CONTENTS u Chapter-heads I-5 u FDI Policy at a Glance Issued on 17-4-2014 I-15 DIVISION ONE GUIDE TO FDI POLICY 1 BACKGROUND OF FOREIGN INVESTMENT IN INDIA 1.1 Introduction 1.3 1.1-1 Consolidated Circular on FDI 1.3 1.2 Foreign Exchange Policy 1.4 1.3 Control over Industry and Commerce 1.4 1.4 SEBI 1.5 1.5 Ministry of Corporate Affairs 1.5 2 FOREIGN DIRECT INVESTMENT (FDI) 2.1 Modes of Foreign Investment in India 1.6 2.1-1 Policy of FDI 1.6 2.1-2 Who can make FDI 1.8 2.1-3 Calculation of Total Foreign Investment 1.8 2.1-4 Meaning of minimum capitalisation 1.10 2.1-5 Downstream investment by Indian companies owned and controlled by non-resident entities 1.10 2.1-6 Share Swap 1.11 2.1-7 Meaning of capital 1.12 2.2 Acquisition of Indian company by non-resident entity where there is sectoral cap 1.12 I-7
I-8 CONTENTS 3 INDUSTRIAL POLICY TOWARDS FOREIGN INVESTMENT IN INDIA 3.1 Industrial Policy towards foreign investment in India 1.13 3.1-1 Items reserved exclusively for public sector 1.13 3.1-2 Products requiring licensing 1.14 3.1-3 Procedure for industrial license 1.14 3.1-4 No locational restrictions 1.15 3.1-5 Fresh tie-up or collaboration with different partner even if there was earlier collaboration with another partner 1.15 3.2 Procedure for Large and Medium Industries 1.15 3.2-1 Application for licensing 1.16 3.2-2 Filing of IEM 1.17 3.2-3 Classification of products 1.18 3.2-4 Monthly production return 1.18 3.3 Procedure regarding foreign investment 1.18 3.3-1 Foreign Investment in MSE (Micro and Small Enterprises) (earlier termed as Small scale industries) 1.18 3.3-2 Items reserved for MSE (Micro and Small Enterprises) (earlier termed as Small scale industries) 1.20 3.3-3 Foreign investment in existing companies 1.22 4 SECTORAL INVESTMENT CAP FOR FDI 4.1 Sectoral Investment Cap for FDI 1.23 4.1-1 Prohibited sectors 1.23 4.1-2 No limit for FDI in any other Sector/Activity 1.24 5 PROCEDURE FOR APPROVAL FOR FDI IN INDIA 5.1 Procedure for approval for FDI in India 1.25 5.1-1 Automatic Route of RBI for Issue of shares by an Indian company 1.25 5.1-2 Activities where automatic route is not available 1.26
CONTENTS I-9 5.1-3 FIPB approval where automatic route not available 1.26 5.1-4 Guidelines for applications 1.27 6 ISSUE OF SHARES UNDER FDI 6.1 Issue of shares under FDI 1.28 6.1-1 Subscription money and issue of shares 1.32 6.1-2 Reporting to RBI on receipt of consideration of shares/ debentures 1.32 6.1-3 Only compulsorily convertible preference shares and/or debentures under FDI 1.33 6.1-4 Bonus shares/rights issues 1.34 6.1-5 Transfer of security invested in FDI 1.34 7 INVESTMENT SCHEMES FOR NRI 7.1 Special schemes for NRI 1.35 7.1-1 FDI by NRI 1.35 7.1-2 Portfolio Investment scheme for NRI 1.36 7.1-3 Separate PIS sub-account by NRI 1.37 7.2 Purchase and sale of shares/convertible debentures by NRI on non-repatriation basis 1.37 7.2-1 NRIs resident of Nepal and Bhutan and citizens of Nepal and Bhutan 1.38 7.3 Purchase by NRI of other securities on repatriation/nonrepatriation basis 1.38 7.3-1 NRI cannot open PF account or post office account but can continue earlier account till maturity 1.39 7.3-2 Derivative contracts by NRI 1.40 7.4 NRI Investment in foreign exchange fully repatriable 1.40 7.5 Investment by NRI/PIO in partnership/proprietary concern 1.40 7.6 NRI can hold and retain property and security acquired when he has resident of India 1.41 7.6-1 Transmission by inheritance without permission 1.41 7.6-2 Rupee Loans to NRI/PIO 1.41
I-10 CONTENTS 7.6-3 Loans/gifts/medical assistance from resident individual to NRI who is close relative 1.41 7.7 Income and sale proceeds of assets held abroad by NRI when he returns to India can be retained abroad 1.41 8 INVESTMENT BY FII, QFI, FPI AND VENTURE CAPITALIST 8.1 Investment by Foreign Institutional Investors [FII] 1.42 8.1-1 Investments by FII 1.42 8.1-2 FII investment in debt instruments 1.43 8.1-3 Investment in tier I and II instruments issued by Banks in India 1.43 8.1-4 FII investment in units in mutual funds 1.43 8.2 Portfolio investment of FII in India 1.43 8.2-1 Derivative contracts by FII/NRI 1.45 8.2-2 Bank Account by FII 1.46 8.2-3 Buy back of shares by company 1.46 8.2-4 Monitoring of FII investment limit 1.46 8.2-5 Custodians of FIIs 1.46 8.3 SEBI Regulations in respect of FII 1.46 8.4 Write off of securities by FIIs 1.47 8.5 Mauritius Route for foreign investment by FII 1.48 8.6 Foreign Venture Capital 1.48 8.6-1 SEBI Regulations in respect of Venture Capital Fund 1.49 8.7 Qualified Foreign Investors (QFI) 1.50 8.8 Foreign Portfolio Investor 1.51 9 GDR/ADR/FCCB/FCEB 9.1 Background of GDR/ADR 1.53 9.1-1 Government Policy 1.54 9.1-2 Relevant definitions 1.54 9.1-3 Issue of shares by International offering through ADR and/or GDR 1.55 9.1-4 Conversion of existing shares into ADR/GDR 1.55
CONTENTS I-11 9.1-5 Sponsored ADR/GDR issue 1.55 9.1-6 Issue of ADR/GDR by unlisted companies 1.56 9.1-7 End use restrictions on proceeds of ADR/GDR 1.56 9.2 GDR and ADR 1.57 9.2-1 American Depository Receipts (ADRs) 1.57 9.3 FCCB and FCEB 1.59 9.3-1 Foreign Currency Exchangeable Bonds (FCEB) 1.61 9.4 Government Directives for issue of GDR/FCCB/FCEB 1.63 9.4-1 Other instructions for issue of ADR/GDR 1.64 9.5 Procedure for issue of Euro Bonds 1.66 9.6 Other aspects of GDR/ADR 1.68 9.6-1 Sale of shares underlying GDR/ADR and re-conversion 1.68 9.6-2 Two way fungibility of GDR/ADR 1.68 9.6-3 Difficulties in Euro Issues 1.68 9.6-4 Taxation Aspects of GDR/ADR 1.69 9.6-5 Control over GDR/ADR is of RBI and Central Government, not of SEBI 1.70 10 OTHER INVESTMENT IN INDIA 10.1 Investment in firm or proprietary concern in India 1.71 10.1-1 Investment by NRI/PIO on non-repatriation basis 1.71 10.1-2 Return of capital invested by NRI 1.72 10.2 Investment in India by Offshore Funds 1.72 10.3 Foreign Direct Investment in LLP in India 1.72 10.4 No FDI in other entities 1.73 10.5 Investment by Foreign Central Bank 1.73 10.6 Investment in units of Domestic Mutual Funds by nonresident investors 1.73 10.7 Foreign investment in Infrastructure Debt Funds 1.73 10.8 Credit enhanced bonds 1.74 11 EXTERNAL COMMERCIAL BORROWING (ECB) 11.1 ECB as per guidelines 1.75
I-12 CONTENTS 11.2 Policy of external commercial borrowings 1.75 11.2-1 Recognised lenders - Sources of ECB 1.76 11.2-2 All-in-cost ceiling on interest, expenses etc. of ECB 1.77 11.2-3 Maturity of ECB 1.78 11.2-4 Security for ECB 1.78 11.2-5 Guarantee by Bank/FI only under approval route 1.80 11.3 End use restrictions on ECB 1.80 11.3-1 Restrictions on end-use when ECB is under approval route 1.82 11.3-2 Parking of funds abroad or in India till actually required 1.83 11.3-3 ECB can be used for investment in overseas JV/ WOS 1.83 11.3-4 Change in end use of ECB proceeds 1.83 11.3-5 Meaning of infrastructure sector for ECB 1.84 11.4 Automatic route of ECB 1.84 11.5 Approval route of ECB 1.87 11.5-1 Loan Registration Number (LRN) 1.89 11.6 Conversion of ECB and secured/unsecured loan into equity shares 1.89 11.7 Prepayment of ECB 1.90 11.8 ECB by SEZ units and developer 1.90 11.9 Approval of AD/RBI changes in terms and conditions of ECB 1.91 11.9-1 Change in the lender 1.91 12 ISSUE OF SECURITIES OF INDIAN ENTITY 12.1 Issue of security to non-resident 1.92 12.1-1 Definitions of certain terms 1.92 12.1-2 Investment by certain persons resident outside India 1.93 12.1-3 Acquisition of right shares issued by Indian company 1.94 12.1-4 Issue of bonus shares 1.95 12.1-5 Issue and acquisition of shares after merger or demerger or amalgamation of Indian companies 1.96
CONTENTS I-13 12.1-6 Issue of shares under Employees Stock Options Scheme to persons resident outside India 1.96 12.1-7 ADR/GDR based ESOP to employees in knowledge based sector 1.97 12.1-8 Government dated securities by Multilateral Development Bank 1.97 12.2 Repatriation of funds received for purchase of shares 1.97 12.3 Shares/debentures must be issued within 180 days 1.97 13 TRANSFER OF SHARES AND CONVERTIBLE DEBENTURES OF AN INDIAN COMPANY 13.1 Background 1.98 13.1-1 General permission for transfer of shares and convertible debentures in certain cases 1.98 13.1-2 Procedure for receipt of sale consideration from outside India 1.101 13.1-3 Permission of RBI in certain cases for transfer of securities 1.102 13.1-4 Transmission by inheritance without permission 1.105 13.1-5 Transfer of participating interest/rights in oil fields 1.105 13.2 Remittance of sale proceeds of security 1.105 13.3 Pledge of securities of company incorporated in India by non-resident investors 1.106 14 ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA 14.1 Background 1.107 14.1-1 Acquisition and Transfer of Property in India by an Indian Citizen resident outside India 1.107 14.1-2 Acquisition and Transfer of Property in India by PIO 1.108 14.1-3 Acquisition by others only through inheritance 1.109 14.2 Sale of immovable property by NRI/PIO 1.109 14.3 Immovable property for carrying on business 1.110 14.4 Sale/purchase by foreign embassies/diplomats 1.110 14.5 Encashment of security of immovable assets created for purpose of ECB 1.110
I-14 CONTENTS 15 ESTABLISHMENT OF BRANCH OR OFFICE IN INDIA 15.1 Background 1.112 15.1-1 Branch office or liaison office in India only with approval of RBI 1.113 15.1-2 Liaison offices in India by foreign insurance companies 1.115 15.1-3 Project office in India without permission of RBI in certain cases 1.115 15.2 Branch office in SEZ 1.116 15.3 Account by branch/project office of person resident out of India 1.116 15.3-1 Remittance of profit or surplus by branches 1.116 15.3-2 Submission of Annual Activity Certificate to AD and Income Tax Authorities 1.116 15.3-3 Closure of liaison office or branch 1.117 15.4 Permitted activities by branch in India 1.117 15.5 Compliances under Company Law on branches of foreign companies 1.118 DIVISION TWO CONSOLIDATED FDI POLICY u Consolidated FDI Policy Issued on 17-4-2014 2.3 DIVISION THREE A.P. (DIR SERIES) CIRCULAR 2014 u A.P. (DIR Series) (2013-14) Circular No. 123, dated 16-4-2014 3.3 u A.P. (DIR Series) (2013-14) Circular No. 124, dated 21-4-2014 3.17