Regulation 6 - Permission for Direct Investment in certain cases - Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004

6. Permission for Direct Investment in certain cases (1) Subject to the conditions specified in sub-regulation (2), 17 [(and Regulation 7 in case investment by an Indian Party engaged in financial services sector)] an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India. 5 2. 27 [(i) The total financial commitment of the Indian Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party as on the date of the last audited balance sheet. Explanation: For the purpose of determining the total financial commitment within the limit of 100%, or as decided by the Reserve Bank from time to time, of the net worth, the following shall be reckoned, namely: (a) Remittance by market purchases, namely in freely convertible currencies; in case of Bhutan, investment made in freely convertible currencies or equivalent Indian Rupees, in case of Nepal investment made only in Indian Rupees; (b) Capitalization of export proceeds and other dues and entitlements as mentioned in Regulation 11; (c) Hundred per cent of the value of guarantees issued by the Indian party to on or behalf of the joint venture company or wholly owned subsidiary; (d) Investment in agricultural operations through overseas offices or directly; (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines; (f) Fifty per cent of the value of performance guarantee issued by the Indian party to or on behalf of the JV/WOS. Explanation : In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 100 per cent, or as decided by the Reserve Bank from time to time, of the net worth of the Indian party, the Indian party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation. (g) Hundred per cent of the value of the bank guarantee issued by a resident bank on behalf of an overseas JV/WOS of the Indian party, which is backed by a counter guarantee/ collateral by the Indian party. Overseas direct investment by an Indian party in Pakistan shall henceforth be considered under the approval route under regulation 9 of this Notification.] (ii) The direct investment is made in an overseas JV or WOS engaged in a bonafide business activity. (iii) The Indian Party is not on the Reserve Bank's Exporters caution list /list of defaulters to the banking system circulated by the Reserve Bank or under investigation by any investigation /enforcement agency or regulatory body. 30 [(iv) The Indian Party has submitted Annual Performance Report in respect of all its overseas investments in the format given in Part III of the Form ODI , as prescribed by the Reserve Bank from time to time] (v) The Indian Party routes all transactions relating to the investment in a Joint Venture/Wholly Owned Subsidiary through only one branch of an authorised dealer to be designated by it. Explanation : - The Indian Party may designate different branches of authorised dealers for different Joint Ventures/Wholly Owned Subsidiaries outside India. 31 [(vi) The Indian Party submits duly completed Part I of the Form ODI , as prescribed by the Reserve Bank from time to time, to the designated branch of an authorised dealer.] 33 [ (vii) Indian Party shall make no direct investment in an overseas entity [set up or acquired abroad directly as JV/WOS or indirectly as Step Down Subsidiary] located in the countries identified by the Financial Action Task Force (FATF) as non co-operative countries and territories as per list available on FATF website www.fatf-gafi.org or as notified by the Reserve Bank of India from time to time. ] (3) Investment under this Regulation may be funded out of one or more of the following sources, namely: - i. out of balance held in the Exchange Earners' Foreign Currency account of the Indian party maintained with an authorised dealer in accordance with Regulation 4 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000; ii. 28 [drawal of foreign exchange from an authorized dealer in India shall not exceed 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party as on the date of last audited balance sheet; Explanation: For the purpose of the limit of 100%, or as decided by the Reserve Bank from time to time, of the net worth, the following shall be reckoned, namely:] (a) cash remittance by market purchase (b) capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11 and 12; (c) 10 hundred per cent of the value of guarantees issued by the Indian party to or on behalf of the Joint Venture company or Wholly Owned Subsidiary 11 Explanation :- an Indian Party may offer to a person resident outside India any form of guarantees, that is, corporate or personal / primary or collateral / guarantee by promoter company in India / guarantee by group company, sister concern or associate company in India, provided that : a) total 'financial commitment' including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party and b) no guarantee is 'open ended'. (d) utilisation of the amount raised by issue of ADRs/GDRs by the Indian party; (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines. 12 (f) Swap of shares. 13 (g) ADR/GDR Stock Swap subject to the valuation norms and sectoral cap. Explanation : for the purpose of reckoning net worth of an Indian party, the net worth of its holding company (which holds at least 51% stake in the Indian Party) or its subsidiary company (in which the Indian party holds at least 51% stake) may be taken into account to the extent not availed of by the holding company or the subsidiary independently and has furnished a letter of disclaimer in favour of the Indian Party; 29 [(h) Fifty per cent of the value of performance guarantee issued by Indian party to or on behalf of the JV/WOS. Explanation : In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 100 %, or as decided by the Reserve Bank from time to time, of the net worth of the Indian party, the Indian party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation.] 22 [(i) hundred per cent of the value of the bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party.] Provided further that the ceiling mentioned in sub-clause (2)(i) shall not apply where the investment is made out of balances held in its EEFC account, maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000, as amended from time to time. 23 [(4) (i) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture / Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture. Notwithstanding the above regulation, the following shall also be permitted. (ii) An Indian Party may extend corporate guarantee on behalf of its first generation step down operating company within the prevailing limit for overseas direct investment. Explanation: Issue of corporate guarantee on behalf of second level or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued.] 24 [(iii) The indirect resident individual promoters of the Indian party may issue personal guarantee on behalf of the overseas JV / WOS of the Indian party provided the provisions under Regulation 6 are fulfilled by the Indian party and further provided that: a) total 'financial commitment' including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party and b) no guarantee is 'open ended'] 25 [(iv) With prior approval of the Reserve Bank, an Indian party may undertake financial commitment without equity contribution in JV / WOS provided it is as per the business requirement of the Indian party and also as per the legal requirement of the host country.] 26 [(v) Compulsorily Convertible Preference Shares (CCPS) shall be treated at par with equity shares and the Indian party is allowed to undertake financial commitment based on the contribution to JV by way of CCPS.] (5) An Indian Party may make direct investment without any limit in any foreign security out of the proceeds of its international offering of shares through the mechanism of ADR and/or GDR: - Provided that:- (a) the ADR/GDR issue has been made in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme 1993 and the guidelines issued thereunder from time to time by the Central Government; 32 [(b) The Indian Party files with the designated authorised dealer in Parts I and II of the Form ODI , as prescribed by the Reserve Bank from time to time, full details of the investment proposed. ] (6)(a) For the purposes of investment under this Regulation by way of remittance from India in an existing company outside India, the valuation of shares of the company outside India shall be made, - (i) where the investment is more than USD 5 (Five) million, by a Category I Merchant Banker Registered with Securities and Exchange Board of India (SEBI), or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and (ii) in all other cases, by a Chartered Accountant or a Certified Public Accountant. (b) For the purposes of investment under this Regulation by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party's shares, the valuation of shares of the company outside India shall in all cases, be carried out by a Category I Merchant Banker registered with the Securities and Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country. --------------------- Notes: 1. Has been substituted vide Notification No. 135/2005 dated 17/5/2005 , before it was read as, For the purpose of the limit of 100% of the net worth the following shall be reckoned, namely 2. Has been substituted vide Notification No. Supra , before it was read as, cash remittance by market purchase and /or equivalent rupee investments in case of Nepal and Bhutan 3. For the words and figures 'shall not exceed 100% of the net worth', the words and figures 'shall not exceed 200% of the net worth' has been substituted vide Notification No. 139/2005 dated 11/8/2005 4. For the words and figures 'limit of 100% of the net worth', the words and figures 'limit of 200% of the net worth' has been substituted vide Notification No. 139/2005 dated 11/8/2005 5. Has been substituted vide Notification No. G.S.R. 13(E) dated 9/10/2007 (with effect from the 14th day of June, 2007) before it was read as, The total financial commitment of the Indian party in Joint Ventures/Wholly Owned Subsidiaries 3 shall not exceed 200% of the net worth of the Indian Party as on the date of the last audited balance sheet; - 2(i) has been further substituted vide notification no. 173/2007 dated 19-12-200 7 with effect from 26-9-2007, before substitution it was read as: (i) The total financial commitment of the Indian Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 300% of the net worth of the Indian Party as on the date of the last audited balance sheet . 6. Has been substituted vide Notification No. G.S.R. 13(E) dated 9/10/2007 (with effect from the 14th day of June, 2007) before it was read as, For the purpose of determining 'total financial commitment' within the 4 limit of 200% of the net worth, . Further substituted vide notification no. 173/2007 dated 19-12-200 7 with effect from 26-9-2007, before substation it was read as, For the purpose of determining 'total financial commitment' within the limit of 200% or 300% of the net worth as the case may be . 7. For the words fifty per cent of the value of guarantees , the words hundred per cent of the value of guarantees has been substituted vide Notification No. G.S.R. 13(E) dated 9/10/2007 (with effect from the 14th day of June, 2007) 8 (with effect from the 12th day of May, 2005), for the words and figures shall not exceed 100% of the net worth , the words and figures shall not exceed 200% of the net worth has been substituted. Further with effect from the 14th day of June, 2007, for the words shall not exceed 200% of the net worth , the words and figures shall not exceed 300% of the net worth in case of corporates and shall not exceed 200% of net worth in case of registered partnership firms has been substituted vide Notification No. G.S.R. 13(E) dated 9/10/2007 . Further substituted vide notification no. 173/2007 dated 19-12-200 7 with effect from 26-9-2007, before substitution it was read as, shall not exceed 300% of the net worth in case of corporates and shall not exceed 200% of net worth in case of registered partnership firms . 9. (with effect from the 12th day of May, 2005), for the words and figures shall not exceed 100% of the net worth , the words and figures shall not exceed 200% of the net worth has been substituted. Further with effect from the 14th day of June, 2007, for the words shall not exceed 200% of the net worth , the words and figures shall not exceed 300% of the net worth in case of corporates and shall not exceed 200% of net worth in case of registered partnership firms has been substituted vide Notification No. G.S.R. 13(E) dated 9/10/2007 . Further substituted vide notification no. 173/2007 dated 19-12-200 7 with effect from 26-9-2007, before substitution it was read as, shall not exceed 300% of the net worth in case of corporates and shall not exceed 200% of the net worth in case of registered partnership firms . 10. For the words fifty per cent of the amount of guarantees the words hundred per cent of the amount of guarantees has been substituted (with effect from the 14th day of June, 2007) vide Notification No. G.S.R. 13(E) dated 9/10/2007 11. Has been inserted vide Notification No. G.S.R. 13(E) dated 9/10/2007 (with effect from the 27th day of March, 2006) 12. Has been inserted vide Notification No. G.S.R. 13(E) dated 9/10/2007 (with effect from the 7th day of July, 2004 ) 13. Has been inserted vide Notification No. G.S.R. 13(E) dated 9/10/2007 (with effect from the 20th day of April, 2007) 14. Has been substituted vide Notification No. 180/2008 dated 5/9/2008 before it was read as, iv. The Indian party has submitted up to date returns in form APR in respect of all its overseas investments; 15. Has been substituted vide Notification No. 180/2008 dated 5/9/2008 before it was read as, vi. The Indian Party submits form ODA, duly completed, to the designated branch of an authorised dealer. 16. Has been substituted vide Notification No. 180/2008 dated 5/9/2008 before it was read as, b. the Indian Party files with the designated authorised dealer in form ODA full details of the investment proposed. 17. Substituted vide notification no. 192/2009 dated 25/5/2009 with effect from 6/9/2006, before it was read as, (and Regulation 7 in case investment in financial services sector) 18. Substituted vide Notification No. FEMA 249/RB-2012, dated 22-11-2012 , before it was read as:- Notwithstanding anything contained in these Regulations investment in Pakistan shall not be permitted. 19. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. May 27, 20. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. March 28, 2012. 21. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. May 27, 2011 22. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. March 28, 2012 23. Substituted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. May 27, 2011before it was read as:- (4) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture/Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture. 24. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. March 28, 2012 25. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. March 28, 2012 26. Inserted vide Notification No. 277/2013-RB dated May 08, 2013, w.e.f. March 28, 2012 27. Substituted vide NOTIFICATION NO. 283/2013-RB dated 14th August, 2013 , earlier it was read as, (i) The total financial commitment of the Indian Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 400% of the net worth of the Indian Party as on the date of the last audited balance sheet. Provided that for the Indian Party which is a registered partnership firm, the total financial commitment shall not exceed 200% of its net worth. 1 Explanation : 6 For the purpose of determining 'total financial commitment' within the limit of 400% of the net worth the following shall be reckoned, namely: 2 (a) remittance by market purchases, namely in freely convertible currencies; in case of Bhutan, investment made in freely convertible currencies or equivalent Indian Rupees; in case of Nepal investment made only in Indian Rupees. (b) capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11; (c) 7 hundred per cent of the value of guarantees issued by the Indian party to or on behalf of the joint venture company or wholly owned subsidiary. (d) investment in agricultural operations through overseas offices or directly (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines 18 [ Overseas direct investment by an Indian Party in Pakistan shall henceforth be considered under the approval route under regulation 9 of this Notification. ] 19 [ (f) Fifty per cent of the value of performance guarantee issued by Indian Party to or on behalf of the JV/WOS. Explanation: In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 400 per cent of the net worth of the Indian Party, the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation. ] 20 [ (g) hundred per cent of the value of the bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party. ] 28. Substituted vide NOTIFICATION NO. 283/2013-RB dated 14th August, 2013 , earlier it was read as, drawal of foreign exchange from an authorized dealer in India shall not exceed 400% of the net worth of the Indian Party as on the date of last audited balance sheet; Explanation: For the purpose of the limit of 400 % of the net worth the following shall be reckoned, namely: 29. Substituted vide NOTIFICATION NO. 283/2013-RB dated 14th August, 2013 , earlier it was read as, 21 [(h) Fifty per cent of the value of performance guarantee issued by Indian Party to or on behalf of the JV/WOS. Explanation: In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 400 per cent of the net worth of the Indian Party, the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation.] 30. Substituted vide NOTIFICATION No. FEMA 314/RB-2014, dated 3rd July, 2014 , before it was read as, 14 [(iv) The Indian Party has submitted its Annual Performance Report in respect of all its overseas investments in the format given in Part III of the Form ODI.] 31. Substituted vide NOTIFICATION No. FEMA 314/RB-2014, dated 3rd July, 2014 , before it was read as, 15 [(vi) the Indian Party submits Part I of the Form ODI, duly completed, to the designated branch ,of an authorized dealer.] 32. Substituted vide NOTIFICATION No. FEMA 314/RB-2014, dated 3rd July, 2014 , before it was read as, 16 [(b) The Indian Party files with the designated authorised dealer in Parts I and II of the Form ODI full details of the investment proposed.] 33. Inserted vide Not. 382/ 2016-RB - Dated 2-1-2017