Procedural Aspects in Inbound

Investments

07 November 2015

Impact Seminar on
Inbound Investment
Policies, Opportunities & Challenges

By NIRC of ICSI

Vijay Gupta
ACMA, FCA, FCS
 Agenda
Inbound Investment Schemes (only snap shot)
FDI/ECB Policy references
FIPB
Reporting of FDI Inflow
Reporting of Issue of Shares
Transfer of shares
Downstream Investments
Annual Return of Liabilities & Assets
Schedule 4 of FEMA 20
FPIs & NRIs under Portfolio Investments Scheme
Limited Liability Partnership
Remittances
External Commercial Borrowings
Compounding
 FEM (Transfer or Issue of Security by a Person Resident
Outside India) Regulations, 2000: FEMA 20
Sch. 1 Foreign Direct Investment (FDI) Scheme
Sch. 2 Purchase/Sale of shares or convertible debentures or warrants of
& 2A an Indian Company by Registered Foreign Portfolio Investor (RFPI)
under Foreign Portfolio Investment (FPIs) Scheme (Registered
FIIs under Sch. 2 subsumed with Sch. 2A)
Sch. 3 Purchase/Sale of Shares and/or Convertible Debentures by an NRI
on a stock exchange in India on repatriation and/or non-
repatriation basis under Portfolio Investment Scheme
Sch. 4 Purchase and Sale of Shares or Convertible Debentures or
Warrants] by NRI, on Non-repatriation basis
Sch. 5 Purchase and Sale of Securities other than Shares or Convertible
Debentures of an Indian company by a person resident outside
India
Sch. 6 Investment in an Indian venture capital undertaking by a
registered Foreign Venture Capital Investor
Sch. 7 Indian depository receipts by eligible companies resident outside
India
Sch. 8 Scheme for investment by Qualified Foreign Investors in equity
shares (Subsumed under Sch. 2A)
Sch.9 Scheme for Acquisition/Transfer by a person resident outside
India of capital contribution or profit share of (LLPs)
Sch. 10 Depository Receipts Scheme, 2014 (DRs)
Composite Caps: Foreign investments, direct or indirect, under Schedule 1(FDI), 2
(FII), 2A (FPI), 3 (NRI), 6 (FVCI), 8 (QFI), 9 (LLPs) and 10 (DRs)
vide PN 8 dated 30 July 2015 by DIPP
 Foreign Investment in India- Schematic
Representation
Foreign Inbound Investments

Other Investments on
Foreign Foreign Venture
Foreign Direct Investments Non-
Portfolio Capital
Investments (G-Sec, NCDs, Repatriable
Investments Investments etc.) basis

Company LLP
Sch. 1, 10 Sch. 9

NRIs/ FIIs/ FIIs/RFPIs, NRIs,

SEBI Regd. NRIs,
Automatic Govt. PIOs QFIs/ PIO, QFIs
FVCIs/AIFs PIOs
Route Route Sch. RFPIs Long Term Investors
Sch. 6 Sch. 4
3 Sch. 2, Sch. 5
2A, 8

Persons Resident VCF, IVCUs

Outside India
 FDI/ECB Policy
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India)
Regulations, 2000 FEMA 20
Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 FEMA
03
Department of Industrial Policy and Promotion, Ministry of Commerce & Industry,
Government of India (DIPP) Circular on Consolidated FDI Policy (last updated on May 12,
2015)
RBI Master Circular on Foreign Investments in India dated 01 July 2015 (updated on
16 July 2015)
External Commercial Borrowings and Trade Credits dated 01 July 2015 (updated on 06
October 2015)
RBI FAQs - Foreign Investments in India 10.02.2015
No FAQs on ECB

FIPB Review books 2014, 2011-2013; 2010; 2009; 2008; FAQs by FIPB for eFiling
Annual Return on Foreign Liabilities and Assets (FLA return) 18 June 2014 for LLP also
FDI inflows - FIPB/SIA; Acquisition of Existing Shares; & Automatic Route of RBI: Website
of DIPP.nic.in
ECB/FCCB data under Automatic/Approval Routes: Monthly Press Release by RBI
In case of any conflict between FDI Circular and FEMA Regulations, the relevant FEMA
Notification will prevail. The procedural instructions are issued by the Reserve Bank of
India vide A.P.Dir. (Series) circulars
Read Circulars, latest Master Circulars, FAQs as Regulations may not be amended
simultaneously by Notification.
 Foreign Direct Investment into an Indian company
Kinds of Investment
Automatic Route no prior approval from the RBI/ Government
Approval Route prior approval of the FIPB required (no separate RBI
approval)
Mode of Investment
Greenfield: Setting up a new JV/ WOS (fresh issue of shares)
Brownfield: Relating to existing investments/ business activities:

Brownfield
Investment

Share Rights/ Bonus

Gift of shares Share swap issue/ ESOP/
Purchase
Sweat Equity

Conversion of ECB/ Merger/Demerger/

pre-incorp Amalgamation/
payables/ import Reconstruction
payables, royalty,
other legitimate
dues etc.
 Types of instruments: Capital
Equity shares
Fully, compulsorily & mandatorily convertible Preference Shares
Fully, compulsorily & mandatorily convertible Debentures
Differential voting rights shares as to
Permitted
dividend, voting or otherwise
Non-convertible, optionally convertible or To comply with ECB norms
partially convertible instruments
considered as debt
Warrants: Upfront 25% of consideration; Conversion in 18 months
Upfront pricing/ conversion formula
Partly paid Equity Shares only: Upfront 25% of consideration including
premium; Full payment in 12 months; NA Listed Indian company: issue size
exceeds rupees five hundred crore and the issuer complies with Regulation 17 of
the SEBI (Issue of Capital and Disclosure Requirements(ICDR)) Regulations
regarding monitoring agency. Listed Indian company: issue size exceeds rupees
five hundred crore and the issuer complies with Regulation 17 of the SEBI (Issue of
Capital and Disclosure Requirements(ICDR)) Regulations regarding monitoring
agency.
Optionality clauses:
Buy-back of securities at the price prevailing/value determined at the
time of exercise of the optionality so as to enable the investor to exit
without any assured return. Minimum lock-in period of one year.
Issue of Non convertible/ redeemable bonus
preference shares or debentures

To non-resident shareholders, including the

depositories that act as trustees for the ADR/GDR
holders, by way of distribution as bonus from its
general reserves under a Scheme of Arrangement
approved by a Court in India under the provisions of
the Companies Act, as applicable, subject to no-
objection from the Income Tax Authorities.
 FEMA & Valuation
FDI
Issue of shares Transfer of shares from Transfer of shares from
Resident to Non-Resident Non-Resident to Resident

Price of shares shall not be Price of shares shall not be

Listed Company Unlisted Company less than the fair more than the fair
value worked out as per value worked out as per
any internationally any internationally
accepted pricing accepted pricing
methodology methodology
Internationally
Market Price as per accepted pricing for valuation of shares for valuation of shares
SEBI Preferential Methodology for on arms length basis on arms length basis
Allotment valuation of shares on
arms length basis Convertible instruments:
Based on conversion formula which has to be determined /
fixed upfront. Price at the time of conversion should not be
less than the fair value worked out, at the time of issuance of
these instruments.
Only Certification Valuation & Certification
by SEBI registered by SEBI registered NRIs on non-repatriation basis under Schedule
Merchant Merchant Banker/
Banker/
4 of FEMA 20: No express provision for valuation
Chartered Accountant
Chartered Accountant
Pricing not applicable for transfers between two
Non-Residents
Non-residents (including NRIs): Subscription to its
Memorandum of Association: Made at face value
SEZs against import of capital goods into equity
subject to their eligibility to invest under the FDI
scheme shares: Committee of Development Commissioner

Preferential Allotment Pricing Guideline under SEBI (ICDR) Regulations 2009:

Price not less than the higher of Avg. weekly high and low closing price over a trailing six month period, or a trailing
two week period, from the "relevant date of transaction.
Relevant Date means date thirty days prior to the date of GM of shareholders
 ISSUE OF INSTRUMENTS
Issue of Right Shares equity, preference & debentures
Listed Price as determined under SEBI
Pricing of Right issue Not less than price at which the
Unlisted offer on right basis is made to
resident shareholders
Additional allocation of rights share Subject to sectoral cap
by residents to non-residents
Issue of Bonus Shares
Subject to sectoral cap, Companies Act & SEBI
Acquisition of shares under Scheme of Merger/
Demerger/Amalgamation/Reconstruction of two or more Indian
companies
Subject to sectoral cap
Not engaged in prohibited activities
The transferee or the new company files a report within 30 days
with the Reserve Bank giving full details of the shares held by persons
resident outside India in the transferor and the transferee or the new
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.
 Issue of shares under ESOP/Sweat equity
Indian company may issue employees stock option and/or sweat equity
shares to its employees/directors or employees/directors of its holding
company or joint venture or wholly owned overseas subsidiary/subsidiaries
who are resident outside India, provided that :
a) The scheme has been drawn either in terms of regulations issued under the
Securities Exchange Board of India Act, 1992 or the Companies (Share
Capital and Debentures) Rules, 2014 notified by the Central Government
under the Companies Act 2013, as the case may be.
b) The employees stock option/ sweat equity shares issued to non-resident
employees/directors under the applicable rules/regulations are in
compliance with the sectoral cap applicable to the said company.
c) Issue of employees stock option/ sweat equity shares in a company
where foreign investment is under the approval route shall require prior
approval of the Foreign Investment Promotion Board (FIPB) of Government
of India.
d) Issue of employees stock option/ sweat equity shares under the
applicable rules/regulations to an employee/director who is a citizen of
Bangladesh/Pakistan shall require prior approval of the Foreign
Investment Promotion Board (FIPB) of Government of India.
 Mode of payment

(i) Inward remittance through normal banking channels

(ii) Debit to NRE / FCNR account of a person concerned

maintained with an AD category I bank

(iii) Conversion of royalty / lump sum / technical knowhow

fee/ Legitimate due for payment or conversion of ECB, shall
be treated as consideration for issue of shares

(iv) Conversion of import payables / pre incorporation expenses

/ share swap can be treated as consideration for issue of
shares with the approval of FIPB

(v) Debit to non-interest bearing Escrow account in Indian

Rupees in India which is opened with the approval from AD
Category I bank and is maintained with the AD Category I
bank on behalf of residents and non-residents towards
payment of share purchase consideration
 Escrow Account
For open offers / exit offers and delisting of AD Category I banks can
shares open Escrow account and
Special account of non-
resident corporate
Non-interest bearing Escrow accounts in Indian Permitted to open and
Rupees in India on behalf of residents and/or maintain, without prior
non-residents, towards payment of share approval of RBI
purchase consideration and/or provide Escrow
facilities for keeping securities to facilitate FDI
transactions
Escrow accounts for securities by SEBI Permitted to open and
authorised Depository Participants maintain, without RBI
approval
Fund or non-fund based facilities Not permitted
Issue of fresh shares to the non-residents Applicable
Transfer of shares from/to the non-residents Applicable
Validity of Escrow Account Maximum 6 months
Terms of Escrow account Shall be laid down strictly in
Escrow agreement, Share
purchase agreement,
conditions of issue of
shares
 Prior permission of the Reserve Bank
(i) Transfer from residents to non-residents by way of sale: Non-resident
acquirer proposes deferment of payment of the amount of consideration. In
case approval is granted for the transaction, the same should be reported in
Form FC-TRS to the AD Category I bank, within 60 days from the date of
receipt of the full and final amount of consideration.

(ii) A person resident in India, who intends to transfer any security, by

way of gift to a person resident outside India. Gift does not exceed
5 per cent of the paid-up capital of the Indian company / each
series of debentures / each mutual fund scheme; Sectoral cap limit is
not breached; The transferor (donor) and the proposed transferee
(donee) are close relatives as defined in Section 6 of the Companies
Act, 1956; Value of security to be transferred together with any
security already transferred by the transferor, as gift, to any person
residing outside India does not exceed the rupee equivalent of USD
50,000 per financial year.

(iii) Transfer of shares from NRI to NR requires the prior approval of the
Reserve Bank of India.

(iv) Transfer is at a price which falls outside the pricing guidelines specified by the
Reserve Bank
 e-FIPB___Revised filing procedure
Once the e-filing of the application is completed, the application needs to file/courier only
SINGLE copy of the printed version of the online application, along with the duly
authenticated copy of the documents attached with the application.

Global Reach -Apply from anywhere in the world! Access your status from anywhere in the
world! Transact while on a move!

E-communication - communication between the applicant, FIPS and other ministries/

departments is online.

Quicker communication- All the correspondence including updates/ decisions are

communicated through SMS/emails

Quicker processing- FIPS forwards the application online to the concerned ministries for
processing, queries are raised online eliminating physical delivery and loss of time due to
postal delays.

Less Paperwork - Single signed copy only needed (for record) instead of present multiple
sets of the application.

SMS/email alert- Regular alerts are sent to the applicants related to the queries raised by
the administrative ministries, inclusion of the proposal in the scheduled FIPS meeting and
decisions.

Time saving- E-correspondence between applicant and ministries and also between
ministries themselves avoids delays adding to speed and efficiency.

Transparency and security: all transactions and correspondences are recorded online and
are secure.

Query module- Any doubts? A user can raise a query online which shall be replied by the
relevant ministry.
Important issues in reporting / compliance
requirements
KYC and documentation if funds received from entity/person other
than foreign investor KYC from both the entities, and letter of
confirmations from both the entities
KYC in case of nominee if funds received / not received from
nominee
Obtaining FIRC from AD banks and description therein
Time taken by AD-Bank to peruse the documents
Date of fair valuation certificate (sometime on format, contents, etc.)
Reconciling of shareholding pattern as per RBI records: past issues
/ transfer of shares/ NR to NR transfer
Appropriateness of main object clause in the Memorandum of
Association
Determining correct NIC Codes 2008
Registered office address
Changes in AD Bank post receipt of funds but before issue of shares
Interpretation Sectoral aspects with AD-Banks
Conversion of ECB whether interest due covered (Legitimate due)?
 Reporting of FDI Inflow
Action by
Form Supporting Time period Regional Office Non-compliance
concerned
Advance Reporting FIRC/s/ Debit Not later Allotment of Contravention
Form thru AD certificate than 30 Unique under FEMA
Bank for evidencing days from Identification
shares/FCCD/FCP receipt of the date of Number (UIN) for Attract penal
S/Warrants remittance receipt the amount provisions
KYC report on reported
non-resident
investor

Remittance received from entity other than foreign investors - KYC and documentation:
Investor name matches with FIRC/ KYC: If different NoC from Remitter and Investor, Nature of
relationship between Remitter and Investor, Letter form Investor, Board resolution of Investee
Company
No KYC if debit to NRE/ FCNR(B)
AD Bank letter/ debit certificate for NRE/ FCNR(B) transfer: Name, account type, amount, date
of debit
Amount in INR/FC matches with FIRC/Bank certificate
Copy of approval letter if under Approval Route
In FIRC: Name of beneficiary; remitter bank; remitter; date of credit; INR equivalent; Purpose of
remittance mentioned in FIRC
For each upfront/ call payment
 FDI NIC Codes Reporting under FDI Scheme

Indian companies are required to report the NIC Codes in the

FCGPR and FCTRS forms as per the NIC 2008 version,
henceforth.

A uniform State and District code list for reporting of details

of foreign direct investment by Indian companies in Form
FCGPR. The list can be accessed on the RBI website
(www.rbi.org.in - FEMA State and District Code List).

Mapping of Activities/ Sectors by DIPP -

http://dipp.nic.in/English/acts_rules/Press_Notes/Mapping_NIC2008_05January2015.pdf.

Circular No. 6 dated July 18, 2014

 Reporting of FDI Inflow

Time frame for issue of shares

Equity/Capital instruments should be issued within 180

days (subject to Companies Act 2013) from the date of
receipt of the inward remittance or by debit to the NRE/FCNR
(B) account/ Escrow account
Else refunded to non-resident investor
Non-compliance will attract contravention of FEMA
In execptional cases, RBI may permit refund/allotment beyond
180 days on merit of each case
 FIRC issues
Abstract from A.P. (DIR Series) Circular No.96 Dated 20th January, 2014
Note should, however, be taken that KYC in respect of the remitter, wherever
required, is a joint responsibility of the bank that has received the remittance as
well as the bank that ultimately receives the proceeds of the remittance. While
the first bank will be privy to the details of the remitter and the purpose of the
remittance, the second bank, will have access to complete information from the
recipients perspective. Besides, the remittance receiving bank is required to
issue FIRC to the bank receiving the proceeds to establish the fact the
funds had been remitted in foreign currency.

Abstract from RBI/2010-11/315-DPSS (CO) EPPD No. 1309 / 04.03.01 / 2010-

11 dated December 13, 2010
Credit to NRE account through RTGS / NEFT /NECS / ECS Issuance of
Foreign Inward Remittance Certificate (FIRC):
FIRC should not be issued against remittance for credit to NRE account.

If the proceeds of inward remittance received are remitted in foreign currency

itself to the beneficiarys banker, then FIRC is to be issued by the bank which
has received the proceeds in foreign exchange, i.e., the bank which converts the
foreign currency into rupees is required to issue FIRC.
 Customer's Request Letter cum declaration & undertaking Form
Receipt of the inward remittance in foreign currency
Date:
To,
The Branch Manager
ICICI Bank Ltd.
___________________

Dear Sir/Madam,

This is with reference to your email/letter dated ____________ regarding receipt of the inward
remittance in foreign currency for an amount of ___________________ .

We request you to credit the same to our account as per the details given below.

Name & address of remitter/ Amount (in Purpose of Account Entry Route
investor foreign remittance Number (Automatic or under
currency Govt. approval)*

*In case the entry route is Government approval route, copy of FIPB approval is being
enclosed herewith.

We confirm that we have complied with all the applicable rules and regulations issued
under Foreign Exchange Management Act, 1999 (FEMA) by RBI from time to time on
Foreign Direct Investment (FDI) in India.
We confirm that we are eligible to receive the funds towards issue of equity shares or
mandatorily & fully convertible debentures or mandatorily & fully convertible preference
shares under FDI scheme under Automatic Route or Government Route.
We further confirm, declare and undertake that:
S/ Facet : Response [Please
N indicate Yes, No, or
Not Applicable (NA)]
I. The overseas remitter/investor Mr. / M/s _____ ______________ (name :
& address) is an eligible remitter/investor under FDI scheme and is
not a citizen and/or is an entity registered in Pakistan & Bangladesh.
II. As the overseas remitter/investor is either a citizen or an entity :
registered in Bangladesh or Pakistan, a copy of approval of Foreign
Investment Promotion Board (FIPB) of Government of India is enclosed
herewith.
III. As overseas remitter/investor is an erstwhile OCBs incorporated :
outside India, approval of the Government of India (if the investment is
through the Government Route) or approval of the Reserve Bank (if
the investment is through the Automatic Route) is enclosed. Erstwhile
OCB should submit a certification from RBI that it is not in the
adverse list being maintained with the RBI.
IV. We are not engaged in any prohibited activities/sectors listed as per :
current FDI Policy of Government of India.
V. That the equity instruments shall be issued within 180 days from :
the date of receipt of the inward remittance or by debit to the
NRE/FCNR (B) account of the non-resident investor. In case, the
equity instruments are not issued within 180 days from the date of
receipt of the inward remittance or date of debit to the NRE/FCNR (B)
account, the amount of consideration so received would be refunded
immediately to the non-resident investor by outward remittance
through normal banking channels or by credit to the NRE/FCNR(B)
account (as the case may be).
We know that non-compliance with the above provision would be
reckoned as a contravention under FEMA and could attract penal
provisions.
S/ Facet : Response [Please
N indicate Yes, No, or
Not Applicable (NA)]
VI. After issue of shares (including bonus and shares issued on rights :
basis and shares issued on conversion of stock option under ESOP
scheme)/convertible debentures/convertible preference shares, we
shall file Form FC-GPR through you to the RBI not later than 30
days from the date of issue of shares.
VII. Foreign Direct investment in Partnership Firm/Proprietary :
Concern (applicable only if the investee entity is a Partnership
Firm/ Proprietary Concern):
We declare that the inward remittance is by way of contribution to
the capital of our partnership firm/our proprietary concern on non-
repatriation basis and our partnership firm/ proprietary concern is
not engaged in any agricultural /plantation or real estate
business (i.e dealing in land and immovable property with a view
to earning profit or earning income there from) or print media sector.
The existing regulations issued by SEBI/RBI & FEMA regulations on
Foreign Direct Investment in India have been complied with.
We request you to kindly issue FIRC for the above FDI remittance, and authorize you to debit
banks charges for issuance of FIRC.
We enclose herewith duly signed Advance Reporting Form (ARF) and request you to report the
above FDI remittance to the RBI along with KYC form of the remitter and a copy of FIRC.

Yours faithfully,
For ____________

Authorized Signatory
Name -
Designation -
Company Name
Customer letter to include below stated declarations and
documents for FDI through the following mode:
Foreign investment towards issue of ADRs / GDRs

We declare that the inward remittance is towards issue of ADRs/ GDRs and we are
eligible to issue ADRs / GDRs in accordance with the Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism Scheme
,1993 and subsequent guidelines issued by Ministry of Finance , Government of India. The
existing regulations issued by SEBI, FEMA and RBI Guidelines on the investment have been
complied with.

Foreign investment towards issue of shares under ESOPs (Employee Stock Option
Scheme)

We declare that the inward remittance is towards issue of shares under ESOPs (Employee
Stock Option Scheme) .The existing regulations issued by SEBI FEMA and RBI Guidelines
on the investment have been complied with.

ESOP is to be submitted to Mr./Ms.______________ who is an employee (not resident in

Pakistan) of our firm ____________/of our JV/WOS firm ______________/ of our subsidiary
firm______________ and the face value of the shares to be alloted under the scheme to the
non-resident employee does not exceed 5 percent of the paid up capital of the issuing
company.

For ____________

Authorized Signatory
 Reporting of Issue of Shares
Reporting of Issue of Fresh Shares /Partly paid shares/Bonus /Rights Shares
/ESOP/ Convertible Debentures / Convertible Preference Shares /Conversion of
ECB / Royalty / Lumpsum Technical Know-how Fee / Import of Capital Goods
by SEZs /Pre-operative/Pre-incorporation Expenses/Legitimate dues/
Amalgamation/ Merger

Action by
Time
Form Supporting Regional Office Non-compliance
period
concerned

Form FC- A certificate from Not later Taking on record Contravention

GPR duly Company Secretary than 30 the shareholding under FEMA
filled up and A certificate from SEBI days from pattern
signed by registered Merchant the date of Attract penal
MD/Director/ Banker or Chartered issue provisions
Secretary of Accountant for
Company valuation
Reconciliation of shareholding pattern at RBI end (Fresh issue, transfers,
reduction, merger, transfers from NR to NR etc.) Previous RBI Acks, duly
approved Form FC-TRS
Routed through Bank; Latest format; FDI registration number if existing
company with FDI; State & District Code; Constitution of NR/Address/ Date of
incorporation; Surplus/ Shortage; UIN details
Inapplicable clauses duly authenticated
On conversion to equity, only plain paper reporting is to be made.
Onus of compliance with the sectoral/statutory caps on foreign investment and
attendant conditions, if any, shall be on the company receiving foreign investment
 Conversion of shares other than cash1/3
Nature of
Transaction Conditions to be fulfilled
permission
Conversion of ECB General Activity covered under Automatic
due for payment or permission Route, or obtained FIPB approval
not into shares Post conversion equity within the
/convertible sectoral cap
debentures Pricing Guidelines adhered to
Against lump sum General Subject to entry route, sectoral cap
technical know-how permission & Pricing Guidelines
fee, royalty into Compliance with applicable tax laws
equity / preference
shares
Share Swap - FIPB Irrespective of the amount,
shares approval valuation of shares to be made by a
Merchant Banker registered with
SEBI or an Investment Banker
outside India registered with
appropriate regulatory authority in
the host country
FIPB approval for Indian leg of FDI
 Conversion of shares other than cash 2/3
Import of capital Import in accordance with Exim Policy
goods/machinery/equipment Independent valuation by third party entity,
(excluding second hand) into preferably by an independent valuer from the
equity shares country of import along with
documents/certificates issued by the customs
authorities towards assessment of the fair-
value of such imports
Beneficial ownership and identity of the
Importer Company as well as overseas entity
Conversions into FDI being done within 180
days from date of shipment of goods
Second-hand machinery excluded from the
purview of this provision
Pre-operative/pre- FIRC for remittance for expenditure incurred
incorporation expenses Verification and certification by statutory
(including payments of rent auditor
etc.) into equity shares Payments made directly to company.
Current Account Rules: Remittances exceeding Payments made through third parties citing
five per cent of investment brought into India or
USD 100,000 whichever is higher, by an entity in the absence of a bank account or similar such
India by way of reimbursement of pre-incorporation reasons not allowed
expenses
Capitalization within 180 days
Under the Government/FIPB Special resolution of the company; and subject
route to pricing guidelines and appropriate tax
clearance
 FDI - Issue of equity shares under the FDI Scheme against
Legitimate Dues . 3/3

Issue of equity shares against any other funds (Legitimate Dues) 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.

Circular No.31 dated September 17, 2014

 Conversion of ECB into Equity
In case the ECB liability, denominated in foreign currency and / or import of capital goods, etc. is
sought to be converted by the company, it will be in order to apply the exchange rate prevailing on
the date of the agreement between the parties concerned for such conversion. Reserve Bank will
have no objection if the borrower company wishes to issue equity shares for a rupee amount less
than that arrived at as mentioned above by a mutual agreement with the ECB lender. It may be
noted that the fair value of the equity shares to be issued shall be worked out with reference to the
date of conversion only.

FEMA
1. It is under Automatic Route no prior or post approvals required from RBI/FIPB.
2. ECB, due for payment or not, eligible to be converted into equity if ECB was taken in
compliance with ECB regulations.
3. Equity shares can be issued to the ECB Lender entity.
4. To obtain consent from ECB lender for such conversion; supported by Indian Companys Board
Resolution.
5. A Chartered Accountant's Certificate complying with RBI Pricing/Valuation guidelines. The
actual issue price of shares shall not be less than the price determined on the basis of valuation
report.
6. A Chartered Accountant's Certificate certifying the amount outstanding on the date of
conversion.
7. Reporting under Form FC-GPR. No intimation for Inward Remittance Report required to be
furnished to RBI; as not applicable being conversion of ECB.
8. For full conversion: Reporting of the conversion of ECB into equity, in ECB-2 Return. The
words ECB wholly converted to equity should be clearly indicated on top of the ECB-2 form.
Once reported, filing of ECB-2 in the subsequent months is not necessary.
9. In case of partial conversion of ECB, the company shall report the converted portion in Form
FC-GPR to the Regional Office concerned as well as in Form ECB-2 clearly differentiating the
converted portion from the non-converted portion. The words "ECB partially converted to
equity" shall be indicated on top of the Form ECB-2. In the subsequent months, the
outstanding balance of ECB shall be reported in Form ECB-2 to DSIM.
 Conversion of ECB into Equity
Companies Act 2013:

1. Valuation Report by a an independent Chartered Accountant in practice having a

minimum experience of ten years who shall submit a valuation report to the company
giving justification for the valuation. The actual issue price of shares shall not be less
than the price determined on the basis of valuation report.

2. To hold Board meeting to convene EGM for conversion of ECB.

3. To pass a Special Resolution in a general meeting. To hold Extra-Ordinary general

meeting of shareholders. To File with RoC Form MGT.14 u/s 117(3(a).

4. After EGM, to hold Board meeting for allotment of shares by means of resolutions passed
at meetings of the Board; and not by resolution by circulation section 179(3)(c).

5. To file with RoC Form MGT.14 u/s 179(3(c) read with section 117(3)(g).

6. To maintain a complete record of such offers and acceptances in Form No. PAS-5.

7. File with RoC a Return of Allotment in Form PAS-3 with list of allottees stating their
names, address, occupation, if any, and number of securities allotted to each of the
allottees and the list shall be certified by the signatory of the Form PAS-3 as being
complete and correct as per the records of the company; along with the valuation report
by independent chartered accountant in practice having a minimum experience of ten
years.
Pledge of shares of company incorporated in India
Any person being a promoter of a company registered in India (borrowing
company), which has raised external commercial borrowing, may pledge the
shares of the borrowing company or that of its associate resident
companies for the purpose of securing the external commercial borrowing
(ECB) raised by the borrowing company
Shares of an Indian company held by the non-resident investor can be
pledged in favour of an Indian bank in India to secure the credit facilities
being extended to the resident investee company for bona fide business
purposes

Shares of the Indian company held by the non-resident investor can be

pledged in favour of an overseas bank to secure the credit facilities being
extended to the non-resident investor / non-resident promoter of the
Indian company or its overseas group company.

Any person being a non-resident investor of a company registered in India

and listed on a recognised stock exchange/s in India (resident investee
company), may pledge the shares of that company, in favour of a Non-
Banking Financial Company in India, to secure the credit facilities being
extended to that resident investee company for bonafide business
purposes, subject to the AD bank satisfying itself of the compliance of the
conditions stipulated by the Reserve Bank, from time to time, in this regard
 FC-GPR
Reporting of issue of shares
Form FC-GPR has to be duly filled up and signed by Managing Director/Director
/Secretary of the Company and submitted to the Authorised Dealer of the
company, who will forward it to the concerned Regional Office of the Reserve
Bank. The following documents have to be submitted along with Form FC-GPR:
(i) A certificate from our Company Secretary 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
(d) the company has all original certificates issued by authorised dealers in
India evidencing receipt of amount of consideration in accordance with
paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB dated
May 3, 2000.

(ii) A certificate from SEBI registered Merchant Banker / Chartered Accountant

indicating the manner of arriving at the price of the shares issued to the persons
resident outside India.

(iii) Board resolution duly certified by Company Secretary: Since the date of
incorporation, the Company ______ Limited has not carried out any activity
which is not FDI compliant. Further the Company is doing and in future also
will do only such activity which is allowed under FDI Policy issued by DIPP,
Ministry of Commerce and Industry, Govt. of India.
CERTIFICATE TO BE FILED BY THE COMPANY SECRETARY OF THE INDIAN
COMPANY ACCEPTING THE INVESTMENT:

(As per Para 9 (1) (B) (i) of Schedule 1 to Notification No. FEMA 20/2000-RB
dated May 3, 2000)
In respect of the abovementioned details, we certify the following :
1. All the requirements of the Companies Act, 1956 have been complied with.
2. Terms and conditions of the Government approval, if any, have been complied with.
3. The company is eligible to issue shares / convertible debentures/others under
these Regulations.
4. The company has all original certificates issued by AD Category I banks in India,
evidencing receipt of amount of consideration in accordance with paragraph 8 of
Schedule 1 to Notification No. FEMA 20/2000-RB dated May 3, 2000.

Note: If the company doesnt have full time Company Secretary, a certificate
from practicing Company Secretary may be submitted.
(Name & Signature of the Company Secretary) (Seal)

DECLARATION TO BE FILED BY THE AUTHORISED REPRESENTATIVE OF THE

LIMITED LIABILITY PARTNERSHIP:

A certificate from the Chartered Accountant/Cost Accountant/ approved valuer

from the panel maintained by the Central Government, indicating the manner of
arriving at the fair price of the capital contribution/profit shares issued to the persons
resident outside India.
 Branch document checklist- Filing form FC-GPR
Track No:
Key Customer: Yes/No
Product:
Name of customer:______________________________________________________
Case Ref No.: _____________________________________________
Rating : _______________________
Branch: ___________________
Sol ID_________
Sr. No Guideline/Documentation Required Yes/No Remarks
1 Customer request letter for filing of form FC-GPR with
signature verification
2 Completely filled up &duly signed Form FC-GPR
3 A certificate from Statutory Auditors/ SEBI
registered Category I Merchant Banker/Chartered
Accountant indicating the manner of arriving at the
price of share issued to the foreign investor
4 KYC report of the remitter/ investor as per RBI format
5 Copy of FIRC for the funds received
6 Company secretary certificate of the Indian party
accepting the investment
7 Additional Documents Required as per the nature of
investment (Ref: annexure 127)
8 Debit authority letter from the customer for collecting
AD Bank charges
9 Certified copy of board resolution for allotment of
shares/authorised share capital

Signature of CSE/CSM/Branch official responsible:

 FC-GPR-Scrutiny
Company Secretarys Certificate
Submit in original
All the clauses in the certificate must be as per format/ any conditionality mentioned
Registration number of Practicing CS
Indian companys name indicated? (if issued not as a continuation page of FCGPR)
If name of investor/s, the number of shares issued / date of issue mentioned in the
certificate, whether they tally with FCGPR

Chartered Accountants certificate

Submit in original
Subscribe to MoA/ Rights/ Bonus No CA valuation certificate
Valuation based on latest balance sheet and as per erstwhile CCI guidelines (allotment
< 7.4.2010)
Valuation based on Discounted Free Cash Flow (DCF) Method (allotment=> 7.4.2010)
W.E.F 15.7.2014, for unlisted Internationally accepted methodology
Fair Value has to be indicated clearly
Indian companys name is appearing in the certificate
Valuation of equity share as on the date/ near to the date of issue is required CCPS/
CCDs/ warrants
Date of issue of CA certificate be nearest to the date of issue of shares.

ESOPs plain paper reporting for stock options- at the time of issue shares FCGPR
within 30 days- not more than 5% of capital and scheme as per SEBI guidelines
Merger/ Amalgamation Court order - FCGPR (not to exceed sectoral cap activity
permitted as per FDI policy)
ECB conversion in to Equity CA certificate for outstanding ECB, copy of ECB-2
returns
 FCGPR-For checking and reporting to RBI (For Issue of
Shares)
Documents required for initial reporting to RBI:

Certified copy of FIRC.

KYC of the overseas remitter.
Letter from customer addressed to RBI for inward remittance received.
Initial reporting format duly filled.
In case where customer failed to report receipt of inward remittance to RBI through A.D.,
within 30 days from the date of receipt of remittance, a separate request letter clarifying
the reason for delay and also requesting RBI to condone the delay on account of late
submission should be forwarded along with subsequent intimation of inward remittance.

Documents required along with FC GPR Form Part A:

KYC of the overseas remitter (Certified Copy from Remitting Bank.) as per the prescribed
format mentioned in the circular.
Certified copy of FIRC.
CA VALUATION
CS certificate for application of funds.
Certified copy of Board Resolution for issuance of shares.
Acknowledgment from R.B.I. for report of inward remittance OR UIN LETTER ISSUED
BY RBI
If the remittance is under approval route, copy of the FIPB/DIPP approval.
Companies failing to Issue shares/ Convertible debentures within 180 days from the
date of receipt of consideration needs to return the consideration to the foreign investors
or seeks RBIs approval for extension of period for issue of shares/debentures.
MOA of the company required
 Reporting under ESOPs for allotment of equity shares

An Indian company issuing sweat equity shares / employees stock option /

shares issued against exercise of stock option to its employees/directors or
employees/directors of its holding company or joint venture or wholly owned
overseas subsidiary/subsidiaries who are resident outside India shall furnish to
the Regional Office concerned of the Reserve Bank of India under whose
jurisdiction the registered office of the company operates, within 30 days from
the date of issue of employees stock option or sweat equity shares, as per the
Form-ESOP (Annex -13 to Master Circular).
 Foreign Direct Investment-Reporting under FDI Scheme on
the e-Biz platform
A.P. (DIR Series) Circular No.77 Dated 12th February, 2015
Advance Remittance Form (ARF) - used by the companies to report the foreign direct
investment (FDI) inflow to RBI; and
FCGPR Form - which a company submits to RBI for reporting the issue of eligible
instruments to the overseas investor against the above mentioned FDI inflow.

The design of the reporting platform enables the customer to login into the e-Biz portal,
download the reporting forms (ARF and FCGPR), complete and then upload the same onto
the portal using their digitally signed certificates.

The Authorised Dealer Banks (ADs) will be required to download the completed forms,
verify the contents from the available documents, if necessary by calling for additional
information from the customer and then upload the same for RBI to process and allot the
Unique Identification Number (UIN). It has been decided that the ARF and FCGPR services of
RBI will be operational on the e-Biz platform from February 19, 2015. The user manual for the
two services is Annexed to this Circular.

It may be noted that for the present, the online reporting on the e-Biz platform is an additional
facility to the Indian companies to undertake their ARF and FCGPR reporting and the manual
system of reporting as prescribed in terms of A.P. (DIR Series) Circular No.102 dated
February 11, 2014 would continue till further notice.

Steps for a Business User for Application Submission on eBiz

Steps for Processing of Application by AD Bank Advanced Foreign Remittance
Steps for Resubmission of Application
Steps for applicant to apply for refund approval
Steps to process refund approval request
Steps for Processing of Application by AD Bank FC-GPR
 Transfer of shares - includes
Buyback, delisting, exit, open offer/substantial
acquisition/SEBI SAST, capital reduction scheme 1/2
Transferor Transferee
Non-Resident Non-Resident By way of sale or Under Automatic
(other than NRI (including NRIs) gift Route.
and erstwhile With FIPB
OCB) Pricing norms not approval if sector
applicable. under approval
route.
NRIs NRIs By way of sale or Under Automatic
gift Route.
With FIPB
Pricing norms not approval if sector
applicable. under approval
route.

Non-Resident Person resident By way of sale or Under Automatic

in India gift Route.
Pricing norms
applicable.
 Transfer of shares 2/2
Transferor Transferee
NRI and Non-Resident By way of sale or Prior permission
erstwhile gift of RBI.
OCB Pricing norms not With FIPB approval
applicable. if sector under
approval route.
Resident Non-Resident Activities falling under Automatic
including NRIs Route. With FIPB approval if sector
Pricing norms under approval route.
applicable.
Transfer of Shares by Resident which requires Government
approval:
(i) Companies engaged in sector falling under the Government Route. (ii)
Transfer of shares resulting in foreign investments in the Indian
company, breaching the sectoral cap applicable.
Non-Resident can sell shares on a recognized Stock Exchange in India
through a stock broker registered with stock exchange or a merchant banker
registered with SEBI.
Form FC-TRS within 60 days from the date of receipt of amount of consideration.
Onus on transferor / transferee, resident in India.
 Acquisition of shares under the FDI scheme by a non-
resident on a recognized Stock Exchange
A non resident including NRI may acquire shares of a listed Indian company on the stock
exchange through a registered broker under FDI scheme provided that:
i. The non-resident investor has already acquired and continues to hold the control in
accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations;
ii. The amount of consideration for transfer of shares to non-resident consequent to
purchase on the stock exchange may be paid as below:
(a) by way of inward remittance through normal banking channels, or
(b) by way of debit to the NRE/FCNR account of the person concerned maintained with
an authorised dealer/bank;
(c) by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in
India with the AD bank in accordance with Foreign Exchange Management
(Deposit) Regulations, 2000;
(d) the consideration amount may also be paid out of the dividend payable by Indian
investee company, in which the said non-resident holds control as (i) above,
provided the right to receive dividend is established and the dividend amount has
been credited to specially designated non interest bearing rupee account for
acquisition of shares on the floor of stock exchange.

iii. The pricing for subsequent transfer of shares shall be in accordance with the pricing
guidelines under FEMA;
iv. The original and resultant investments are in line with the extant FDI policy and FEMA
regulations in respect of sectoral cap, entry route, reporting requirement,
documentation, etc;
 FC-TRS
Transfer of shares/ convertible debentures/ partly paid shares/ warrants

From Resident to a Non-resident and vice versa

File form FC-TRS with RBI through authorised dealer within 60 days of receipt of
consideration (in quardruplicate)
In respect of the transfer from resident to non resident, the declaration has to be signed by the non
resident buyer, and in respect of the transfer from non-resident to resident the declaration has to be
signed by the non-resident seller.
For any delay in submission, AD Bank to approach RO, RBI
Indian company can record transfer only post approval of Form-FC TRS by AD-Bank
Onus on transferor / transferee, resident in India
Onus on reporting for purchase on recognized stock exchange will be on the
Investee company
Inward remittance subject to KYC norms (KYC check to be carried by remittance receiving
bank)
AD Bank shall certify FC-TRS as being in order
FC-TRS should not be forwarded to RBI. Instead, AD Bank branch will submit two copies
to IBD/FED/Nodal Office of the Bank in Specified Proforma. It in turn will consolidate all
transactions reported by their branched on monthly basis into two statements inflow and
outflow statement; which will be forwarded to CO, RBI in soft copy.
On receipt of certificate from AD Bank, Company may record transfer in its books. If
transfer already effected by Indian company?
On receipt of Statements, RBI may seek information from transferor/ transferee/ their
agents
FCTRS- For checking and reporting to RBI (For the
Sale of Shares)
Transfer of shares from Non -Resident to Resident.

Request Letter/ debit authority for making a remittance

Form A2 & FEMA Declaration as per Banks prescribed format
Consent letter duly signed by the Seller.
Board resolution from remiter if a Company/POA to Broker
Consent letter from Buyer
Share holding pattern of the Indian company (pre & post buy-back)
CA VALUATION OF SHARES OR COPY OF BROKER'S NOTE IF SALE IS
MADE ON STOCK EXCHANGE.
Copy of reporting done to RBI for obtaining the approval.
RBI registration no. stating that the shares held was on repatriation basis.
Form 15 CA & CB
Form FC-TRS (4 sets signed by non-resident)
ID proof of person signing FCTRS form.
POA or Board resolution authorizing person to sign FCTRS form.

DECLARATION FROM THE BUYER TO THE EFFECT THAT HE IS ELIGIBLE

TO ACQUIRE SHARES / COMPULSORILY AND MANDATORILY
CONVERTIBLE PREFERENCE SHARES / DEBENTURES UNDER FDI POLICY
AND PRICING GUIDELINES HAVE BEEN COMPLIED WITH.
 FCTRS- For checking and reporting to RBI (For the Sale of
Shares)

In case of shares transferred from Resident to Non Resident

Request Letter cum debit authority for our vetting charges.

Consent letter duly signed by the Seller.
Consent letter from Buyer
Share holding pattern of the Indian company ( pre & post buy-back)
CA VALUATION OF SHARES OR COPY OF BROKER'S NOTE IF SALE IS
MADE ON STOCK EXCHANGE.
Form FC-TRS (4 sets signed by non-resident)
ID proof of person signing FCTRS form.
POA or Board resolution authorizing person to sign FCTRS form.

DECLARATION FROM THE BUYER TO THE EFFECT THAT HE IS

ELIGIBLE TO ACQUIRE SHARES / COMPULSORILY AND MANDATORILY
CONVERTIBLE PREFERENCE SHARES / DEBENTURES UNDER FDI
POLICY AND THE EXISTING SECTORAL LIMITS AND PRICING
GUIDELINES HAVE BEEN COMPLIED WITH.

FIRC copy
KYC of the Remitter
 Disclose in Balance Sheet

An Indian company taking on record in its books any transfer

of its shares or convertible debenture by way of sale from a
resident to a non-resident and a non-resident to a resident
shall disclose in its balance sheet for the financial year, in
which the transaction took place, the details of valuation of
share or convertible debentures, the pricing methodology
adopted for the same as well as the agency that has
given/certified the valuation.

If Contravened?
To bring the difference form the foreign investor to
comply with pricing guidelines and also to apply for
compounding for contravention of pricing guidelines?
 Online filing of the Foreign Currency Transfer of Shares
(FCTRS)
A.P. (DIR Series) Circular No.9 Dated 21st August, 2015

The design of the reporting platform enables the customer to login into the eBiz portal,
download the reporting form (FCTRS), complete and then upload the same onto the portal
using their digitally signed certificates.

The Authorised Dealer Banks (ADs) will be required to download the completed forms, verify
the contents from the available documents and if necessary, call for additional information from
the customer and then upload the same for RBI to process and allot the Unique Identification
Number (UIN). The FCTRS services of RBI will be made operational on the e-Biz platform from
August 24, 2015. The user manual for this service is Annexed to this Circular.

It may be noted that for the present, the online reporting on the e-Biz platform is an additional
facility to the Indian residents to undertake their FCTRS reporting and the manual system of
reporting as prescribed in terms of A.P. (DIR Series) Circular No.6 dated July 18, 2014 would
continue till further notice.

The following are users and their roles in eBiz application:

Business User:
Register on eBiz portal; Submit application; Make Payment; Provide clarification sought by
the department; View status updates sent by department

AD Bank User:
Process the application; Forward to RBI RO; Raise objection if required; Update status;
Issue certificate

Department User:
Process the application; Raise objection if required; Provide approval; Update status
 Downstream Investments
Investment by Foreign Owned and/ or
Controlled Indian company into another
Indian company
Covers fresh investment and acquisition of
Foreign Co existing shares
> 50%
Regarded as Indirect FDI
Pricing guidelines applicable to Direct FDI
Indian Co will equally apply
Investment/ consideration for transfer > Fair
1% to 100% Value

Downstream
Compliance: Filing of intimation with SIA, DIPP
Indian Co and FIPB within 30 days from date of
investment
Downstream buy-backs also covered by pricing
guidelines
Buy-back price < Current Fair Value
Valuation needs to be done by a Chartered
Accountant or SEBI Regd. Merchant Banker
Anomaly: Downstream investment through
acquisition of shares from NR
Indian company can record share transfer only
on receiving acknowledged Form FC-TRS
 Indirect FDI/Control
Earlier: A company is considered as Controlled by resident Indian citizens if
the resident Indian citizens and Indian companies, which are owned and
controlled by resident Indian citizens, have the power to appoint a majority of
its directors in that company.

Revised: Control shall include the right to appoint a majority of the

directors or to control the management or policy decisions including by
virtue of their shareholding or management rights or shareholders
agreements or voting agreements.

A company is considered as Owned by resident Indian citizens if more than

50% of the capital in it is beneficially owned by resident Indian citizens
and / or Indian companies, which are ultimately owned and controlled by
resident Indian citizens.
Aviation Sector: Substantial ownership and effective control of which is
vested in Indian nationals

SEBI: Right of first refusal and tag along rights do not amount to change
in CONTROL as per Takeover Regulations

In sector which are not prohibited (e.g. retail), Indian operating

companies owned & controlled by Indians, invest downstream into retail
businesses, whether multi-brand, single brand or e-commerce.
 Indirect cases:
Prohibited sectors: Not permitted.
RBI Master Circular: The FDI recipient Indian company at the first level which is
responsible for ensuring compliance with the FDI conditionalities like no indirect foreign
investment in prohibited sector, entry route, sectoral cap/conditionalities, etc. for the
downstream investment made by in the subsidiary companies at second level and so
on and so forth would obtain a certificate to this effect from its statutory auditor on an
annual basis as regards status of compliance with the instructions on downstream
investment and compliance with FEMA provisions.
Indirect foreign investment via Indian Owned & Controlled Company: Telecom, I&B,
Print Media, Single brand retail Trading, Multi Brand Retail Trading, Media,
Pharmaceuticals, Construction and development projects/Real estate
Downstream investments by Indian companies will be subject to the following conditions:
(i) Such a company is to notify SIA, DIPP and FIPB of its downstream investment in the
form available at http://www.fipbindia.com within 30 days of such investment,
even if capital instruments have not been allotted along with the modality of investment
in new/existing ventures (with/without expansion programme);
(ii) Downstream investment by way of induction of foreign equity in an existing Indian
Company to be duly supported by a resolution of the Board of Directors as also a
shareholders agreement, if any;
(iii) Issue/transfer/pricing/valuation of shares shall be in accordance with applicable
SEBI/RBI guidelines;
(iv) For the purpose of downstream investment, the Indian companies making the
downstream investments would have to bring in requisite funds from abroad and not
leverage funds from the domestic market. This would, however, not preclude
downstream companies, with operations, from raising debt in the domestic market.
Downstream investments through internal accruals are permissible.
 Certificate from Statutory Auditor for
Downstream Investment
The FDI recipient Indian company at the first level responsible for
ensuring compliance with the FDI conditionalities like no indirect foreign
investment in prohibited sector, entry route, sectoral cap / conditionalities,
etc. for the downstream investment made by in the subsidiary
companies at second level and so on and so forth would obtain a
certificate to this effect from its statutory auditor on an annual basis as
regards status of compliance with the instructions on downstream
investment and compliance with FEMA provisions.
The fact that statutory auditor has certified that the company is in
compliance with the regulations as regards downstream investment and
other FEMA prescriptions will be duly mentioned in the Directors report in
the Annual Report of the Indian company.
In case statutory auditor has given a qualified report, the same shall be
immediately brought to the notice of the RBI, Foreign Exchange Department
(FED), Regional Office (RO) of RBI in whose jurisdiction the Registered Office
of the company is located and shall also obtain acknowledgement from the
RO of having intimated it of the qualified auditor report.
RO shall file the action taken report to the Chief General Manager-in-
Charge, Foreign Exchange Department, Reserve Bank of India, Central
Office, Central Office Building, Shahid Bhagat Singh Road, Mumbai 400001.
 Annual Return of Liabilities & Assets
A.P. (DIR Series) Circular No. 45 & 133 dated 15 March, 2011 & 20
June 2012, FAQs 18 June 2014
By Indian Companies: Capture statistics relating to Foreign Direct
Investment, both inward and outward
To be filed electronically
Submitted by July 15 of every year to the RBI, Mumbai
To be submitted by all Indian companies which have received FDI and/or
made FDI abroad in the previous year(s) including the current year
Coverage:
Methodology for valuation of foreign liabilities and foreign assets
Nature of activities principal line of business as %, with NIC code (NIC
Codes in the FCGPR and FCTRS forms as per the NIC 2008 version)
Name & country of non-resident investor under FDI
Financial derivatives, Money market instruments
Trade credits, loans, Currency & Deposits
ODI and Portfolio investment overseas
Contingent foreign liabilities
Disinvestments in India and Abroad

The filled in Excel based FLA return should be forwarded through the official
email id of any authorized person like CFO, Director, Company Secretary
etc. Acknowledgement
 Annual Return on Foreign Liabilities & Assets (FLA
Return) (1/2)
Due date of filing FLA Return July 15 every year
Eligible Companies Indian companies which have
received FDI and/or made ODI in
the previous year(s) including the
current year i.e. who holds foreign
Assets or Liabilities in their Balance
Sheets as on 31 March
No outstanding investment in respect of Ned not submit FLA Return
inward and outward FDI as on end-March of
reporting year
If a company has received only share Need not submit FLA Return
application money and does not have any
FDI/ODI outstanding as on end-March of
the reporting year
If the company has not received any fresh Required to submit FLA Return
FDI and/or ODI in the latest year but the
company has outstanding FDI and/or ODI
Registered Partnership Firms (Registered Required to send a request mail to
under Partnership Registration Act) or get a dummy CIN number which
branches or trustees, having any outward will enable them to file the Excel
FDI outstanding as on end-March of the based FLA Return
reporting year
 FLA Return (2/2)

Is it required to submit Annual Yes. FLA Return and APR are two
Performance Report (APR) for ODI, different Returns as per different FEMA
where FLA Return has been Notifications
submitted ?
Who is responsible to file FLA Filled-in Excel based FLA return should
Return? From whose mail ID, the be forwarded through the official email
FLA Return should be e-mailed? ID of any authorized person like CFO,
Director, Company Secretary etc.
Format of FLA Return Updated FLA return to be downloaded
from RBIs website every year by end
of May
Where accounts are not audited FLA Return to be submitted based on
before July 15 unaudited (provisional) account
Revisions from the provisional Revised FLA Return based on audited
information given by company after accounts can be filed by September
accounts get audited end
Non-filing of return before due date Violation under FEMA, Penalty or
prosecution may be initiated
 Partnership Firm / Proprietary Firm
By NRI and PIO:
On non-repatriation basis:
(Not engaged in any agricultural/plantation

or real estate business /print media sector)
Subject to prior permission of RBI in
On repatriation basis consultation with the Government of India.
Generally not permitted by FIPB
Subject to prior approval of RBI in
Other than NRIs/PIO: consultation with the Government of India.
Generally not permitted by FIPB
 Schedule 4 of FEMA 20
NRIs may without any limit, purchase on non-repatriation basis,
shares or convertible debentures of an Indian company issued whether
by public issue or private placement or right issue

Other than 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

By way of inward remittance through normal banking channels from

abroad or out of funds held in NRE/FCNR/NRO account

Sale/maturity proceeds (net of applicable taxes) of shares or convertible

debentures shall be credited only to NRO account

Investment by NRIs under Schedule 4 of FEMA 20 will be deemed to be

domestic investment at par with the investment made by residents.
Press Note No.7 dated 3rd June, 2015

Non-Resident Indian (NRI) means an individual resident outside India who is a citizen
of India or is an Overseas Citizen of India cardholder within the meaning of section 7 (A)
of the Citizenship Act, 1955. Persons of Indian Origin cardholders registered as such
under Notification No.26011/4/98 F.I, dated 19.8.2002, issued by the Central
Government are deemed to be Overseas Citizen of India cardholders.
Vide The Citizenship (Amendment) Act 2015 w.e.f. 06 January 2015 read PN7 dated 03 June 2015
 FPIs & NRIs
Individual holding
Aggregate limit for FIIs
Aggregate limit of 24% can be
increased to the sectoral
cap/statutory ceiling
Aggregate under FDI and Portfolio
Investment Scheme
IPOs only
NRIs through designated ADs
Aggregate limit of 10% can be
raised to 24 per cent
Shares purchased under Portfolio
Investment Scheme cannot be
transferred by way of sale under
private arrangement
FPIs
Below10% of the capital
24% of the capital
Special Resolution of Shareholders
Prior intimation to RBI
Certificate from the Company Secretary
stating compliance of FEMA and FDI
Policy
within the above caps
Permitted
NRIs
up to 5 % of the paid- up capital
Special Resolution of Shareholders
Prior intimation to RBI
Certificate from the Company Secretary
stating compliance of FEMA and FDI
Policy
Except NRIs can transfer shares acquired
under PIS to close relatives
Indian Investee Company eligible to raise the aggregate cap
of 24% for RFPI

An Indian company can raise the 24 per cent ceiling to the sectoral cap /
statutory ceiling, as applicable, by passing a resolution by its Board of Directors
followed by passing a Special Resolution to that effect by their General Body.
Indian company raising the aggregate RFPI investment limit of 24 per cent to the
sectoral cap/ statutory limit, as applicable to the respective Indian company,
should necessarily intimate the same to the Reserve Bank of India, immediately,
as hitherto, along with a Certificate from the Company Secretary stating that
all the relevant provisions of the extant Foreign Exchange Management Act,
1999 regulations and the Foreign Direct Policy, as amended from time to time,
have been complied with.

The Indian Company thus raising the aggregate cap for RFPI investment should
inform Reserve Bank of India, Foreign Exchange Department, Central Office,
Shahid Bhagat Singh Marg, Fort, and Mumbai 400001. The intimation should
necessarily be accompanied by (a) a resolution passed by Board of Directors of
the Company enhancing the FII aggregate cap, (b) A special Resolution to the
effect passed by the shareholders of the Company (c) a certificate from the
Company Secretary stating that all the relevant provisions of the extant
Foreign Exchange Management Act, 1999 regulations and the Foreign Direct
Policy, as amended from time to time, have been complied with, (d) a certificate
from the Company Secretary stating that all the resident shareholders of the
investee company are owned and controlled by residents.
Indian Investee Company eligible to raise the aggregate cap
of 10% for Portfolio Investments by SEBI registered NRI/PIO

This limit for investment by NRI/PIO under Portfolio investment scheme can be
increased by the Indian company from 10 per cent to 24 per cent by passing a
General Body resolution. Indian company raising the aggregate NRI investment
limit of 10 per cent to 24 per cent, should necessarily intimate the same
immediately to Reserve Bank of India, Foreign Exchange Department, Central
Office, Shahid Bhagat Singh Marg, Fort, Mumbai 400001. The intimation should
necessarily be accompanied by (a) a resolution passed by Board of Directors of
the Company enhancing the FII aggregate cap, (b) A special Resolution to the
effect passed by the shareholders of the Company (c) a certificate from the
Company Secretary stating that all the relevant provisions of the extant
Foreign Exchange Management Act, 1999 regulations and the Foreign Direct
Policy, as amended from time to time, have been complied with, (d) a certificate
from the Company Secretary stating that all the resident shareholders of the
investee company are owned and controlled by residents
 Limited Liability Partnerships (LLPs)
FDI in LLPs:
Prior approval from FIPB
Sectors/activities where 100% FDI allowed
No FDI-linked performance related conditions (such as Non Banking
Finance Companies or Development of Townships, Housing, Built-up
infrastructure and Construction-development projects, or Retail sector etc.)
Only by way of cash consideration
Indian company having FDI (direct or indirect irrespective of % of such
foreign investment), permitted to make downstream investment in LLP only
if both the company as well as the LLP is operating in sectors where 100%
FDI allowed, through automatic route
Designated Partner Resident in India under LLP Act and FEMA

Restrictions to LLPs with FDI:

Not in agricultural/plantation activity, print media or real estate business
Not eligible to make any downstream investment
Not permitted to avail ECBs
RFPIs/FIIs/QFIs and FVCIs not permitted to invest in LLPs

Conversion of a company with FDI, into an LLP, allowed only if above

stipulations are met and with the prior approval of FIPB
 FDI in an LLP
FDI in an LLP either by way of capital contribution or by way of acquisition /
transfer of profit shares, would have to be more than or equal to the fair price
as worked out with any valuation norm which is internationally accepted/
adopted as per market practice (hereinafter referred to as fair price of capital
contribution/profit share of an LLP) and a valuation certificate to that effect
shall be issued by a Chartered Accountant or by a practicing Cost
Accountant or by an approved valuer from the panel maintained by the
Central Government.

Form FOREIGN DIRECT INVESTMENT-LLP-(II)

Declaration regarding transfer of capital contribution/profit shares of an

Limited Liability Partnership from resident to non- resident / non-resident
to resident

Certificate indicating fair value of shares from the Chartered Accountant/Cost

Accountant/ approved valuer from the panel maintained by the Central
Government.
 LLP
Reporting Requirements
Receipt of consideration for capital contribution
or profit share Within 30 days
Form Foreign Direct Investment LLP(I)
Copies of FIRC
KYC report of non-resident investor
RBI will allot UIN for each remittance
Transfer of capital contribution or profit share
between Non-Resident and Resident Within 60
days
Form Foreign Direct Investment LLP(II)
Non-Resident to Non-Resident transfer
FIPB approval required
No specific reporting specified
 Remittance
Sale proceeds of shares is remittance of asset governed by The Foreign Exchange
Management (Remittance of Assets) Regulations 2000 under FEMA.

Bank can allow remittance of sale proceeds of a security (net of applicable taxes) to the
seller of shares resident outside India, provided the security has been held on repatriation
basis, the sale of security has been made in accordance with the prescribed guidelines
and NOC / tax clearance certificate from the Income Tax Department has been produced.

Repatriation of Dividend: Without any restrictions (net of applicable taxes) being

Current Account Transactions. The rate of dividend on convertible preference shares
issued under these Regulations shall not exceed 300 basis points over the Prime
Lending Rate of State Bank of India prevailing as on the date of the Board meeting of
the company in which issue of such shares is recommended. Dividend on shares
pending FCGPR registration is permitted.

Repatriation of Interest: Without any restrictions (net of applicable taxes) being Current
Account Transactions. Bench mark ceiling applicable for Preference Shares apply to
interest as well.

Credit of sale proceeds of Foreign Direct Investments in India to NRE / FCNR(B) accounts
permitted
 Form 15CA/15CB .. 1/2

Form 15CB not required: Part A of Form No.15CA, if the amount of

payment does not exceed fifty thousand rupees and the aggregate of
such payments made during the financial year does not exceed two
lakh fifty thousand rupees.

Form 15CB also not required if remittance is covered by SPECIFIED

LIST
 SPECIFIED LIST where Form 15CA/15CB not required 2/2
Form A-2 code Nature of payment
S0001 Indian investment abroad -in equity capital(shares)
S0002 Indian investment abroad -in debt securities
S0003 Indian investment abroad -in branches and wholly owned subsidiaries
S0004 Indian investment abroad -in subsidiaries and associates
S0005 Indian investment abroad -in real estate
S0011 Loans extended to Non-Residents
S0202 Payment- for operating expenses of Indian shipping companies operating abroad.
S0208 Operating expenses of Indian Airlines companies operating abroad
S0212 Booking of passages abroad -Airlines companies
S0301 Remittance towards business travel.
S0302 Travel under basic travel quota (BTQ)
S0303 Travel for pilgrimage
S0304 Travel for medical treatment
S0305 Travel for education (including fees, hostel expenses etc.)
S0401 Postal services
S0501 Construction of projects abroad by Indian companies including import of goods at
project site
S0602 Freight insurance - relating to import and export of goods
S1011 Payments for maintenance of offices abroad
S1201 Maintenance of Indian embassies abroad
S1 202 Remittances by foreign embassies in India
S1301 Remittance by non-residents towards family maintenance and-savings
S1302 Remittance towards personal gifts and donations
S1303 Remittance towards donations to religious and charitable institutions abroad
S1304 Remittance towards grants and donations to other Governments and charitable
institutions established by the Governments.
S1305 Contributions or donations by the Government to international institutions
S1306 Remittance towards payment or refund of taxes.
S1501 Refunds or rebates or reduction in invoice value on account of exports
S1503 Payments by residents for international bidding".
 Remittance on winding up/liquidation of
Companies
AD Bank have been allowed to remit winding up proceeds of
companies in India, which are under liquidation, subject to payment
of applicable taxes.

Liquidation may be subject to any order issued by the court winding

up the company or the official liquidator in case of voluntary winding
up under the provisions of the Companies Act, 2013. AD Category I
banks shall allow the remittance provided the applicant submits:
i. No objection or Tax clearance certificate from Income Tax
Department for the remittance.
ii. Auditor's certificate confirming that all liabilities in India have
been either fully paid or adequately provided for.
iii. Auditor's certificate to the effect that the winding up is in
accordance with the provisions of the Companies Act, 2013.
iv. In case of winding up otherwise than by a court, an auditor's
certificate to the effect that there is no legal proceedings pending
in any court in India against the applicant or the company under
liquidation and there is no legal impediment in permitting the
remittance.
 Access of funds from abroad
by Indian Companies
External Commercial Borrowings (ECB):
Commercial loans in the form of bank loans,
buyers credit, suppliers credit, securitized
instruments (e.g. floating rate notes and fixed rate
bonds, non-convertible, optionally convertible or
partially convertible preference shares) availed of
from non-resident lenders with a minimum
average maturity of 3 years

Automatic Route
Approval Route

Foreign Currency Convertible Bonds (FCCBs)

Preference shares

Foreign Currency Exchangeable Bond (FCEB) 71

COMPLIANCE WITH ECB GUIDELINES
COMPLIANCE WITH ECB GUIDELINES
Primary responsibility: Borrower concerned
Designated AD bank; To ensure that raising / utilisation of ECB is in compliance with ECB guidelines at
the time of certification.

REPORTING ARANGEMENTS

For allotment of Loan Registration Number (LRN), borrowers are required to submit Form 83, in
duplicate, certified by the Company Secretary (CS) or Chartered Accountant (CA) to the designated AD
bank. Copies of loan agreement and offer documents for FCCB are not required to be submitted with Form
83. One copy is to be forwarded by the designated AD bank to the Director, Balance of Payments Statistics
Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-
Kurla Complex, Mumbai 400 051.

Borrower can draw-down loan only after obtaining LRN from DSIM, Reserve Bank.

Borrowers are required to submit ECB-2 Return certified by the designated AD bank on monthly basis so
as to reach DSIM, Reserve Bank within seven working days from the close of month to which it
relates.

Dissemination of Information
Information with regard to name of borrower, amount, purpose and maturity of ECB under both Automatic
and Approval routes are put on Reserve Banks website, on a monthly basis, with a lag of one month to
which it relates.
Data on ECB/FCCB for the month of September 2015
I AUTOMATIC ROUTE*
ECB/ Borrower Equivalent Purpose Maturity Period Maturity Period
FCCB Amount in USD (Appx) (Appx)
1 ECB Rose Plastic India Private 3,93,199 Working Capital 7 Years 10 Months 7 Years 10 Months
Limited
2 ECB Hindustan Petroleum 25,00,00,000 Modernisation 5 Years 3 Months 5 Years 3 Months
Corporation Limited #
3 ECB CPF (India) Private Limited 2,00,00,000 Import of Capital 5 Years 5 Years
Goods
4 ECB The Great Eastern 2,94,00,000 Refinancing of Earlier 8 Years 1 Month 8 Years 1 Month
Shipping Campany Limited ECB
5 ECB Intelligent Pure Water 11,50,778 Rupee Expenditure 3 Years 1 Month 3 Years 1 Month
Technologies Private Loc.CG
Limited #
6 ECB Saurer Textile Solutions 33,70,277 New Project 9 Years 7 Months 9 Years 7 Months
Private Limited
7 ECB Nippon Carbide India 6,04,065 General Corporate 7 Years 1 Month 7 Years 1 Month
Private Limited Purpose
8 ECB Zydus Technologies Limited 3,38,55,990 Refinancing of Rupee 4 Years 8 Months 4 Years 8 Months
loans
54 ECB Sarla Performance Fibers 40,00,000 Overseas Acquisition 5 Years 5 Years
Limited
Automatic Route Total 1,13,45,56,703
* Based on Form 83 submitted for allotment of Loan Registration Number
# Confirmation sought from the AD bank regarding compliance with ECB guidelines
II APPROVAL ROUTE*
1 ECB Global Vectra Helicorp 87,00,000 Import of Capital 10 Years 1 Month 10 Years 1 Month
Limited Goods
2 ECB Reliance Industries Limited 1,47,14,13,397 Refinancing of Earlier 3 Years 7 Months 3 Years 7 Months
ECB
Approval Route Total 1,48,01,13,397
Grand Total 2,61,46,70,100
DELEGATION OF POWERS TO AUTHORISED DEALERS (AD)
ECBs raised under the automatic or approval routes

(a) Changes/modifications in the drawdown/repayment schedule: (Irrespective of the

number of occasions) associated with change in the average maturity period or not and / or
with changes (increase/decrease) in the all-in-cost.

(b) Changes in the currency of borrowing: Proposed currency of borrowing is freely

convertible.

(c) Change of the AD bank: Subject to No-Objection Certificate (NOC) from the existing
designated AD bank and after due diligence.

(d) Changes in the name of the Borrower Company: Subject to production of supporting
documents evidencing the change in the name from the Registrar of Companies.

(e) Transfer of ECB: From one company to another on account of re-organisation at the
borrowers level in the form of merger / demerger / amalgamation / acquisition duly as per
the applicable laws / rules after satisfying themselves that the company acquiring the ECB
is an eligible borrower.

(f) Change in the recognized lender: Subject to ensuring that the original lender as well as
the new lender is recognised lender as per extant ECB guidelines, there is no change in the
other terms and conditions of the ECB.

(g) Change in the name of Lender: After satisfying themselves with the bonafides of the
transactions and ensuring that the ECB continues to be in compliance with applicable
guidelines.
DELEGATION OF POWERS TO AUTHORISED DEALERS (AD)
(h) Cancellation of LRN: Directly approach DSIM for cancellation of LRN for ECBs availed,
subject to ensuring that no draw down for the said LRN has taken place and the monthly ECB-2
returns till date in respect of the LRN have been submitted to DSIM.

(i) Change in the end-use of ECB proceeds: Subject to ensuring that the proposed end-use is
permissible under the automatic route as per the extant ECB guidelines, there is no change in
the other terms and conditions of the ECB, and the monthly ECB-2 returns till date in respect of
the LRN have been submitted to DSIM.

Change in the end-use of ECBs availed under the approval route will continue to be referred to the
Foreign Exchange Department, Central Office, Reserve Bank of India, as hitherto.

(j) Reduction in amount of ECB: (Irrespective of the number of occasions) with or without any
changes in draw-down and repayment schedules, average maturity period and all-in-cost.

(k) Change in all-in-cost of ECB: Changes (decrease/increase) in all-in-cost of the ECBs

irrespective of the number of occasions.

Note:
i. Subject to ensuring that the revised average maturity period and or all-in-cost is/are in
conformity with the applicable ceilings / guidelines and the changes are effected during
the tenure of the ECB and the ECB continues to be in compliance with applicable guidelines.

ii. The changes in the terms and conditions of ECB and / or any other changes allowed should be
reported to the Department of Statistics and Information Management (DSIM) of the Reserve
Bank through revised Form 83 at the earliest, in any case not later than 7 days from the
changes effected. While submitting revised Form 83 to the DSIM, the changes should be
specifically mentioned in the communication. Further, these changes should also get
reflected in the ECB 2 returns appropriately.
 Form-83
(Reporting of loan agreement details under Foreign Exchange Management Act,
1999)
To be submitted in duplicate by the borrower to designated Authorised Dealer (AD) for all
categories and any amount of external commercial borrowing (ECB). After examining
conformity with the extant ECB guidelines, the AD may provide requisite details in Part F of
the Form and forward one copy (within 7 days from the date of signing loan agreement
between borrower and lender) for allotment of Loan Registration Number (LRN) to: The
Director, Balance of Payments Statistics Division, Department of Statistics and Information
Management (DSIM), Reserve Bank of India, C-8-9 Bandra-Kurla Complex, Mumbai 400
051

Borrower has given written undertaking to AD to the effect that it has been submitting
ECB-2 Returns regularly to RBI in respect of past ECB/FCCB loans)

We hereby certify that the particulars given above are true and correct to the best
of our knowledge and belief and no material information has been withheld
and/or misrepresented. Furthermore, the ECB is in compliance with the extant
ECB guidelines.
Place:___ ___________________________________________________
(Signature of the Authorised Official of the Company)
Date: ___________ Stamp Name: ______________________ Designation:______________
Place:_____________ _____________________________________
(Signature of Company Secretary/ Chartered Accountant)
Date:_______________ Stamp Name: _________________________________________
Registration No.:______________________________
For allotment of Loan Registration Number (LRN), borrowers are required to
submit Form 83, in duplicate, certified by the Company Secretary (CS) or
Chartered Accountant (CA) to the designated AD bank.
 ECB-2
Reporting of actual transactions of External Commercial Borrowings (ECB) under
Foreign Exchange Management Act, 1999 (for all categories and any amount of
loan) Return for the month of ___________
Submitted within 7 working days from the close of the month through the designated
Authorised Dealer to the Director, Department of Statistics and Information Management
(DSIM), Balance of Payments Statistics Division, Reserve Bank of India, C- 8/9, Bandra-
Kurla Complex, Bandra (East), Mumbai-400 051.
If there is no transaction during a particular period, a Nil Return should be submitted.
The Company Secretary / Chartered Accountant must scrutinise related
original documents and ensure that the return is complete and in order as per
ECB guidelines issued by Government/RBI, before forwarding it to RBI.
Certificate from Company Secretary / Chartered Accountant
We hereby certify that the ECB availed in terms of approval granted by
Government or RBI or under approval route / automatic route is duly accounted
in the books of accounts. Further, ECB proceeds have been utilised by the
borrower for the purpose of ____________________________________. We have verified
all the related documents and records connected with the utilisation of ECB
proceeds and found these to be in order and in accordance with the terms and
conditions of the loan agreement and with the approval granted by GoI (MoF) or
RBI or under approval route / automatic route and is in conformity with the
applicable ECB Guidelines.
Authorised Signatory : ____________________________
Name & Address : __________________________________
Place : _____________ Registration No. : __________________________________
Date : _____________ [Stamp]
________________________________________________________________________________
Calculation of Average Maturity- An Illustration
Loan Amount = USD 2 million
Date of drawal/ Drawal Repayment Balance No. of Days** Product = (Col.4 *
repayment balance with Col. 5)/ (Loan
(MM/DD/YY) the borrower amount * 360)

Col. 1 Col. 2 Col. 3 Col. 4 Col. 5 Col. 6

11/05/2007 0.75 0.75 24 0.0250
05/06/2007 0.50 1.25 85 0.1476
31/08/2007 0.75 2.00 477 1.3250
27/12/2008 0.20 1.80 180 0.4500
27/06/2009 0.25 1.55 180 0.3875
27/12/2009 0.25 1.30 180 0.3250
27/06/2010 0.30 1.00 180 0.2500
27/12/2010 0.25 0.75 180 0.1875
27/06/2011 0.25 0.50 180 0.1250
27/12/2011 0.25 0.25 180 0.0625
27/06/2012 0.25 0.00
Average Maturity 3.2851
** Calculated by = DAYS360 (first date, second date, 360)

79
 External Commercial Borrowings (ECB)
Request Letter
Form 83
Loan Agreement (Duly signed by both the parties).
Memorandum Of Association of borrower
Copy of latest audited balance sheet of borrower.
Copy of RBI registration no. issued for FC-GPR reporting (applicable if lender has equity
investment in borrower company)
Board Resolution for availing External Commercial Borrowings.
Letter from the Indian Company
Activity of Indian Company
Breakup of End Use of ECB (Amount wise description)
Undertaking that loan amount will not be used for any of the End Uses not
permitted by RBI.
Declaration that No regulatory investigations either by state or central
authorities is pending against the company or any of its Promoters, Directors,
Authorized Signatories
Average maturity and All in cost calculation
Certificate from borrower
Form ECB ( For Approval Route)

On receipt of complied documents, the bank will approach Reserve Bank of India for Loan
Registration Number.

Outward Remittances
Request letter
Form A2
Invoice copy / Agreement copy
FEMA declaration
15 CA and CB
 Routing of funds raised abroad to India

It has come to our notice that some Indian companies are accessing overseas market for
debt funds through overseas holding / associate / subsidiary / group companies. It
has also been reported that such borrowings are raised at rates exceeding the ceiling
applicable in terms of extant FEMA regulations and that the funds so raised are
routed to the Indian companies which accounts for sole/major operations of the
group. Different modalities/structures are resorted to for channeling such funds for
Indian operations including investment in rupee bonds floated by the Indian company.

On a review of the matter in light of the existing regulatory framework, it is clarified as

under:
i. Indian companies or their AD Category I banks are not allowed to issue any direct
or indirect guarantee or create any contingent liability or offer any security in any
form for such borrowings by their overseas holding / associate / subsidiary /
group companies except for the purposes explicitly permitted in the relevant
Regulations.
ii. Further, funds raised abroad by overseas holding / associate / subsidiary / group
companies of Indian companies with support of the Indian companies or their AD
Category I banks as mentioned at (i) above cannot be used in India unless it
conforms to the general or specific permission granted under the relevant
Regulations.
iii. Indian companies or their AD Category I banks using or establishing structures which
contravene the above shall render themselves liable for penal action as prescribed
under FEMA, 1999.

Circular No. 41 dated November 25, 2014

 Security for External Commercial Borrowings...1/2
2. Under the extant ECB guidelines, the choice of security to be provided to the overseas lender /
supplier for securing ECB is left to the borrower. With a view to liberalising, expanding the options of
securities and consolidating various provisions related to creation of charge over securities for ECB at one
place, it has been decided that AD Category-I banks may allow creation of charge on immovable assets,
movable assets, financial securities and issue of corporate and / or personal guarantees in favour of
overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower, subject to
satisfying themselves that:

(i) the underlying ECB is in compliance with the extant ECB guidelines,
(ii) there exists a security clause in the Loan Agreement requiring the ECB borrower to create charge,
in favour of overseas lender / security trustee, on immovable assets / movable assets / financial
securities / issuance of corporate and / or personal guarantee, and
(iii) No objection certificate, wherever necessary, from the existing lenders in India has been obtained.

3. Once aforesaid stipulations are met, the AD Category-I bank may permit creation of charge on
immovable assets, movable assets, financial securities and issue of corporate and / or personal
guarantees, during the currency of the ECB with security co-terminating with underlying ECB, subject to
the following:

(a) Creation of Charge on immovable assets:

i. Such security shall be subject to provisions contained in the Foreign Exchange Management
(Acquisition and Transfer of Immovable Property in India) Regulations, 2000.
ii. The permission should not be construed as a permission to acquire immovable asset (property) in
India, by the overseas lender / security trustee.
iii. In the event of enforcement / invocation of the charge, the immovable asset / property will have
to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate
the outstanding ECB.

(b) Creation of Charge on Movable Assets

In the event of enforcement / invocation of the charge, the claim of the lender, whether the lender takes
over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB.
Encumbered movable assets may also be taken out of the country.
 Security for External Commercial Borrowings...2/2
(c) Creation of Charge over Financial Securities
i. Pledge of shares of the borrowing company held by the promoters as well as in
domestic associate companies of the borrower will be permitted. Pledge on other
financial securities, viz. bonds and debentures, Government Securities,
Government Savings Certificates, deposit receipts of securities and units of the
Unit Trust of India or of any mutual funds, standing in the name of ECB
borrower/promoter, will also be permitted.
ii. In addition, security interest over all current and future loan assets and all current
assets including cash and cash equivalents, including Rupee accounts of the
borrower with AD Category-I banks in India, standing in the name of the
borrower/promoter, can be used as security for ECB. The Rupee accounts of the
borrower/promoter can also be in the form of escrow arrangement or debt service
reserve account.
iii. In case of invocation of pledge, transfer of financial securities shall be in accordance
with the extant FDI/FII policy including provisions relating to sectoral cap and pricing
as applicable read with the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000.

(d) Issue of Corporate or Personal Guarantee

i. A copy of Board Resolution for the issue of corporate guarantee for the company
issuing such guarantee, specifying name of the officials authorised to execute such
guarantees on behalf of the company or in individual capacity should be obtained.
ii. Specific requests from individuals to issue personal guarantee indicating details of the
ECB should be obtained.
iii. Such security shall be subject to provisions contained in the Foreign Exchange
Management (Guarantees) Regulations, 2000.

Circular No. 55 dated January 01, 2015

 Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -
Compounding of Contraventions under FEMA, 1999...1/2
To delegate further powers to Regional Offices (Consolidated) as under:
Sr. FEMA Regulation Brief Description of Contravention
No.
1 Paragraph 9(1)(A) of Schedule I to Delay in reporting inward remittance
FEMA 20/2000-RB dated May 3, 2000 received for issue of shares.
2 Paragraph 9(1)(B) of Schedule I to Delay in filing form FC(GPR) after issue of
FEMA 20/2000-RB dated May 3, 2000 shares.
3 Paragraph 8 of Schedule I to FEMA Delay in issue of shares/refund of share
20/2000-RB dated May 3, 2000 application money beyond 180 days, mode of
receipt of funds, etc.
4 Paragraph 5 of Schedule I to FEMA Violation of pricing guidelines for issue of
20/2000-RB dated May 3, 2000 shares.
5 Regulation 2(ii) read with Regulation Issue of ineligible instruments such as non-
5(1) of FEMA 20/2000-RB dated May convertible debentures, partly paid shares,
3, 2000 shares with optionality clause, etc.
6 Paragraph 2 or 3 of Schedule I to FEMA Issue of shares without approval of RBI or
20/2000-RB dated May 3, 2000 FIPB respectively, wherever required.
7 Regulation 10A (b)(i) read with Delay in submission of form FC-TRS on
paragraph 10 of Schedule I to FEMA transfer of shares from Resident to Non-
20/2000-RB dated May 3, 2000 Resident.
8 Regulation 10B (2) read with paragraph Delay in submission of form FC-TRS on
10 of Schedule I to FEMA 20/2000-RB transfer of shares from Non-Resident to
dated May 3, 2000 Resident.
9 Regulation 4 of FEMA 20/2000-RB Taking on record transfer of shares by investee
dated May 3, 2000 company, in the absence of certified from
FC- TRS.
 Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -
Compounding of Contraventions under FEMA, 1999 ...2/2
The work of three divisions of Foreign Investment Division (FID) viz. Liaison/ Branch/ Project
office(LO/ BO/ PO) division, Non Resident Foreign Account Division (NRFAD) and Immovable
Property (IP) Division has been transferred to FED, CO Cell, Reserve Bank of India, 6, Sansad Marg,
New Delhi- 110001 with effect from July 15, 2014. Accordingly, the officers attached to the FED, CO
Cell, New Delhi office are now authorised to compound the contraventions as under:
Sr. FEMA Notification Brief Description of Contravention
No.
1 FEMA 7/2000-RB, dated 3-5- Contraventions relating to acquisition and transfer of
2000 immovable property outside India
2 FEMA 21/2000-RB, dated 3-5- Contraventions relating to acquisition and transfer of
2000 immovable property in India
3 FEMA 22/2000-RB, dated 3-5- Contraventions relating to establishment in India of
2000 Branch office, Liaison Office or project office
4 FEMA 5/2000-RB, dated 3-5- Contraventions falling under Foreign Exchange
2000 Management (Deposit) Regulations, 2000

The powers to compound the contraventions have been delegated to all Regional Offices (except
Kochi and Panaji) and FED, CO Cell, New Delhi respectively without any limit on the amount
of contravention. Kochi and Panaji Regional offices can compound the above contraventions for
amount of contravention below Rupees one hundred lakh (Rs.1,00,00,000/-). The contraventions of
Rupees one hundred lakh (Rs.1,00,00,000/-) or more under the jurisdiction of Panaji and Kochi
Regional Offices and all other contraventions of FEMA will continue to be compounded at Cell for
Effective Implementation of FEMA (CEFA), Mumbai, as hitherto.

Accordingly, applications for compounding the e contraventions e, up to the amount of

contravention stated therein may be submitted by the concerned entities to the respective Regional
Offices under whose jurisdiction they fall or to FED, CO Cell, New Delhi respectively. For all other
contraventions, applications may continue to be submitted to CEFA, Foreign Exchange
Department, 5th floor, Amar Building, Sir P.M.Road, Fort, Mumbai 400001.
Revised Guidelines relating to participation of Residents in
the Exchange Traded Currency Derivatives (ETCD) market

At present, market participants have to produce a certificate

from the statutory auditors as indicated therein. As a measure
of liberalisation in the ETCD market, it has now been decided
that, instead of the statutory auditors certificate, a signed
undertaking to the same effect from the Chief Financial
Officer (CFO) or the senior most functionary responsible for
company's finance and accounts and the Company
Secretary (CS) may be produced. In the absence of a CS, the
Chief Executive Officer (CEO) or the Chief Operating Officer
(COO) shall co-sign the undertaking along with the CFO.

Circular No. 90 dated March 31, 2015

 Disclaimer
These PPTs are intended to serve as a guide to the Member
Participants of the Seminar/Conference and for information
purposes only; and the contents are not to be construed in any
manner whatsoever as a substitute for professional advice or legal
opinion. No one should act on such information without
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 Vijay Gupta
311, Ansal Bhawan
16, Kasturba Gandhi Marg
New Delhi 110001

Mobile: 9810083373
vijay.gupta@vkgnassociates.com