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TMI BlogFDI REGULATORY FRAMEWORKX X X X Extracts X X X X X X X X Extracts X X X X ..... rise. In India the 'lasting interest' is not evinced by any minimum holding of percentage of equity capital/shares/voting rights in the investment enterprise. Direct investment allows the direct investor to gain to the access of direct investment enterprise which it might otherwise be unable to do. The objectives of direct investment are different from those of portfolio investment whereby investors do not generally expect to influence the management of the enterprise. 1.3 It is the policy of the Government of India to attract and promote productive FDI from non-residents in activities which significantly contribute to industrialization and socio-economic development. FDI is encouraged in enterprises to significantly expand employment and livelihood opportunities, enhance economic value of products, promote welfare of consumers, increase exports and/or transfer technologies in all economic activities. FDI supplements the domestic capital and technology. 1.4 The Legal basis: Foreign Direct Investments by non-resident in resident entities through transfer or issue of security to person resident outside India is a 'Capital account transaction' and Government of India and Reserve ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (42 of 1999) (FEMA). 2.2 'Asset Reconstruction Company' (ARC) means a company registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 2.3 'Authorised Bank' means a bank including a co-operative bank (other than an authorized dealer) authorized by the Reserve Bank to maintain an account of a person resident outside India. 2.4 'Authorised Dealer' means a person authorized as an authorized dealer under sub-section (1) of section 10 of FEMA. 2.5 'AD Category-I Bank' means a Bank( commercial, State or urban cooperative) which is an Authorized Dealer and allowed to deal in all current and capital account transactions by RBI from time to time. 2.6 'Authorised person' means a authorized dealer, money changer, offshore banking unit or any other person for the time being authorized under Sub-section (a) of Section 10 of FEMA 2.7 'B2B e-commerce' means business entities buying from and selling to each other online. 2.8 'Capital' means equity shares, compulsorily and mandatorily convertible preference shares and compulsorily and mandotarily convertible debent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Foreign Investment Promotion Board constituted by the Government of India. 2.13 'FDI' means foreign investment in the paid up capital of the Indian company not being Foreign Portfolio Investment. 2.14 'Government route' means that investment in resident entities by non-resident entities can be made only with the prior approval from FIPB, Ministry of Finance or SIA, DIPP as the case may be. 2.15 'Government of India' means Department of Economic Affairs, Ministry of Finance or Department of IPP, Ministry of Commerce & Industry. 2.16 'Indian Company' means a company registered or incorporated in India as per the Indian Companies Act, 1956. 2.17 Investment on repatriable basis means investment the sale proceeds of which are net or taxes eligible to be repatriated out of India and the expression 'investment are on repatriable basis' shall be construed accordingly. 2.18 'Joint Venture' (JV) means an Indian entity formed, registered or incorporated in accordance with the laws and regulations in India in which a foreign entity makes a foreign investment 2.19 'Wholly owned subsidiary' means an Indian entity form, registered or incorporated in accordance with the laws and regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould indicate his intention to stay in India for an uncertain period; (ii) any person or body corporate registered or incorporated in India, (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India. 2.23'Person resident outside India' means a person who is not resident in India. 2.24'Previous Venture/tie-up condition' means that the investor has previous/existing venture or tie-up in India as on January 12, 2005, through investment / technology collaboration agreement in the same field in which the Indian company, whose shares are being issued, is engaged, he has to obtain prior permission of Foreign Investment Promotion Board (FIPB), to acquire the shares. This restriction is, however, not applicable to the issue of shares for investments to be made by: (i) Venture Capital Funds registered with the Securities and Exchange Board of India (SEBI). (b) or Investments by International/Multinational Financial Institutions like Asian Development Bank(ADB), International Finance Corporation(IFC), Commonwealth Finance Corporation (CDC), Deutsche E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istan) can invest in India, subject to the FDI Regulation of the Government of India. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Regulation, under the Government route. 3.2 Investments from Nepal & Bhutan: NRI's, resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in shares and convertible debentures of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels. 3.3 OCBs have been derecognized as a class of Investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Regulation as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government route; and with the prior approval of RBI if the investment is through Automatic route. 3.4 (i) An FII may invest in a particular share issue of an Indian company either under the FDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside India under the FDI Regulations. However, an Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs. (iii) Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs, whichever is earlier. ADRs / GDRs are issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager to the issue. The proceeds so raised have to be kept abroad till actually required in India. Pending repatriation or utilisation of the proceeds, the Indian company can invest the funds in:- (a) Deposits with or Certificate of Deposit or other instruments offered by banks who have been rated by Standard and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors. Re-issuance of ADRs / GDRs would be permitted to the extent of ADRs / GDRs which have been redeemed into underlying shares and sold in the Indian market. (ii) Sponsored ADR/GDR issue: An Indian company can also sponsor an issue of ADR/GDR. Under this mechanism, the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADRs / GDRs can be issued abroad. The proceeds of the ADR / GDR issue is remitted back to India and distributed among the resident investors who had offered their Rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADRs / GDRs. 5.0 ELIGIBILITY OF INVESTMENTS IN RESIDENT ENTITIES 5.1 Investment in an Indian Company 5.1 (i) Indian companies including those which are micro and small enterprises can issue capital. 5.2 Investment in Partnership Firm / Proprietary Concern: 5.2 (i) A Non-Resident Indian (NRI) or a Person of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of debit to the NRE/FCNR (B) account, the amount of consideration so received should 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. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. In exceptional cases, refund of the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the RBI, on the merits of the case. 6.2 Issue price of shares - price of shares issued to persons resident outside India under the FDI Regulations, shall be on the basis of SEBI guidelines in case of listed companies. In case of unlisted companies, valuation of shares has to be done by a Chartered Accountant in accordance with the guidelines issued by the erstwhile Controller of Capital Issues (CCI). 6.3 Foreign Currency Account - Indian companies which are eligible to issue shares to persons resident outside India under the FDI Regulations will be allowed to retain the share subscription amount in a Foreign Currency Account, with the prior approval of RBI. 6.4 Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services sector (i.e. Banks, NBFCs, ARCs, CICs, Insurance, infrastructure companies in the securities market such as Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.). (ii) The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a Know Your Customer(KYC) check by the remittance receiving AD Category - I bank at the time of receipt of funds. In case, the remittance receiving AD Category - I bank is different from the AD Category - I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category - I bank carrying out the transaction along with the Form FC-TRS. (iii)Escrow: AD Category - I banks have been given general permission to open Escrow account and Special account of non-resident corporate for open offers / exit offers and delisting of shares. The relevant SEBI (SAST) Regulations or any other applicable SEBI Regulations/ provisions of the Companies Act, 1956 will be applicable. 6.5 Prior permission of RBI i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian company/each series of debentures/each mutual fund scheme. (c) The applicable sectoral cap limit in the Indian company is not breached. (d) The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 6 of the Companies Act, 1956, as amended from time to time. The current list is reproduced in Annex . (e) The 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 25,000 during the calendar year. (f) Such other conditions as stipulated by Reserve Bank in public interest from time to time. 6.6 Conversion of ECB/Lumpsum Fee/Royalty/Import of capital goods by SEZs into Equity. (i) Indian companies have been granted general permission for conversion of External Commercial Borrowings (ECB)( excluding those deemed as ECB) in convertible foreign currency due for payment/repayment into shares/preference shares, subject to the following conditions and reporting requirements. (a) The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government approval for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments. The investee company can allot the additional rights share out of unsubscribed portion, subject to the condition that the overall issue of shares to non-residents in the total paid-up capital of the company does not exceed the sectoral cap. 7.4 Acquisition of shares under Scheme of Merger/Amalgamation - Mergers and amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the Scheme submitted by the companies undergoing merger/amalgamation. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a Court in India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India, subject to the conditions that: (i) the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap, and (ii) the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI policy. 7.5 Issue of shares under Employees Stock Option Scheme (ESOPs) - (i) Listed Indian companies are allowed to issue shares under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in an Indian company. (i) Counting the Direct Foreign Investment: All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment. (ii) Counting of indirect foreign Investment: (a) The foreign investment through the investing Indian company would not be considered for calculation of the indirect foreign investment in case of Indian companies which are 'owned and controlled' by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens . (b) For cases where condition (a) above is not satisfied or if the investing company is owned or controlled by 'non resident entities', the entire investment by the investing company into the subject Indian Company would be considered as indirect foreign investment, (1) Provided that, as an exception, the indirect foreign investment in only the 100% owned subsidiaries of operating-cum-investing/investing companies, will be limited to the foreign investment in the operating-cum-investing/ investing company. For the purposes of explanation, it is clarified that this exception is being made since the downstream investment of a 100% owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l caps, the balance equity i.e. beyond the sectoral foreign investment cap, would specifically be beneficially owned by/held with/in the hands of resident Indian citizens and Indian companies, owned and controlled by resident Indian citizens. (d) In the I& B and Defense sectors where the sectoral cap is less than 49%, the company would need to be 'owned and controlled' by resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens. (1) For this purpose, the equity held by the largest Indian shareholder would have to be at least 51% of the total equity, excluding the equity held by Public Sector Banks and Public Financial Institutions, as defined in Section 4A of the Companies Act, 1956. The term 'largest Indian shareholder', used in this clause, will include any or a combination of the following: (A) In the case of an individual shareholder, (I) The individual shareholder, (II) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956. (III) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest. (B) In the case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt entities in sectors with caps: (a) In sectors with caps, including interalia defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecommunications and satellites, Government approval/FIPB approval would be required in all cases where: (b) An Indian company is being established with foreign investment and is owned by a non-resident entity or (c) An Indian company is being established with foreign investment and is controlled by a non-resident entity or (d) The control of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares to non-resident entities through amalgamation, merger, acquisition etc. or (e) The ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t compliance with the Foreign investment norms on entry route, conditionalities and sectoral caps. The 'guiding principle' is that downstream investment by companies 'owned' or 'controlled' by non resident entities would require to follow the same norms as a direct foreign investment i.e. only as much can be done by way of indirect foreign investment through downstream investment in Para 8 as can be done through direct foreign investment and what can be done directly can be done indirectly under same norms. 13.2 The Guidelines for calculation of total foreign investment, both direct and indirect in an Indian company, at every stage of investment, including downstream investment, have been detailed in Para 8 which enables determination of total foreign investment in any/all Indian Companies. 13.3 Definitions: (i) 'Operating Company' is an Indian company which is undertaking operations in various economic activities and sectors. (ii) 'Downstream investment' means indirect foreign investment by one Indian company into another Indian company by way of subscription or acquisition in terms of Para 8. Para 8.3 provides the guidelines for calculation of indirect foreign investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts can be made subject to the following conditions: (i) Such company is to notify SIA, DIPP and FIPB of its downstream investment within 30 days of such investment even if equity shares/CCPS/CCD 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 supporting the said induction as also a shareholders Agreement if any; (iii) issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines; (iv) Investing companies would have to bring in requisite funds from abroad and not leverage funds from domestic market for such investments. This would, however, not preclude downstream operating companies to raise debt in the domestic market. 14.0 GUIDELINES FOR CONSIDERATION OF FDI PROPOSALS BY FIPB: 14.1The following guidelines are laid down to enable the FIPB to consider the proposals for FDI and formulate its recommendations. 14.2 All applications should be put up before the FIPB by the Secretariat within 15 days and it shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NRI equity and/or in cases of enlargement of foreign/NRI equity, in existing Indian companies whether there is a resolution of the Board of Directors supporting the said induction/enlargement of foreign/NRI equity and whether there is a shareholders agreement or not. (v) In the case of induction of fresh equity in the existing Indian companies and/or enlargement of foreign equity in existing Indian companies, the reason why the proposal has been made and the modality for induction/enhancement (i.e. whether by increase of paid up capital/authorized capital, transfer of shares (hostile or otherwise) whether by rights issue, or by what modality. (vi) Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines. (vii) Whether the activity is an industrial or a service activity or a combination of both. (viii) Whether the items of activity involves any restriction by way of reservation for the small scale sector. (ix) Whether there are any sectoral restrictions on the activity (x) Whether the proposal involves import of items which are either hazardous, banned or detrimental to environment (e.g. import of plastic scrap or recycled plastics). 14.10 No condition specific t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casinos etc. (ii) It is clarified that "real estate business" does not include development of townships, construction of residential/commercial premises, roads or bridges educational institutions, recreational facilities, city and regional level infrastructure, townships. It is further clarified that partnership firms/proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print Media sector. (iii)In addition to the above, investment in the form of FDI is also prohibited in certain sectors such as (Annex-2) : (a) Retail Trading (except single brand product retailing) (b) Atomic Energy (c) Lottery Business including Government /private lottery, online lotteries,etc. (d) Gambling and Betting including casinos etc. (e) Business of chit fund (f) Nidhi company (g) Trading in Transferable Development Rights (TDRs) (h) Activities / sectors not opened to private sector investment. (iv) Besides foreign investment in any form, foreign technology collaboration in any form including licencing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities. AG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of minerals classified as "prescribed substances" and specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 were included in the list of industries reserved for the public sector. Vide Government of India Resolution No. 8/1(1)/97-PSU/1422 dated 6th October 1998 issued by the Department of Atomic Energy laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon). FDI up to 74% was permitted with prior approval of the Government in pure value addition projects without mining and mineral separation as well as integrated projects comprising both mining & mineral separation and value addition. (iii) Vide Government of India Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of "prescribed substances" under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/cpmcentrates including Zircon, were removed from the list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.1 FDI is permissible up to 26%, under Government route subject to Industrial license under the Industries (Development & Regulation) Act 1951 and the following conditions: (i) Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence. (ii) Cases involving FDI will be considered by the FIPB and licences given by the Department of Industrial Policy & Promotion in consultation with Ministry of Defence. (iii)The applicant should be an Indian company / partnership firm. (iv) The management of the applicant company / partnership should be in Indian hands with majority representation on the Board as well as the Chief Executives of the company / partnership firm being resident Indians. (v) Full particulars of the Directors and the Chief Executives should be furnished along with the applications. (vi) The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to the Public Sector organizations as per guidelines of the Department of Public Enterprises. (xv) Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons / entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to institute a verifiable system of removal of all goods out of their factories. Violation of these provisions may lead to cancellation of the licence. (xvi) Government decision on applications to FIPB for FDI in defence industry sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgement by the Secretariat for Industrial Assistance in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment; (vi) "Helicopter" means a heavier-than -air aircraft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis; (vii) "Scheduled air transport service", means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognisably systematic series, each flight being open to use by members of the public. (viii) "Non-Scheduled Air Transport service" means any service which is not a scheduled air transport service and will include Chartered and Cargo airlines. (ix) "Chartered" and "Cargo" airlines would mean such airlines which meet the conditions as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation. (x) "Seaplane" means an aeroplane capable normally of taking off from and alighting solely on water; (xi) "Ground Handling" means (i) ramp handling , (ii) traffic handling bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viation. 26.0 Asset Reconstruction Companies: 26.1 Persons resident outside India [other than Foreign Institutional Investors (FIIs)], can invest in the equity capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank only under the Government Route. Automatic Route is not available for such investment. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs and FDI is restricted to 49 per cent of the paid-up capital of the ARC. 26.2 However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest upto 40 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue. 26.3 Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assests and Enforcement of Security Interest Act, 2002. 27.0 Banking -Private sector 27.1 FDI limit in Private Sector Banks is 74 % including investment by FIIs. This will include FDI investment under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise of shares of a private bank, if such acquisition results in any person owning or controlling 5 per cent or more of the paid up capital of the private bank will apply to foreign investors as well. (ii) Setting up of a subsidiary by foreign banks (a) Foreign banks will be permitted to either have branches or subsidiaries not both. (b) Foreign banks regulated by banking supervisory authority in the home country and meeting Reserve Bank's licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India. (c) A foreign bank may operate in India through only one of the three channels viz., (i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank. (d) A foreign bank will be permitted to establish a wholly-owned subsidiary either trough conversion of existing branches into a subsidiary or through a fresh banking license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26 per cent of the paid capital of the private sector bank is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment route for setting up Up-linking HUB/ Teleports; b) FDI up to 100% would be allowed under the Government route for up linking a Non-News & Current Affairs TV Channel; c) FDI (including investment by FII) up to 26% would be permitted under the Government route for Up-linking a News & Current Affairs TV Channel subject to the condition that the portfolio investment in the form of FII/ NRI deposits shall not be "persons acting in concert" with FDI investors, as defined in the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997. (ii) The above will be further subject to the Company permitted to uplink the channel shall certifying the continued compliance of this requirement through the Company Secretary at the end of each financial year. (iii) FDI for Up-linking TV Channels will be subject to compliance with the Up-linking Policy of the Government of India notified by the Ministry of Information & Broadcasting from time to time. 30.0 Business Services- 100% FDI under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent by registered FII under the Portfolio Investment Scheme will be limited to 23% and investment under the FDI Scheme will be limited to 26%. (iv) FII purchases shall be restricted to secondary market only. (v) No foreign investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies. 32.0 Construction and maintenance 32.1 100% FDI is allowed in Construction and maintenance of-roads, rail-beds, bridges, tunnels, pipelines, ropeways, ports, harbours and runways, waterways & water reservoirs, hydroelectric projects, power plants, industrial plant. 32.2 100 % FDI is permitted in construction and maintenance of Roads and highways offered on BOT basis including collection of toll. 32.3 Ports and Harbours: 100% FDI is allowed in: (i) Leasing of existing assets of ports (ii) Construction/creation and maintenance of assets such as-container terminals bulk/break bulk/multipurpose and specialized cargo berths, warehousing, container freight stations, storage facilities and tank farms, cranage/ handling equipment, setting of captive power plants, dry docking and ship repair facilities. (iii) Leasing of equipment for port handling and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33.5 The investor shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/ Municipal/Local Body concerned. 33.6 The State Government/ Municipal/ Local Body concerned, which approves the building / development plans, would monitor compliance of the above conditions by the developer. 33.7 The conditions as at para 31.1, 31.2 and 31.3 would not apply to Hotels & Tourism, Hospitals and SEZ's. Note- FDI is not allowed in Real Estate Business. 34.0 Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898. 34.1 100% FDI is allowed under the Government route. 34.2 This will be subject to existing Law i.e Indian Post Office Act 1998 and exclusion of activity relating to the distribution of letters. 35.0 Credit Information Companies (CIC) 35.1 For the purposes of CIC and in terms of the Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir shareholding. 36.0 Health and Medical Services: 100% FDI is allowed under the automatic route 37.1 Hotels and Tourism related Industry 37.2 100% Foreign Investment is allowed under automatic route. 37.3 The terms hotel includes restaurants, beach resorts and other tourism complexes providing accommodation and /or catering and food facilities to tourists. The term tourism related industry includes: (i) Travel agencies, tour operating agencies and tourist transport operating agencies (ii) Units providing facilities for cultural, adventure and wildlife experience to tourists (iii)Surface, air and water transport facilities for tourists (iv) Convention/seminar units and organizations 38.0 Industrial Parks both setting up and in established Industrial Parks. 38.1 FDI up to 100% is permitted under the automatic route in Industrial Parks. 38.2 FDI up to 100% on the automatic route is allowed in Construction development projects, etc. prescribing therein, inter-alia, the conditions for minimum capitalization, minimum area requirements and lock-in of original investment as per para 20 above. 38.3 For the purposes of Industrial Park: (i) "Industrial Park" is a project in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) it would comprise of a minimum of 10 units and no single unit shall occupy more than 50% of the allocable area; (ii) the minimum percentage of the area to be allocated for industrial activity shall not be less than 66% of the total allocable area. 39.0 Insurance 39.1 FDI up to 26% in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under the automatic route. 39.2 This will be subject to the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority for undertaking insurance activities. 40.0 Infrastructure Company in the Securities Market: 40.1 Foreign investment is permitted in infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations and subject to the following conditions: (i) There is a composite ceiling of 49 per cent for Foreign Investment, with a FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital; (ii) FDI will be allowed under the Government route; and (iii)FII can invest only through purchases in the secondary market. 41.0 Non-Banking Finance Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital of a domestic venture capital fund(VCF/VCC) and may also set up a domestic asset management company to manage the fund. They are also allowed to invest in other companies subject to FDI Regulations. All investment are with prior approval of FIPB. Investment would be subject to SEBI and RBI regulations. 41.5 The NBFC will have to comply with the guidelines of the RBI. 42.0 Petroleum & Natural Gas Sector 42.1 FDI up to 100% under the automatic route is permitted in exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products, actual trading and marketing of petroleum products, petroleum product pipelines, Natural Gas/LNG pipelines, market study and formulation and Petroleum refining in the private sector. This will be subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. 42.2 FDI up to 49% is permitted under the Government route in petroleum refining by the Public Sector Undertakings (PSU). This should not involve any divestment or dilution of domes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y agencies. Under Section 6(2) of the above Act, "A company, firm or an association of persons shall not be considered for issue of a licence under this Act, if, it is not registered in India, or having a proprietor or a majority shareholder, partner or director, who is not a citizen of India". As such, under the provisions of this Act: • a foreign company cannot be considered for a license under the Act • only a firm registered in India can be eligible for a license • to be eligible for a license under the Act, a firm cannot have a foreign director/partner • majority shareholder cannot be a foreigner-i.e. foreign shareholding would be restricted to a maximum of 49% under the Government route. 46.0 Satellites - Establishment and operation: FDI upto 74% is allowed under Government route. 46.1 This will be subject to the sectoral guidelines of Department of Space/ISRO. 47.0 Special Economic Zones and Free Trade Warehousing Zones: 100% FDI is allowed under the automatic route without the conditionalities of Construction development project as per para 33 above. 47.1 This will be subject to the provisions of Special Economic Zones Act 2005 and the Foreign T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such entities as may be identified /specified by the licensor shall not be hauled/routed to any place outside India. (iv) The licensee company shall take adequate and timely measures to ensure that the information transacted through a network by the subscribers is secure and protected. (v) The officers/officials of the licensee companies dealing with the lawful interception of messages will be resident Indian citizens. (vi) The majority Directors on the Board of the company shall be Indian citizens. (vii) The positions of the Chairman, Managing Director, Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO), if held by foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found during the security vetting, the direction of MHA shall be binding on the licensee. (viii) The Company shall not transfer the following to any person/place outside India:- (a) Any accounting information relating to subscriber (except for international roaming/billing) (Note: it does not restrict a statutorily required disclosure of financial nature) ; and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Home Secretary or Home Secretaries of the States/Union Territories. (xx) For monitoring traffic, the licensee company shall provide access of their network and other facilities as well as to books of accounts to the security agencies. (xxi) The aforesaid Security Conditions shall be applicable to all the licensee companies operating telecom services covered under this Press Note irrespective of the level of FDI. (xxii) Other Service Providers (OSPs), providing services like Call Centres, Business Process Outsourcing (BPO), tele-marketing, tele-education, etc, and are registered with DoT as OSP. Such OSPs operate the service using the telecom infrastructure provided by licensed telecom service providers and 100% FDI is permitted for OSPs. As the security conditions are applicable to all licensed telecom service providers, the security conditions mentioned above shall not be separately enforced on OSPs. 49.3 The conditions at para 49.2 above shall also be applicable to the existing companies operating telecom service(s) with the FDI cap of 49%. 49.4 All the telecom service providers shall submit a compliance report on the aforesaid conditions to the licensor on 1st day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lobal designs, technologies and management practices. (i) FDI up to 51% in retail trade of 'Single Brand' products would be subject to the following conditions: (a) Products to be sold should be of a 'Single Brand' only. (b) Products should be sold under the same brand internationally. (c) 'Single Brand' product-retailing would cover only products which are branded during manufacturing. (ii) Application seeking permission of the Government for FDI in retail trade of 'Single Brand' products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The application would specifically indicate the product/ product categories which are proposed to be sold under a 'Single Brand'. Any addition to the product/ product categories to be sold under 'Single Brand' would require a fresh approval of the Government. (iii) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for Government approval. 51.0 Transport and Transport Support Services: 100% FDI under the automatic ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or from the overseas bank remitting the amount. The report would be acknowledged by the Regional Office concerned, which will allot a Unique Identification Number (UIN) for the amount reported. 54.2 Reporting of issue of shares (i) After issue of shares (including bonus and shares issued on rights basis) and shares issued under ESOP)/fully and mandatorily convertible debentures / fully and mandatorily convertible preference shares, the Indian company has to file Form FCGPR, enclosed in Annex, not later than 30 days from the date of issue of shares. (ii) Part A of Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorized Dealer of the company, who will forward it to the Reserve Bank. The following documents have to be submitted along with Part A: (a) A certificate from the Company Secretary of the company certifying that: (A) all the requirements of the Companies Act, 1956 have been complied with; (B) terms and conditions of the Government's 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 certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to equity, the company shall report the conversion in Form FC-GPR to the Regional Office concerned of the Reserve Bank as well as in Form ECB-2 to the Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai - 400 051, within seven working days from the close of month to which it relates. The words "ECB wholly converted to equity" shall be clearly indicated on top of the Form ECB-2. Once reported, filing of Form ECB-2 in the subsequent months is not necessary. (ii) 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. (iii)The SEZ unit issuing equity as mentioned in para (iii) above, should report the particulars of the shares issued in the Form FC-GPR. 54.5 Reporting of FCCB/ADR/GDR Issues The Indian company issuing ADRs / GDRs has to furnish to the Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of inheritance from a person resident in India or a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force or FEMA regulations at the time of acquisition of the property. (vii) A PIO may transfer agricultural land / plantation property / farmhouse in India acquired by way of inheritance, by way of sale or gift to person resident in India who is a citizen of India. (viii) A PIO may transfer any immovable property other than agricultural land / Plantation property / farmhouse in India: (a) By way of sale to a person resident in India. (b) By way of gift to a person resident in India or a Non-Resident Indian or a PIO. 55.2 Purchase / Sale of Immovable Property by Foreign Embassies / Diplomats / Consulate General Foreign Embassy / Consulate as well as Diplomatic personnel in India are allowed to purchase/ sell immovable property in India other than agricultural land / plantation property / farm house provided (i) clearance from Government of India, Ministry of External Affairs is obtained for such purchase / sale, and (ii) the consideration for acquisition of immovable property in India is paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, whether resident in India or outside India, shall acquire or transfer immovable property in India, other than lease, not exceeding five years without prior permission of the Reserve Bank. (ii) Foreign nationals of non-Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. Foreign nationals of non-Indian origin who have acquired immovable property in India by way of inheritance or purchase with the specific approval of the Reserve bank cannot transfer such property without prior permission of the Reserve Bank. 56.0 ADHERENCE TO GUIDELINES/ORDERS AND CONSEQUENCES OF VIOLATION FDI is a current account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA 1999. Reserve Bank of India administers the FEMA 1999 and Directorate of Enforcement under the Ministry of Finance established by the Government of India is the authority for the enforcement of FEMA 1999. The Directorate takes up investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority/ Appellate Tribunal to hear appeals against the orders of the adjudicating authority. 56.3 Compounding Proceedings Under the Foreign Exchange (Compounding Proceedings) Rules 2000, the Government of India may appoint 'Compounding Authority' an officer either from Enforcement Directorate or Reserve Bank of India for any person contravening any provisions of the Foreign Exchange Management Act 1999. The Compounding Authorities are authorized to compound the amount involved in the contravention to the Act made by the person. No contravention shall be compounded unless the amount involved in such contravention is quantifiable. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings. The Compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerns as expeditiously and not latter than 180 days from the date of application made to the Compounding Au ..... X X X X Extracts X X X X X X X X Extracts X X X X
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