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The Reserve Bank of India amends the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004 to update rules for overseas investments, guarantees, restructuring, and individual share acquisitions. Indian parties and resident individuals must follow new conditions for financial commitments, disinvestments, balance sheet restructuring of joint ventures or wholly owned subsidiaries, and employee stock ownership plans. No person faces adverse effects from the retrospective application of these regulations.
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Relative A.P. (DIR) circular: 69/27.05.2011 73/29.06.2011 96/28.03.2012 97/28.03.2012
RESERVE BANK OF INDIA FOREIGN EXCHANGE DEPARTMENT CENTRAL OFFICE MUMBAI-400 001
Notification No.277/2013-RB
May 08, 2013
Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Fourth Amendment) Regulations, 2013
In exercise of the powers conferred by clause (a) of sub-section (3) of Section 6 and sub-section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India hereby makes the following amendments in the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations 2004 (Notification No. FEMA 120/RB-2004 dated July 7, 2004) namely:-
Short Title & Commencement:- (i) These Regulations shall be called the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Fourth Amendment) Regulations, 2013. (ii) Each amendment shall be deemed to have come into force from the dates specified in these Regulations.@
Amendment to Regulation 2 In Regulation 2, in clause (f), for the words “the amount of direct investment by way of contribution to equity and loan and 100 per cent of the amount of guarantees”, the following words, “the amount of direct investment by way of contribution to equity, loan and 100 per cent of the amount of guarantees and 50 per cent of the performance guarantees” shall be substituted and the same shall be deemed to have been substituted with effect from May 27, 2011.
Amendment to Regulation 6 A. In Regulation 6, in sub-regulation 2 (i) (a) after sub-clause (e), the following shall be inserted and the same shall be deemed to have been inserted with effect from May 27, 2011: "(f) Fifty per cent of the value of performance guarantee issued by Indian Party to or on behalf of the JV/WOS. Explanation: In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 400 per cent of the net worth of the Indian Party, the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation.” (b) after sub-clause (f), the following shall be inserted and the same shall be deemed to have been inserted with effect from March 28, 2012: “(g) hundred per cent of the value of the bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party.”
B. In Regulation 6, in sub-regulation (3), in clause (ii), (a) after sub-clause (g) the following shall be inserted and the same shall be deemed to have been inserted with effect from May 27, 2011: "(h) Fifty per cent of the value of performance guarantee issued by Indian Party to or on behalf of the JV/WOS. Explanation: In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 400 per cent of the net worth of the Indian Party, the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation.” (b) after sub-clause (h) the following shall be inserted and the same shall be deemed to have been inserted with effect from March 28, 2012: “(i) hundred per cent of the value of the bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party.”
C. In Regulation 6, (a) the existing sub-regulation (4) shall be substituted with the following and the same shall be deemed to have been substituted with effect from May 27, 2011: "(4) (i) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture / Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture. Notwithstanding the above regulation, the following shall also be permitted. (ii) An Indian Party may extend corporate guarantee on behalf of its first generation step down operating company within the prevailing limit for overseas direct investment. Explanation: Issue of corporate guarantee on behalf of second level or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued.” (b) in sub-regulation (4), after clause (ii), the following clauses (iii), (iv) and (v) shall be inserted and the same shall be deemed to have been inserted with effect from March 28, 2012: "(iii) The indirect resident individual promoters of the Indian party may issue personal guarantee on behalf of the overseas JV / WOS of the Indian party provided the provisions under Regulation 6 are fulfilled by the Indian party and further provided that:
Amendment to Regulation 15 In Regulation 15, after sub-regulation (iii), the following sub-regulation (iv) shall be added and the same shall be deemed to have been added with effect from March 28, 2012: “(iv) 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) as referred to under sub-regulation (iii) may be submitted by the Indian party based on the un-audited annual accounts of the JV / WOS provided: The Statutory Auditors of the Indian party certify that ‘The un-audited annual accounts of the JV / WOS reflect the true and fair picture of the affairs of the JV / WOS’ and That the un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of the Indian party.”
Amendment to Regulation 16 In Regulation 16, for the existing sub-regulation (1), the following sub-regulations (1) and (1A) shall be substituted and the same shall be deemed to have been substituted with effect from June 29, 2011: “(1) An Indian Party may transfer, by way of sale to another Indian Party which complies with the provisions of Regulation 6 above, or to a person resident outside India, any share or security held by it in a JV or WOS outside India subject to the following conditions: the sale does not result in any write off of the investment made; the sale is to be effected through a stock exchange where the shares of the overseas JV/ WOS are listed; if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV / WOS; the Indian Party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and / or export proceeds from the JV or WOS; the overseas concern has been in operation for at least one full year and the Annual Performance Report together with the audited accounts for that year has been submitted to the Reserve Bank; the Indian party is not under investigation by CBI / DoE / SEBI / IRDA or any other regulatory authority in India. (1A) (i) In the following cases, an Indian Party may disinvest, if the amount to be repatriated on disinvestment is less than the amount of the original investment: where the JV / WOS is listed in the overseas stock exchange; where the Indian Party is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; 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 having a net worth of less than Rs.100 crore but investment in an overseas JV/WOS does not exceed USD 10 million. (ii) Such disinvestments shall be subject to the conditions listed in clause (ii) to (vi) of sub-regulation (1) of Regulation 16.”
Insertion of new Regulation in Part I:- After Regulation 16, the following Regulation shall be inserted and the same shall be deemed to have been inserted with effect from May 27, 2011:
