CHAPTER 42 INVESTMENT BY NON-RESIDENTS OF INDIAN NATIONALITY / ORIGIN AND FOREIGN INSTITUTIONAL INVESTORS

Transcription

1 CHAPTER 42 INVESTMENT BY NON-RESIDENTS OF INDIAN NATIONALITY / ORIGIN AND FOREIGN INSTITUTIONAL INVESTORS 1

2 CHAPTER 42 INVESTMENT BY NON-RESIDENTS OF INDIAN NATIONALITY / ORIGIN AND FOREIGN INSTITUTIONAL INVESTORS INDEX Para No TOPIC Page No 42 Introduction Investments in Immovable Property Acquisition of Property in India by an 5 Indian Citizen resident outside India Acquisition and Transfer of Property in 5 India by a Person of Indian Origin Acquisition by way of Transfer Acquisition by way of Gift Acquisition by way of inheritance Acquisition of Immovable Property for 6 carrying on a permitted activity Repatriation of sale proceeds Prohibitions on acquisition or transfer 8 of immovable Property in India by a citizen of certain countries 42 2 Investments in Shares/Securities Foreign Direct Investment Scheme Automatic Route of Reserve Bank for 9 issue of shares by an Indian Company i.a List of Activities for which Automatic 10 Route of RBI for investment from person resident outside India is not available i.b List of Activities or items for which FDI is 10 prohibited Issue of shares by a Company requiring 12 the Government Approval Issue of Shares by International offering 12 through ADR and/or GDR General Permissions to the Indian 13 Companies Issue Price i. Issue Price of ADRs/GDRs Issue of Convertible / Non-convertible 14 Debentures (NCD) Mode of Payment for shares issued to persons resident outside India 15 2

3 Report by the Indian Company Permission for retaining share 16 subscription money received from Persons resident outside India in a foreign Currency account 42 3 Portfolio Investment Scheme for registered Foreign Institutional Investors (FIIs) Purchase / sale of shares and/or 16 convertible debentures Maintenance of account by a registered FII for routing transactions of purchase and sale of shares / convertible debentures Remittance of sale proceeds of shares / 19 convertible debentures Investment by certain other Investors Portfolio Investment Scheme for NRIs on repatriation and/or non-repatriation basis Investment by NRIs Report to Reserve Bank Remittance/credit of sale /maturity proceeds of shares and/or debentures Purchase and Sale of Shares / convertible debentures by NRIs/OCBs on non-repatriation basis (other than that under Portfolio Investment Scheme) i Prohibition on Purchase of Shares / convertible debentures of certain companies ii Permission to Purchase and/or sell shares / convertible debentures of an Indian Company iii Method of Payment for Purchase of shares/convertible debentures iv Sale/Maturity proceeds of shares or convertible debentures 42 5 Investment in securities other than shares or convertible debentures by a person resident outside India Permission to Foreign Institutional Investors for Purchase of securities Permission to Non-resident Indian for purchase of securities

4 42 6 Acquisition of right shares Acquisition of Bonus Shares Report to RBI Issue and Acquisitions of shares after 29 merger or de-merger or amalgamation of Indian Companies Issue of shares under Employee Stock Option Scheme to Person resident outside India Transfer of Shares and convertible 29 debentures by way of sale 42 9 Transfer of shares/convertible debentures by way of sale under private arrangement Responsibilities /obligations of the 31 parties Method of Payment and remittance / 31 credit of sale proceeds Documentation For sale of shares by a person resident in India For sale of shares by a person resident 33 outside India Reporting Requirements General Permission does not preclude 34 obtaining RBI approval under other enactments Investment in Partnership Firm 35 /Proprietary Concern in India by a person resident outside India on nonrepatriation basis Deposits other than Bank Deposits Deposits between a person resident in 36 India and a person resident outside India Acceptance of Deposits by a company from NRIs on repatriation basis Acceptance of deposits by a 36 proprietorship concern / firm or company from NRIs on non-repatriation basis Issue of Commercial Paper to NRIs 38 4

5 42. INTRODUCTION In order to facilitate participation by NRIs/PIOs in India's economic development, over a period of time the Government of India and Reserve Bank have provided a number of facilities. Reserve Bank has been simplifying the procedures applicable to the various avenues available for investments in India. These avenues can be classified as under: a. Investments in immovable property b. Investments in shares/ securities c. Investments in partnership firm/proprietary concerns d. Deposits with Banks e. Deposits other than Bank deposits Investments in Immovable Property Acquisition of Property in India by an Indian Citizen resident outside India A person resident outside India who is a citizen of India can acquire any immovable property in India other than agricultural/plantation /farm house Acquisition and Transfer of Property in India by a person of Indian Origin: For the purpose of investment in immovable properties in India, the scope of the term PIO in restricted. As a result PIO for the purpose of immovable property related transactions means " a citizen of any country other than Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan if he at anytime held Indian passport or who or whose father or whose grandfather was a citizen of India. Please note, in the above situations the citizenship of the mother or grandmother is not to be considered. 5

6 Acquisition by way of transfer A person resident outside India may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian Origin (P10) resident outside India or a person resident in India. He may however transfer agriculture land / plantation property / farm house only to Indian citizens permanent residing in India. A PIO can transfer any immovable property in India other the agricultural land / farm house / plantation property by way of sale to a person resident in India and agricultural land / plantation / farm house by way of gift a sale to only an Indian citizen permanently residing in India. He may also transfer residential or commercial property in India by way of gift to a person resident ii India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India Acquisition by way of Gift A PIO resident outside India can acquire any immovable property other thar agricultural land / farm plantation / house property in India by purchase or b\ way of gift and any immovable property by way of inheritance. For acquiring the property, the funds should come from abroad or by debit to any nonresident account, viz., NRE/FCNR(B)/NRO account of the investor. The gift can be received from a person resident in India or from a person resident outside India who is a citizen of India or from a PIO resident outside India Acquisition by way of inheritance The immovable property can be acquired by PIO by way of inheritance from a person resident in India or a person resident outside India provided he has in turn acquired such property in accordance with Foreign Exchange Law /Regulations in force at the time of acquisition Acquisition of Immovable Property for carrying on a permitted activity 6

7 A person resident outside India who has a branch, office or other place of business (excluding a liaison office) for carrying on his business activity with requisite approvals in India may - a. acquire any immovable property in India, which is necessary for or incidental to carrying on such activity; Provided that I) all applicable laws, rules, regulations or directions for the time being in force are duly complied with; and in the entity / concerned person files with the Reserve Bank a declaration in Form IPI, not later than ninety days from the date of such acquisition. b. transfer by way of mortgage,the said immovable property to an authorized dealer(bank) as a security for any borrowing Repatriation of sale proceeds a. In the event of sale of immovable property other' than agricultural land/ farm house/ plantation property in India by a person resident outside India who is a citizen of India or a person of Indian origin, the branch may allow repatriation of the sale proceeds outside India, provided : I) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of FEMA Regulations; ii) the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non- Resident Account or (b) the foreign currency equivalent, as on date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property: iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. iv) Branches may allow to NRIs/PIOs the facility of repatriation of funds out of balances held in their Non-resident Rupee (NRO) Accounts upto USD one million per calendar year, including sale proceeds of immovable 7

8 property, subject to production of an undertaking by the remitter and a certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes (CBDT) Note: Repatriation of sale proceeds of immovable property acquired out of RUPEE FUNDS is available subject to the conditions that the property should have been held for a minimum period of 10 years. If the property is sold before 10 years, then the sale proceeds must be held in any recognised investment (including Bank Deposits) till completion of 10 years & then only repatriation can be done. There is no lock-in period for repatriation of sale proceeds in respect o immovable property acquired by way of a.inheritance /legacy b Foreign Currency Funds (through inward remittance or by debit to FCNR(B)/NRE accounts) Prohibitions on acquisition or transfer of immovable property in India by a citizen of certain countries A. No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan shall acquire or transfer immovable property in India, other than on lease not exceeding 5 years without prior permission of RBI Investments in Shares/ Securities Foreign Direct Investment Scheme (i) Purchase by a person resident outside India of equity / preference / convertible preference shares and convertible debentures issued by an Indian Company 1) A person resident outside India (other than a citizen of Bangladesh or Pakistan or Sri Lanka) or an incorporated entity outside India (other than an entity in Bangladesh or Pakistan) has general permissions to 8

9 purchase shares or convertible debentures or preference shares of an Indian Company subject to certain terms and conditions. 2) If the person purchasing the shares under this scheme proposes to be collaborator or proposes to acquire the entire shareholding of a new Indian company, he should obtain a prior permission of Central Government if he has a previous venture or tie-up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company issuing the shares is engaged Automatic Route of Reserve Bank for issue of shares by an Indian Company Indian Companies which are not engaged in any activity, or in manufacturing of items, included in (i)a may issue shares or convertible debentures to a person resident outside India, referred to in paragraph above and upto to the extent indicated against each company and with the provisions of the Industrial Policy and Procedures as notified by Secretariat for Industrial Assistance (SIA) in the Ministry of Commerce and Industry, Govt. of India, from time to time. Provided that: The activity of the issuer company does not require an industrial licence under the provision of the Industries (Development & Regulation) Act, 1951 or under the vocational policy notified by Government of India under the Industrial Policy of 1991 as amended from time to time, The shares or convertible debentures are not being issued by the Indian company with a view to acquiring existing shares of any Indian company. Explanation: 9

10 A company which proposes to embark on expansion programme to undertake activity or manufacture items notified from time to time, may issue shares or debentures out of fresh capital proposed to be issued by it for the purpose of financing expansion programme upto the extent stipulated from time to time, subject to compliance with the provisions of this paragraph i(a) List of activities for which Automatic Route of RBI for investment from person resident outside India is not available 1. Domestic Airlines 2. Petroleum Sector (except for private sector oil refining) 3. Investing Companies in Infrastructure & Services Sector 4. Defence and Strategic Industries 5. Atomic Minerals 6. Print Media 7. Broadcasting 8. Postal Services 9. Courier Services 10. Establishment and Operation of Satellite 11. Development of Integrated Township 12. Tea Sector (b) List of activities or items for which FM is prohibited 1. Retail Trading 2. Atomic Energy 3. Lottery Business 10

11 4. Gambling and Betting 5. Housing and Real Estate Business 6. Real Estate Business or Construction of farm houses 7. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea Plantations) 8. Trading in Transferable Development Rights (TDR) 9. Chit funds or Nidhi Company (11) A trading company incorporated in India may issue shares or convertible debentures to the extent of 51 percent of its capital, to persons resident outside India referred to paragraph 1 above subject to the condition that remittance of dividend to the shareholders outside India is made only after the company has secured registration as an Export/ Trading/ Star Trading/ Super Trading House from the Directorate General of Foreign Trade, Ministry of Commerce, Government of India, New Delhi (iii) A company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of notified items may issue shares or convertible debenture to a person referred to in paragraph 1 above, to the extent of 24% of its paid-up capital; Provided that such a company may issue shares in excess of 24% of its paid up capital, if a. It has given up its small scale status; b. It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector and c. It complies with the ceilings specified from time to time for 11

12 sectoral cap on investments by person resident outside India Issue of shares by a company requiring the Government approval A company which is engaged or proposes to engage in any notified activity or which proposes to issue shares to a person resident outside India beyond the sectoral limits specified or which is otherwise not eligible to issue shares to a person resident outside India, may issue shares to a person resident outside India referred to in paragraph 1 above, provided it has secured prior approval of Secretariat for Industrial Assistance or, as the case may be of the Foreign Investment Promotion Board (FIPB)of the Government of India and the terms and conditions of such an approval are complied with Issue of Shares by International offering through ADR and/or GDR An Indian company may issue its Rupee denominated shares to a Person resident outside India being a depository for the purpose of issuing Global Depository Receipts (GDRs) and/or American Depository Receipts (ADRs), provided the Indian company issuing such shares:- a. has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and b. is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations, and c. the ADRs/GDRs are issued in accordance with the provision of the Foreign Currency Convertible Bonds (FCCBI and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government The Indian company issuing shares under paragraph above, shall furnish to the Reserve Bank, full details of such issue in the 12

13 form specified within 30 days from the date of closing of issue The Indian company issuing shares against ADRs/GDRs shall furnish a quarterly return in the form specified to Reserve Bank within fifteen days of the close of the calendar quarter Pending repatriation or utilization of foreign exchange resources raised in terms of clause (4.1) the Indian company may invest the foreign currency funds in.- a. deposits with or Certificate of Deposits or other instruments of banks who have been rated not less than Al + by Standard and Poor or PI by Moody's for short term obligations, b.deposits with branch outside India of a Bank in India, and c.treasury bills and other monetory instruments with a maturity of one year or less In order to encourage Indian Companies to list ADRs / GDRs on the overseas exchanges, through the schemes of sponsored ADRs /GDRs, resident shareholders of Indian Companies have been permitted to offer their shares for conversion to ADRs/GDRs and to receive the sale proceeds in foreign currency with FIPB approval The ADR/GDR/FCCB proceeds may be utilised in the first stage for acquisition of shares in the disinvestment process and also in the mandatory second stage, offer to the public in view of their strategic importance General Permissions to the Indian Companies Indian Companies receiving subscription from non-residents for issue of shares have also got the general permission for the following:- a. Refund of funds received towards allotment of shares; b. Remittance of surplus funds received for purchase of shares offered on rights basis; 13

14 c. Remittance on account of surplus funds received for purchase of shares or on account of cancellation of trade, under two-way fungibility of ADRs/GDRs Issue Price Price of shares issued to persons resident outside India under this Scheme, shall not be less than a. the price worked out in accordance with the SEBI guidelines as applicable, where the issuing company is listed on any recognized stock exchange in India, and b. fair valuation of shares done by a chartered accountant as per the guidelines issued by the erstwhile Controller of Capital Issues, in all other cases, (i) Issue Price of ADRs/GDRs Price of ADRs/GDRs to be issued to a person resident outside India may be decided by the Indian Company - a. where the issue is on public offer basis, in consultation with the Lead Manager to the issue; and b.in other cases, as provided in paragraph 6 above Issue of Convertible / Non-convertible Debentures (NCD) The Indian Companies have general permission to issue partly convertible debentures / partly convertible preference shares provided the terms of issue are in conformity with the conditions laid down by RBI for the Non-convertible portion Companies can issue NCDs only to NRIs and that too by means of a public issue. The company rate on partly convertible preference shares / partly convertibles debentures should not exceed State Bank of India's PLR rate basis points. 14

15 Mode of payment for shares issued to persons resident outside India A company in India issuing shares or convertible debentures under the scheme to a person resident outside India shall receive the amount of consideration for such sharesi. by inward remittance through normal banking channels, or ii. ii. by debit to NRE/FCNR(B) account of the person concerned maintained with an authorized dealer/authorized bank Report by the Indian Company 1. An Indian company issuing shares or convertible debentures in accordance with these Regulations shall submit to Reserve Bank, A. not later than 30 days from the date of receipt of the amount of consideration, a report indicating: i. Name and address of the foreign investors ii. Date of receipt of funds and their rupee equivalent. iii. Name and address of the authorized dealer through whom the funds have been received, and iv. Details of the Government approval, if any. B. After the issue of shares the company should file a report in form FC- GPR in not later than 30 days from the date of issue of shares together with, i) a certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that a. all the requirements of the Companies Act, 1956 have been complied with; b. terms and conditions of the Government approval, if any, have been complied with; c. the company is eligible to issue shares under these Regulations; and 15

16 d. the company has all original certificates issued by authorized dealers in India evidencing receipt of amount of consideration; ii) a certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India Permission for retaining share subscription money received from person resident outside India in a foreign currency account Reserve Bank may, on an application made to it and on being satisfied that it is necessary so to do, permit an Indian Company issuing shares to person resident outside India under this scheme, to retain the subscription amount in a foreign currency account, subject to such terms and conditions as it may stipulate Portfolio Investment Scheme for registered Foreign Institutional Investors (FIN) Purchase/sale of shares and/or convertible debentures i. Foreign Institutional Investors registered with SEBI are eligible to purchase shares and convertible debentures under the PIS. The concerned company(s) should apply to the RBI for permission through a designated bank which is granted along with permission for opening foreign currency account and/or a Rupee account with a designated branch of a Bank. ii. The registered Fir permitted by the Reserve Bank under subparagraph (i) above, shall purchase the shares/convertible debentures of an Indian company through registered brokers on recognized stock exchange in India. iii. The amount of consideration for purchase of shares/debentures shall be paid out of inward remittance from abroad through 16

17 normal banking channels or out of funds held in an account maintained with the designated branch of an authorized dealer in India, in accordance with these Regulations. iv. The total holding by each FII/SEBI approved sub-account of FII shall not exceed 10% (ten percent) of the total paid-up equity capital OR 10% (ten percent) of the paid-up value of each series of convertible debentures issued by an Indian Company and the total holdings of all RI/sub-account of FIIs put together shall not exceed 24 percent of paidup equity capital or paid-up value of each series of convertible debentures. This limit of 24 percent can be increased to the sectoral cap / statutory limit as applicable to the Indian Company concerned by passing a resolution by its Board of Directors followed by passing of a special resolution to that effect by its General Body. Explanation: For arriving at the ceiling on holdings of Fits, shares/convertible debentures acquired both through primary as well as secondary market will be included. However, the ceiling will not include investment made by Flt through offshore Funds, Global Depository receipts and Euro Convertible Bonds. The Fits are also permitted to trade in all exchange traded derivative contracts subject to certain limits. Branches can also offer forward cover to Hs to the extent of total inward remittance net of liquidated investments. Flis are not permitted to invest in Print Media Sector without prior approval of Government of India, Foreign investment Promotion Board and Ministry of Information & Broadcasting. v. A registered Fit may be permitted to purchase shares/convertible debentures of an Indian company through offer / private placement, subject to the ceiling specified in sub-paragraph (iv) of this paragraph and the Indian Company is permitted to issue such shares; Provided that - a. in case of Public Offer, the price of the shares to be issued is not less than 17

18 the price at which shares are issued to residents, and b. in case of issue by private placement, the price is not less than the price arrived in terms of SEBI guidelines or guidelines issued by erstwhile Controller of Capital Issues, as applicable. c. It is clarified that a FII may invest in a particular issue of an Indian Company either under Schedule 1 or Schedule 2. It cannot, however, avail of both the routes simultaneously for a particular issue. The Branches have to ensure that the FIIs which are purchasing the shares by debit to the special rupee accounts report these details separately in the LEC (FII) returns. The Company which has issued the shares to the His under Schedule I (FDI) (for which the payment has been received directly into company's account) and under Schedule 2 (for which the payment has been received from FlIs' account maintained with Banks in India) should report these figures separately under item 4 (b) of the FC-GPR return so that the details could be suitably reconciled for statistical / monitoring purposes. Note: Schedule1:-Deals with Foreign Direct Investment Scheme - Purchase by a person resident outside India of equity/preference/convertible preference shares and convertible debentures issued by an Indian company. Schedule 2:-Deals with Purchase / sale of shares and/or convertible debentures of an Indian Company by a registered Foreign Institutional Investor under Portfolio Investment Scheme Maintenance of account by a registered RI for routing transactions of purchase and sale of shares/convertible debentures The Reserve Bank may, on application, permit a registered Foreign Institutional Investor to open a Foreign Currency Account and/or a Non-resident Rupee Account with a designated branch of an authorized dealer for routing the receipt of and payment for transactions to purchase and sale of conditions:- 18

19 i. The account shall be funded by inward remittance through normal banking channels or by credit of sale proceeds (net of taxes) of the shares/convertible debentures sold on stock exchange. ii. The funds in the account shall be utilized for purchase of shares/convertible debentures in accordance with the provisions of paragraph 1 of this Scheme or for remittance outside India. iii. The funds from Foreign Currency Account of the registered FM may be transferred to Non-Resident Rupee Account of the same FII and vice versa Remittance of sale proceeds of shares/convertible debentures The designated branch of a Bank may allow remittance of net sale proceeds (after payment of taxes) or credit the net amount of sale proceeds of shares/convertible debentures to the foreign currency account or a Nonresident Rupee Account of the registered Foreign Institutional Investor concerned Investment by certain other Investors Reserve Bank may, subject to such terms and conditions as it may consider necessary, permit a domestic asset management company or portfolio manager who is registered with SEBI as a foreign institutional investor for managing the funds of sub-account, to make investment under the Scheme on behalf of:- a person resident outside India who is a citizen of foreign state, or ii. a body corporate registered outside India. Provided such investment is made out of funds raised or collected or brought from outside India through normal banking channel The application to Reserve Bank for permission under subparagraph (1) may be made through SEBI. Note: With effect from , OCBs are not permitted to invest 19

20 under the PIS in India_ Further, OCBs that have, already made investments under the PIS, may continue to hold such shares convertible debentures till such time these are sold on the stock exchange Investments permitted to be made under sub-paragraph (1) shall not exceed 5% (five percent) of the total paid-up equity capital or 5% (five percent) of the paid- up value of each series of convertible debentures issued by an Indian Company and shall also not exceed the over-all ceiling specified in sub-paragraph (iv) of paragraph 1 above Portfolio investment Scheme for NRIs on repatriation and/or non-repatriation basis Investment by NRI A Non-resident Indian (NRI may purchase/sell shares and/or convertible debentures of an Indian company, through registered broker or a recognized stock exchange, subject to the following conditions:, i. NRIs may purchase and sell shares/convertible debentures under the Portfolio Investment Scheme through a designated branch for the purpose and duly approved by the Reserve Bank of India, ii. the paid-up value of shares of an Indian company purchased by each NRI on repatriation and on non-repatriation basis, does not exceed 5 percent of the paid-up Capital / paid-up value of shares issued by the company concerned; iii. the paid-up value of each series of convertible debentures purchased by each NRI on repatriation and non-repatriation basis does not exceed 5 percent of the paid-up Capital / paid-up value of each series of convertible debentures issued by the company concerned; iv. the aggregate paid-up value of shares of any company purchased by all NRIs does not exceed 10 percent of the paid up capital of the company and in the case of purchase of convertible debentures, the aggregate paid-up 20

21 value of each series of debentures purchased by all NRIs does not exceed 10 percent of the paid-up value of each series of convertible debentures. The NRIs shall not purchase shares or convertible debentures of an Indian Company which is engaged in Print Media. The aggregate ceiling of 10 percent referred to in this clause may be raised to 24 percent if a special resolution to that effect is passed by the General Body of the Indian company concerned. v) the NRI investor takes delivery of the shares purchased and gives delivery of shares sold. Also, netting of purchase / sale amounts is not allowed i.e. there has to be entry in Bank account for purchases and sales made separately. vi) payment for purchase of shares and/or debentures is made by inward remittance of foreign exchange through normal banking channels or out of funds held in NRE/FCNR(B) account maintained in India if the shares are purchased on repatriation basis and by inward remittance or out of funds held in NRE/FCNR(B)/NRO account of the NRI concerned maintained in India where the shares/debentures are purchased on non-repatriation basis; Report to Reserve Bank The link office of the designated branch referred to in paragraph 42.D.1(i), shall furnish to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Central Office, Mumbai a report on daily basis giving the following details either on line or on a floppy or in a hard copy: - A. Name of the Non-resident Indian, B. Company-wise number of shares and/or debentures and paid-up value thereof, purchased and/or sold by each NRI Remittance/credit of sale/maturity proceeds of shares and or debentures The net sale/maturity proceeds (after payment of taxes) of 21

22 shares and/or debentures of an Indian company purchased by NRI / OCB under this Scheme, may be allowed by the designated branch of an authorized dealer referred to in paragraph (i). A. to be credited to NRO account of the NRI/OCB investor where the payment for purchase of shares and/or debentures sold was made out of funds held in NRO account, or where the shares and/or debentures were purchased on non-repatriation basis, or B. at the NRI or OCB investor's option, to be remitted abroad or credited to his/its NRE/FCNR(B)/NRO account of the NRI, where the shares and/or debentures were purchased on repatriation basis Purchase and Sale of shares/convertible debentures by NRIs/OCBs on non- repatriation basis (other than that under Portfolio Investment Scheme) (i) Prohibition on purchase of shares/convertible debentures of certain companies No purchase of shares or convertible debentures of an Indian company shall be made under this scheme if the company concerned is a Chit Fund or a Nidhi Company or is engaged in agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights and Print Media, Explanation: For the purpose of this paragraph, real estate business shall not include development of township, construction of residential/commercial premises, roads, bridges etc (ii) Permission to purchase and/or sell shares / convertible debentures of an Indian Company Subject to paragraph 'I above, Nonresident Indian may, without any limit, purchase on nonrepatriation basis, shares or convertible debentures of an Indian Company issued whether by public issue or private placement or right issue. Provided that the person to whom the shares are being 22

23 transferred, has obtained prior permission of Central Government to acquire the shares if he has previous venture or tie-up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian Company whose shares are being transferred is engaged. Provided further that this restriction shall not apply to the transfer of shares to International Financial Institutions such as Asian Development Bank (ADB), International Finance Corporation (IFC), Commonwealth Development Corporation (CDC), Deutsche Entwicklungs Gescelscchaft (DEG) and transfer of shares of an Indian Company engaged in Information Technology Sector (iii) Method of payment for purchase of shares/convertible debentures The amount of consideration for purchase of shares or convertible debentures of an Indian company on non-repatriation basis, shall be paid by way of inward remittance through normal banking channels from abroad or out of funds held in NRE/FCNR (B)/NRO account maintained with a designated branch or as the case may be with an authorized bank in India. Provided that in the case of NRI resident in Nepal and Bhutan, the amount of consideration for purchase of shares or convertible debentures of an Indian Company on non-repatriation basis, shall be paid only by way of inward remittance in foreign exchange through normal banking channels (iv) Sale/Maturity proceeds of shares or convertible debentures a) The sale/maturity proceeds (net of applicable taxes) of shares or convertible debentures purchased under this Scheme shall be credited only to NRO account where the purchase consideration was paid out of funds held in NRSR account or NRO account at the option of the seller where the purchase consideration was paid out of inward remittance of 23

24 funds held in NRE/FCNR(B)/NRO/NRNR account. b) The amount invested in shares or convertible debentures under this Scheme and the capital appreciation thereon shall not be allowed to be repatriated abroad Investment in securities other than shares or convertible debentures by a person resident outside India Permission to Foreign Institutional Investors for purchase of securities A registered Foreign Institutional Investor may purchase, on repatriation basis, dated Government securities/treasury bills, non-convertible debentures/bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognized stock exchange in India; Provided that i) the FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30 and ii) If the FII desires to invest upto 100 percent in dated Government Securities including Treasury Bills, non-repatriation debentures/bonds issued by an Indian Company, it shall form a 100% debt fund and get such fund registered with SEBI Permission to Non-resident Indian for purchase of securities (a) A non-resident Indian may, without limit, purchase on repatriation basis, i. Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds, ii. Bonds issued by a public sector undertaking (PSU) in India; iii. Shares in Public Sector Enterprises being dis-invested by the Government 24

25 of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids (b) A Non-resident Indian may, without limit, purchase on nonrepatriation basis, dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Funds in India, or National Plan/ Savings Certificates (c) Method of payment of purchase consideration i. A registered Foreign Institutional Investor who purchases securities under the provisions of this Schedule shall make the payment for purchase of such securities either by inward remittance through normal banking channels or out of funds held in Foreign Currency Account or Non-resident Rupee Account maintained by the Foreign Institutional investor with a designated branch of an authorized dealer with necessary approval of Reserve Bank. ii. A non-resident Indian who purchases securities on repatriation basis, under sub-paragraph (1) of paragraph (2) above shall make payment either by inward remittance through normal banking channels or out of funds held in his/its NRE/FCNR(B) account. iii. A Non-resident Indian who purchases securities on non-repatriation basis,under a sub-paragraph (2) of paragraph 2 above, shall make payment either by inward remittance through normal banking channels or, out of funds held in his NRE/FCNR(B)/NRO account (d) Permission for Sale of Securities A person resident outside India who has purchased securities in accordance with the terms mentioned above may A. sell such securities through a registered stock broker on a recognized stock exchange or B. tender units of mutual funds to the issuer for repurchase or for payment of maturity proceeds or 25

26 C. tender Government securities/treasury bills to the Reserve Bank for payment of maturity proceeds (e) Remittance/credit of sale/maturity proceeds i. In the case of a registered Foreign Institutional Investor who has sold securities in accordance with paragraph A, the designated branch may allow remittance of net amount of sale/maturity proceeds of the securities to the foreign currency account or Non-resident Rupee Account of the FII investor. ii. In the case of a Non-resident Indian who has sold securities in accordance with paragraph A, the net sale/maturity proceeds (after payment of taxes of such securities, may be a ) credited only to NRO account of the investor where the payment for purchase of securities sold was made o of funds held in NRSR account or b) credited, at the NRI investors option to his NRO account, where the payment for the purchase of tt securities sold was made out of funds held in NRO account, or c) remit abroad OR at the NRI or OCR investor's option, credited to his NRE/FCNR(B)/NRO account, where the securities were purchased c repatriation basis in accordance with sub-paragraph (1) of paragraph 2 an the payment for purchase of the securities sold was made by inward remittance through normal banking channels or out of funds held in NRE/FCNR(B) account Acquisition of right shares 1. A person resident outside India may purchase equity or preference share or convertible debentures offered on right basis by an Indian Company which satisfies the conditions specified in sub-regulation (2) below: 2. An Indian company which satisfies the following conditions, may offer to person resident outside India, equity or preference shares or convertible debentures on right basis, namely:- a. The offer on right basis does not result in increase in the percentage a foreign equity already approved, or permissible under the Foreign Direct Investment Scheme in terms of these Regulations; 26

27 b. The existing shares or debentures against which shares or debentures are issued by the company on right basis were acquired and are held by the person resident outside India in accordance with these Regulations; c. The offer on right basis to the persons resident outside India is at price which is not lower than that, of at which the offer is made to resident shareholders; d. Further the existing NRI share holders can apply for issue of additional shares and the invested company may allot the same subject to the overall sect oral cap. The right shares or debentures purchased by the person resident outside India shall be subject to same conditions including restrictions in regard to repatriability as are applicable to the original shares against which right shares or debentures are issued:- Provided that the amount of consideration for purchase of right shares or debentures is paid by way of inward remittance in foreign exchange through normal banking channels or by debit to NRE/FCNR(B) account, when the shares or debentures are issued on repatriation basis:- Provided further that in respect of the shares or debentures issued on non repatriation basis, the amount of consideration may also be paid by debit to NRO/NRSR/NRNR account Acquisition of Bonus Shares An Indian Company may issue bonus shares to its non-resident shareholders, subject to the following conditions: a. the shares against which bonus shares are issued by the company (hereinafter referred to as the original shares') were acquired or held by the non-resident shareholder in accordance with the Rules/Regulations applicable to such acquisition; b. the bonus shares acquired by the non-resident shareholder shall be subject to the same conditions including restrictions in regard to repatriability as are applicable to the original shares. 27

28 42.8. Report to RBI A company issuing right shares or bonus shares in terms of Regulation 42-J or Regulation 42-K as the case may be, shall, within thirty days from the date of issue, report the transaction in Form FC-GPR to the Regional Office of the Reserve Bank of India under whose jurisdiction the Registered Office of the company is situated Issue and acquisition of shares after merger or de-merger or amalgamation of Indian companies a. Where a Scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of de-merger or otherwise of Indian Company has been approved by a Court in India, the transfer company or, as the case may be, the new company may issue shares to tl shareholders of the transferor company resident outside India subject the following conditions, namely: 1. The percentage of shareholders resident outside India in if transferee or new company does not exceed the percentage specific in the approval granted by the Central Government or the Reserve Bank, or specified in these Regulations:- Provided that where the percentage is likely to exceed the percentage specified in the approval or the Regulations, the transferor company or the transferee or new company may, after obtaining an approval from the Central Government, apply to Reserve Bank for its approval under these Regulations. ii. the transferor company or the transferee or new company shall be engaged in agriculture, plantation or real estate business or trading it TDRs and iii. the transferee or the new company files a report within 30 days with the Reserve Bank giving full details of the shares held by person resident outside India in the transferor and the transferee or the nevi company, before and after the merger / amalgamation, reconstruction, and also furnishes a confirmation that all the terms and conditions stipulated in the scheme approved by the Court have been complied with. 28

29 Issue of shares under Employees Stock Options Scheme to persons resident outside India a. An Indian Company may issue shares under the Employee's stock Options Scheme, by whatever name called, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, directly or through a Trust:- Provided that i. the scheme has been drawn in terms of regulations issued under the Securities Exchange Board of India Act 1992; and ii. face value of the shares to be allotted under the scheme to the nonresident employees does not exceed 5% of the paid-up capital of the issuing company. b. The Trust and the issuing company shall ensure that value of shares held by persons resident outside India under the scheme does not exceed the limit specified in clause (b) of sub-regulation (1) above. c. The issuing company shall furnish to the Reserve Bank, within thirty days from the date of issue of shares under the scheme, a report giving the following particulars/documents i. names of person to whom shares are issued under the scheme and number of shares issued to each of them; ii. a certificate from the Company Secretary of the issuing company that the value of shares issued under the scheme does not exceeds 5% of the paid-up capital of the issuing company and that the shares are issued in compliance with the regulations issued by the SEBI in this behalf Transfer of shares and convertible debentures by way of Sale - From resident to Non-resident The requirement to obtain prior approval from the Government followed by RBI has been dispensed with from October 4, Consequently, 29

30 shares/convertible debentures can be transferred by way of sale from residents to Non-residents (including transfer of subscribers shares) of an Indian Company in Sectors other than financial Service Sector (i.e. Banks, NBFCs and Insurance) Subject toi. The activities of the investee company are under the automatic route under FDI Policy and transfer does not attract the provision of SEBI (Substantial Acquisition of shared and Takeovers) Regulations ii. The non-resident share holding after the transfer, complies with sectoral limits under FDI policy. iii. The price at which the transfer takes place is in accordance with the pricing guidelines prescribed by SEBI/RBI. The onus of complying with the sectoral cap/limits prescribed under FDI policy as well as other guidelines/regulations would rest with the buyer and seller/issuer Transfer of shares / convertible debentures by way of sale under private arrangement RBI has granted general permission for transfer of shares and convertible debentures by way of sales under private arrangement in respect of a person resident in India to person resident outside India a person resident outside India to a person resident in India However, general permission does not include transfer of shares from residents to non-resident in financial service sector as stated in the above paragraph. Note : Cases of increase in foreign equity participation by fresh issue of shares as well as conversion of preference shares into equity capital is put under general permission provided such increase falls within the sectoral cap in relevant sectors and are within the automatic route. Parties involved in the transaction are a. seller (resident/non-resident), 30

31 b. buyer (resident/non-resident), c. duly authorized agent/s of the seller and/or buyer, d. Bank, branch and e. Indian Company, for recording the transfer of ownership in its books Responsibilities / obligations of the parties All the parties involved in the transaction would have the responsibility to ensure that the relevant regulations under FEMA are complied with and consequent on transfer of shares, the relevant individual limit/sectoral caps/foreign equity participation ceilings as fixed by Government are not breached. Settlement of transactions will be subject to payment of applicable taxes, if any Method of payment and remittance / credit of sale proceeds The sale consideration in respect of the shares purchased by a person resident outside India shall be remitted to India through normal banking channels. In case the buyer is a Foreign Institutional Investor (FII), payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is a NRI, the payment may be made by way of debit to his NRE/FCNR(B) Accounts. However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR(B)/NRO accounts. The sale proceeds of shares (net of taxes) sold by a person resident outside India may be remitted outside India. In case of Fil the sale proceeds may be credited to its special Non-Resident Rupee Account. In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE/FCNR(B) accounts and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to his NRO account subject to payment of taxes The sale proceeds of shares (net of taxes) sold by an OCB 31