Regulation 4 - Guarantees which may be given by an authorised dealer - Foreign Exchange Management (Guarantees) Regulations, 2000

4. Guarantees which may be given by an authorised dealer :- (1) An authorised dealer may give a guarantee in respect of any debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside India, in the following cases, namely:- where the debt, obligation or other liability is incurred by the person resident in India, - (i) as an exporter, on account of exports from India; (ii) as an importer, in respect of import on deferred payment terms in accordance with the approval granted by the Reserve Bank for import on such terms. 2 (1A) An Authorised Dealer may give guarantee, Letter of Undertaking or Letter of Comfort in respect of any debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside India (being an overseas supplier of goods, bank or a financial institution), for import of goods, as permitted under the Foreign Trade Policy announced by the Government of India from time to time and subject to such terms and conditions as may be specified by Reserve Bank from time to time. 4 [(1B) - A authorised dealer in India may give guarantee or standby Letter of Credit in respect of an obligation incurred by a person resident in India and owed to a person resident outside India in connection with payment of margin money in respect of approved commodity hedging transaction of such person residing in India subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time.] (2) An authorised dealer may give a guarantee in respect of any debt, obligation or other liability incurred by a person resident outside India, in the following cases, namely:- (i) where such debt, obligation or liability is owed to a person resident in India in connection with a bonafide trade transaction : Provided that the guarantee given under this clause is covered by a counter-guarantee of a bank of international repute resident abroad; (ii) as a counter-guarantee to cover guarantee issued by his branch or correspondent outside India, on behalf of Indian exporter in cases where guarantees of only resident banks are acceptable to overseas buyers. 7 [(iii)(a) An authorised dealer in India may give guarantee on behalf of a person resident outside India acquiring shares or convertible debentures of an Indian company through open offers/ delisting/ exit offers, provided (i) the transaction is in compliance with the provisions ofthe Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover)[SEBI(SAST)] Regulations; (ii) the guarantee is covered by a counter guarantee of a bank of international repute; and (b) the guarantee shall be valid for a tenure co-terminus with the offer period as required under the SEBI (SAST) Regulations. ] (3) An authorised dealer may, in the ordinary course of his business, give a guarantee in the following other cases, namely: (i) on behalf of his customer or branch or correspondent outside India in respect of missing or defective documents, or authenticity of signatures; (ii) in favour of organizations outside India issuing travellers cheques stocked for sale in India by the authorised dealer or by his constituents who are authorised persons. 1 (iii) in favour of foreign airlines/International Air Transport Association (IATA), on behalf of IATA approved travel agents. 6 [ (iv) in favour of a non-resident service provider, on behalf of a resident customer who is a service importer, subject to such terms and conditions as stipulated by the Reserve Bank from time to time. Provided that no guarantee for an amount exceeding USD 500,000 or its equivalent shall be issued on behalf of a service importer other than a Public Sector Company or a Department / Undertaking of the Government of India / State Government. Provided further that where the service importer is a Public Sector Company or a Department / Undertaking of the Government of India / State Government, no guarantee for an amount exceeding USD 100,000 or its equivalent shall be issued without the prior approval of the Ministry of Finance, Government of India. ] 5 [ (4) An authorised dealer (custodian bank), subject to the directions issued by the Reserve Bank, from time to time, may issue Irrevocable Payment Commitments (IPCs) in favour of the Stock Exchanges/Clearing Corporations of the Stock Exchanges, on behalf of their registered FII clients for purchase of shares and convertible debentures under the portfolio investment scheme (PIS) notified vide Schedule 2 to Foreign Exchange Management (Transfer or Issue or Security by a Person Resident Outside India) Regulations, 2000 ( Notification No. FEMA.20/2000-RB) dated May 3, 2000 , as amended from time to time. ] ************ Notes: 1 Inserted vide Notification No. 124/2004 dated 16/10/2004 2. Inserted vide Notification No. 129/2005 dated 20/1/2005 3. Inserted vide Notification No. 151/2007 dated 4/1/2007 4. Inserted vide Notification No. 189/2009 dated 27/2/2009 with effect from 10/11/2008 5. Inserted vide Notification No.FEMA227/2012-RB, Dated 30/03/2012 6.Substituted vide NOTIFICATION No. 259/2013-RB February 15, 2013 before it was read as, 3 (iv) in favour of an non-resident service provider, on behalf of a resident customer who is a service importer, for an amount up to USD 100,000 or its equivalent. 7. Inserted vide N otification No. FEMA. 267/RB-2013 dated March 05, 2013.