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Equity shares under the FDI Scheme RBI Circular

 
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hitesh



Joined: 19 Sep 2008
Posts: 135

PostPosted: Sun Sep 21, 2014 8:34 am    Post subject: Equity shares under the FDI Scheme RBI Circular Reply with quote

RESERVE BANK OF INDIA
Foreign Exchange Department
Central Office
Mumbai - 400 001
RBI/2014-15/234 September 17, 2014
A.P. (DIR Series) Circular No.31
To
All Category - I Authorised Dealer Banks
Madam / Sir,
Foreign Direct Investment (FDI) in India - Issue of equity shares under the
FDI Scheme against legitimate dues
Attention of Authorised Dealers Category – I (AD Category - I) banks is invited to
the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA
20/2000-RB dated May 3, 2000, as amended from time to time, A.P. (DIR Series)
Circular No. 15 dated October 1, 2004, and Notification No. FEMA 242/2012- RB
Dated October 19, 2012.
2. In terms of paragraph 2(4) of the Schedule 1 of the Notification, ibid, an Indian
company under the automatic route may issue shares/convertible debentures to a
person resident outside India against lump-sum technical know-how fee, royalty
External Commercial Borrowings (ECBs) (other than import dues deemed as ECB
or Trade Credit as per RBI guidelines) and import payables of capital goods by
units in Special Economic Zones subject to certain conditions like entry route,
sectoral cap, pricing guidelines and compliance with the applicable tax laws.
3. The extant guidelines for issue of shares/convertible debentures under the
automatic route have been reviewed in consultation with the Government of India
and, accordingly, it has been decided to permit issue of equity shares against any
other funds payable by the investee company, remittance of which does not
require prior permission of the Government of India or Reserve Bank of India
under FEMA, 1999 or any rules/ regulations framed or directions issued
thereunder, provided that:
i. The equity shares shall be issued in accordance with the extant FDI
guidelines on sectoral caps, pricing guidelines etc. as amended by
Reserve bank of India, from time to time;
Explanation: Issue of shares/convertible debentures that require
Government approval in terms of paragraph 3 of Schedule 1 of FEMA
20 or import dues deemed as ECB or trade credit or payable against
import of second hand machinery shall continue to be dealt in
accordance with extant guidelines;
ii. The issue of equity shares under this provision shall be subject to tax
laws as applicable to the funds payable and the conversion to equity
should be net of applicable taxes.
4. All the other conditions for issuance of equity shares under the automatic route
(c.f. paragraph 2(4) (i) (ii) (iii) of schedule 1 to Notification No. FEMA 20/2000-RB
dated May 3, 2000) and Government approval route [c.f. paragraph 3 of schedule
1 of Notification No. FEMA 20/2000-RB dated May 3, 2000] shall remain
unchanged.
5. AD Category – I banks may bring the contents of this circular to the notice of
their constituents and customers concerned.
6. Reserve Bank has since amended the subject Regulations accordingly through
the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Twelfth Amendment) Regulations, 2014 which have been
notified vide Notification No. FEMA.315/2014-RB dated July 10, 2014, vide G.S.R.
No.632 dated September 2, 2014.
7. The directions contained in this circular have been issued under sections 10(4)
and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are
without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully
(B.P.Kanungo)
Principal Chief General Manager

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