2004 Sec 2(f)- Financial Commitment means amount of Direct Investment by way of contribution to equity, loan and 100 per cent of the amount of guarantee issued by Indian Party to or on behalf of its overseas Joint Venture company or Wholly Owned Subsidiary. 40 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय SERVE जà....

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....ation 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 *. Note: *Applicable only in cases where the investment is in the financial services sector (e.g. insurance, mutual fund, asset management, etc.). # Applicable where investment is funded through ECB/FCCB balances. (Signature of the Statutory Auditor of the Company) Name of the firm, Stamp and Registration number 42 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय ESERVE रिजर्व BANK OF VIGN PART II REPORTING OF REMITTANCES For office use only Date of Receipt Inward No. In case investment is in the existing JV/WOS, please indicate Un....

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....ed certified by Statutory Auditor of the Company through the designated AD Category- I bank 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) (i) Profit (ii) Dividend (iii) Retained Earnings* (iv) Investments into India During the last year Since commencement ended business of (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.) 45 Website: www.fema.rbi.org.in Email : [email protected] ....

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.... to the Reserve Bank; 47 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय ESERVE रिजर्व BANK OF (e) The Indian party is not under investigation by CBI/ED/SEBI/IRDA or any other regulatory authority in India. Place Date: Name: Designation: Tel.No. FAX No. (Signature of authorised official of the bank) Stamp /Seal 48 Website: www.fema.rbi.org.in Email : [email protected] ● भारतीय SERVE रिजर्व BANK OF INDIA-E Instructions for filling up the Form ODI (This part should be detached and retained by the applicant) This set of forms attempts to capture basic information relating to overseas investments by Indian parties (as defined under Notification FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time). ☐ Part I contains details of the JV/WOS, Indian Parties and the financing pattern of the overseas entity. ☐ Part II reports remittances certified by AD. Part III is the Annual Performance Report, which contains brief particula....

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.... with Part II. (5) In case more than one Indian promoter is investing in the same JV / WOS, details of each such promoter should be provided in a single format by the AD designated for the JV/WOS. (6) Annual Performance Report (APR) (Part III) should be submitted, through the designated AD Category-I bank, every year within 3 months of the closing of annual accounts of the JV / WOS for as long as the JV/WOS is in existence, at the address above. (7) All amounts of foreign currency (FCY) and Indian rupees (INR) should be in thousands only. (8) When JV/WOS is closed / wound up / disinvested / liquidated, etc., report should be submitted to Reserve Bank at the address above in Part IV of the form within 30 days of the disinvestment. (9) Reserve Bank reserves the right to put the information furnished here in the public domain. For approval by the Reserve Bank, the following documents need to be submitted along with Part I. (a) A report from the bankers of the Indian party in a sealed / closed cover. (b) The latest Annual Accounts, i.e. Balance Sheet and Profit and Loss Account of the Indian party along with the Directors' Report....

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....œà¤°à¥à¤µ बैंक - VIO BANK OF Annex - B ESOP Reporting Statement of shares allotted to Indian employees / Directors under ESOP Schemes for the year ended March (to be submitted on the letterhead of the company through their AD bank) We, (Indian company), hereby declare that: a) M/s. issued (foreign company) has ....... shares to our employees / Directors under ESOP Scheme during the year as under: (i) No. of shares allotted (ii) Number of employees / Directors who accepted shares (iii) Amount of outward remittance (in FCY and equivalent INR, both): b) The effective holding (direct or indirect) of the foreign company M/s. in the Indian company, as on March 31, (Year), is ..... .% and c) The information furnished above is true and correct to the best of our knowledge and belief. Signature of the Authorised Official Name Designation Date : To, The Chief General Manager Reserve Bank of India Foreign Exchange Department, Overseas Investment Division, Central Office, Amar Bldg., 5th Floor, Sir. P.M. Road, Fort, Mumbai 400 001. 52 Website: www.fema.rb....