Regulation 6 - Permission for Direct Investment in certain cases - Foreign Exchange Management (Transfer Or Issue of Any Foreign Security) Regulations, 2000

Has been superseded vide Notification No. 120/2004 dated 7/7/2004 6. Permission for Direct Investment in certain cases (1) Subject to the conditions specified in sub-regulation (2), an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India. (2) 11 [(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) In respect of direct investment in Nepal or Bhutan, in Indian rupees the total financial commitment shall not exceed Indian 6 Rupees 700 crores in any one financial year; 8 (iii) The direct investment is made in the overseas JV or WOS engaged in a bonafide business activity; (iv) Deleted (v) The Indian Party is not on the Reserve Bank's caution list or under investigation by the Enforcement Directorate; (vi) 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. (vii) The Indian Party submits form ODA, duly completed, to the designated branch of an authorised dealer for onward transmission to Reserve Bank (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) Regulations, 2000; (ii) drawal of foreign exchange from an authorised dealer in India 4 not exceeding 9 100% of the net worth of the Indian Party as on the date of last audited balance sheet; (iii) utilisation of the amount raised by issue of ADRs/GDRs by the Indian Party; 10 (***) (4) 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 provided such holding company or, as the case may be, subsidiary company, has not availed of the facility of direct investment abroad during the relevant block of three years and has furnished a letter of disclaimer in favour of the Indian Party. (5) 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. (6) 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:- 1 (7)(a) For the purposes of investment under this Regulation by way of remittance from India, the valuation of shares of the company outside India shall be made , - i. where the investment is more than US $ 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. 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; b. Deleted c. the Indian Party files with Reserve Bank, in form ODA full details of the investment made, within 30 days of such investment. ********************* Note : 1. Has been inserted vide Notification No. 048/2002 dated 1/1/2002 2. Has been added vide Notification No. 049/2002 dated 19/1/2002 3. For the words and figures US $ 50 million , the words and figures US $ 100 (One hundred) million , has been substituted; vide Notification No. 053/2002 dated 1/3/2002 4. For the words and figures not exceeding 25% of the net worth , the words and figures not exceeding 50% of the net worth has been substituted; vide Notification No. 053/2002 dated 1/3/2002 5. Has been substituted vide Notification No. 079/2003 dated 15/1/2003 6. For the words and figures 'Rupees 350 crores' the words and figures 'Rupees 700 crores' has been substituted vide Notification No. 079/2003 dated 15/1/2003 7. For the words and figure 'US $ 50 million', the words and figure 'US $ 100 million', has been substituted; vide Notification No. 086/2003 dated 1/3/2003 8. Has been substituted vide Notification No.Supra, before it was read as, The direct investment is made in a foreign entity engaged in the same core activity carried on by the Indian party; 9. For the words 'not exceeding 50%,' the words 'up to 100%', has been substituted vide Notification No.Supra 10. Has been Omitted vide Notification No. Supra 11. Substituted vide NOTIFICATION NO. 283/2013-RB dated August 14, 2013 , before it was read as, (i) The total financial commitment of the Indian Party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 3 US $ 100 (one hundred) million or its equivalent in any one financial year, except investment in Nepal, Bhutan and Pakistan; 5 Provided that in respect of commitment in Joint Ventures/Wholly Owned Subsidiaries in Myanmar and SAARC countries (other than Nepal, Bhutan and Pakistan) the total commitment shall not exceed US$ 150 million or equivalent in any one financial year. 2 Provided further that the ceiling of 7 US $ 100 million shall not apply to financial commitment by a unit located in a Special Economic Zone 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.