Appendix 57

 

GUIDELINES FOR EURO‑ISSUES

 

GUIDELINES‑1994‑95‑Press Note dated 11‑5‑1994

 

Government of India have been permitting Indian companies to issue Equity and Equity related instruments to international investors in the form of Global Depository Receipts (GDRs) and Convertible Bonds. A detailed Notification was also issued on 12‑11‑1993, outlining the scheme for the issue of Foreign Currency Convertible Bonds (FCCBs) and Ordinary shares (through Depository Receipt Mechanism). Government have since reviewed the working of the scheme and the following further guidelines have been formulated in this regard :-

 

(a)        For the present it is proposed to follow a restrictive policy towards Foreign Currency Convertible Bonds since such Bonds form part of the country's external debt till their conversion into equity. However, companies will be allowed on merits to issue FCCBs as part of a programme of restructuring of external debt which helps to lengthen maturity and soften terms.

 

(b)        Euro Issues will be treated a direct foreign investments. Accordingly, a company contained in Annexure III of the New Industrial Policy of 1991 whose direct foreign investment after a proposed Euro Issue is likely to exceed 51 per cent, or which is implementing projects not predominantly contained in Annexure III, would need to obtain prior FIPB clearance before final approval for the Euro Issue is given by the Finance Ministry.

 

(c)        For the purpose of ensuring that as many companies as possible avail of this scheme, only one issue per company in a financial year will be permitted with a minimum gap of twelve months between two issues by the same company and not more than two issues will be permitted for any group of companies in a financial year.

 

(d)        Both the in‑principle and final approvals will be valid only for three months from the dates of their respective issue.

 

(e)        Requests for retention of the issue proceeds abroad will be considered on specific application, for import of capital goods, retiring foreign currency debts, capitalising Indian joint ventures, etc., and projects abroad.

 

(f)         GDR issues would be permitted only for the following end‑use to be incurred within one year from the date of issue:

 

(i)         Financing capital goods imports.

 

(ii)        Financing domestic purchase/installation of plant, equipment and buildings.

 

(iii)       Prepayment or scheduled repayment of earlier external borrowing.

 

(iv)       Making investments abroad where these have been approved by competent authorities.

 

(v)        A margin of 15 per cent of the total proceeds of an issue for other general corporate restructuring uses.

 

(g)        Companies would be required to submit quarterly statements of utilisation of funds duly certified by their auditors.

 

(h)        The policy and guidelines for Euro Issues will be subject to review every three months.

 

 

[Issued by the Ministry of Finance, Department of Economic Affairs (Investment Division) vide No. S. 11(25)/CCI‑II/89‑NRI dated 11‑5‑1994.]

 

II. Modifications of Guidelines for Euro Issues 1994‑95

 

Press Note, dated 28‑10‑1994.‑ The guidelines for Euro Issues, 1994‑95 were announced by the Government of India on 11th May, 1994 [printed above]. At that time it was indicated that the guidelines would be reviewed periodically. During the first half of the Fiscal Year Indian companies have mobilised in excess of US $ 1 billion through issue of GDRs and Euro Convertible Bonds. This indicates a healthy and sustained interest by overseas investors. The guidelines have been reviewed on the basis of experience in this period and various representations received. The following modifications are being made:

 

(1)        The guidelines had stipulated that Euro Issues would be permitted only for certain specific end‑uses to be incurred within one year from the date of issue. Several representations have been received by the Government requesting review of the stipulation that the Euro Issue proceeds should be utilised for the approved end‑uses within a period of one year from the date of issue on the plea that capital expenditure projects often have a long gestation period and that it would be difficult for companies to comply with the one year restriction. These representations have been considered and the guidelines are being modified to remove the stipulation that Euro‑issue proceeds should be utilised for the approved end‑uses within a period of one year from the date of issue. Instead of issuing companies would be required mandatorily to retain the Euro‑Issue proceeds abroad to be repatriated as and when expenditure for the approved end‑uses (including upto 15% earmarked for general corporate restructuring uses) are incurred. This will enable companies to tap markets abroad for approved purposes while also avoiding monetary expansion as a consequence of Euro‑Issue inflows in advance of the need for funds. This requirement will be added to all final approvals given henceforth. Information regarding periodic repatriation of Euro‑Issue proceeds into the country and the manner of their deployment for the approved end‑uses should be furnished in detail in the quarterly statements that the issuing companies are required to submit to the Government at the end of every calendar quarter duly vetted by the auditors.

 

(2)        A relaxation of the approved end‑use criteria will be allowed to enable select All India Financial Institutions to access the Euro market considering the multiplier effect and generally beneficial impact for small and medium industries who are unable themselves to access the Euro market.

 

(3)        Companies will not be permitted to issue warrants along with their Euro‑ Issues.

 

III. Modification of Euro Issue Guidelines Regarding Retention of Funds Abroad

 

Guidelines, dated 24‑5‑1995.‑ Guidelines for Euro Issue for 1994‑95 were announced by the Government of India on 11‑5‑1994, followed by certain amendments on 28‑10‑1994. In terms of the guidelines dated 28‑10‑1994, issuing companies were required mandatorily to retain the EuroIssue proceeds abroad to be repatriated as and when expenditure for the approved end‑uses (including upto a maximum of 15 per cent of funds earmarked for general corporate restructuring uses) were incurred. It has now been decided to permit the issuing companies to also retain the Eruo‑Issue proceeds as foreign currency deposits with Banks and Public Financial Institutions in India, which can be converted into Indian Rupees only as and when expenditure for the approved end‑uses (including upto a maximum of 15 per cent of funds earmarked for general corporate restructuring uses) are incurred. The interim deployment of funds, retained abroad or as foreign currency deposits with Banks and Public Financial Institutions in India, should conform to the manner of deployment that will be indicated by RBI in their approval letter. [Issued by the Ministry of Finance, Department of Economic Affairs, Investment Division vide No. S‑11(25)/CCI‑II/89-NRI, dated 24‑5‑1995].

 

IV. Keeping of Euro issue proceeds in deposits, etc., in banks/public financial institutions in India

 

RBI Circular, dated 20‑7‑1995.‑ 1. At present Indian companies going in for Euro issues, viz., global depository receipts/foreign currency convertible bonds (GDRs/FCCBs) are required mandatorily to retain the proceeds of such issues abroad to be repatriated to India as and when the expenditure for the approved end‑uses is incurred. Such funds could be kept abroad either with foreign banks which are rated for short‑term obligations as A1+ by Standard & Poor or P1 by Moody's, or branches of Indian banks as deposits or invested in treasury bills and other monetary instruments with maturities not exceeding one year.

 

2.         In terms of the revised "Guidelines for Euro Issues" issued by Government of India on 24th May, 1995, the companies going for Euro issues will now have the option of retaining the proceeds of Euro issues abroad as indicated in paragraph I above or keeping the issue proceeds in foreign currency deposits with authorised dealers and/or public financial institutions in India holding authorisation from Reserve Bank to deal in foreign exchange.

 

3.         Accordingly, it would be in order for authorised dealers/public financial institutions to accept foreign currency deposits from Indian companies out of Euro issue proceeds subject to the following conditions:

 

(i)         The foreign currency deposits would carry interest at a rate not exceeding LIBOR for the respective period for which the deposit is accepted.

 

(ii)        The authorised dealers/public financial institutions with whom the foreign currency deposits are kept should not swap the foreign currency for rupees but use the amounts for lending in foreign currency to eligible clients.

 

(iii)       The authorised dealers may also invest surplus foreign currency out of such Euro issue proceeds as permitted in paragraph 513.9 of the Exchange Control Manual subject to the condition indicated in (ii) above.

 

(iv)       The authorised dealers/public financial institutions accepting the foreign currency deposits would be eligible to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR for lending out of such funds.

 

(v)        The authorised dealers will be required to maintain a cash reserve ratio of 7.5 per cent on such deposits.

 

(vi)       The deposits can be converted into Indian rupees only as and when expenditure for approved end uses (including upto maximum of 15 per cent of the proceeds earmarked for general corporate restructuring uses) are incurred by the issuer company.

 

(vii)      The authorised dealers/public financial institutions accepting such deposits as also the issuer company, as the case may be, should also comply with the conditions stipulated by Government of India in their approval letters for such issues.

 

[AD (GP Series) Circular No. 6, dated 20‑7‑1995 issued by the Reserve Bank of India, Exchange Control Department]

 

V. Modification of EURO Issue Guidelines

 

[Issued by the Ministry of Finance, Department of Economic Affairs (Foreign Trade & Investment Division) vide Press Note F.N.S. 11(25)/CCI‑II‑89‑NRI, dated 25‑11‑1995]

 

Government of India had notified a Scheme in November 1993, for issue of Foreign Currency Convertible Bonds and Ordinary Shares through Depository Receipt. Mechanism, Revision/modifications in the operative guidelines are being announced from time to time. On the basis of the periodic review and assessment of current situation, the following modifications are announced to the existing Euro Issue guidelines:

 

(i)         The guidelines of 28‑10‑1994 provided that the Euro Issue proceeds were to be mandatorily retained abroad by the issuer companies to be repatriated as and when expenditure on approved project/end uses were incurred. This requirement was partially modified through a Press Release dated 24‑5‑1995 providing option to the issuing companies to also keep funds in foreign currency deposits with Banks and Public Financial Institutions in India to be converted into Indian rupees as and when expenditure on approved end uses were incurred. In relaxation of the above requirement, companies will now be permitted to remit funds into India in anticipation of the use of funds for approved end uses.

 

(ii)        the existing ceiling for use of issue proceeds for general corporate restructuring including working capital requirement is revised from 15 per cent to 25 per cent of the GDR issue.

 

(iii)       At present only companies having a consistent track record of good performance (financial or otherwise) for a minimum period of three years are allowed to issue GDRs/FCCBs. In view of the importance of the infrastructure projects, and the need to encourage equity financing of such projects, the three‑year track record will be relaxed in case of companies seeking GDR/FCCB issues to finance investment in infrastructure industries such as power generation, telecommunication, petroleum exploration and refining, ports, airports, roads. 

 

(iv)       Currently corporates are permitted to access, foreign capital markets for External Commercial Borrowing through instruments like FRN and fixed rate bonds. In order to enable corporates to tap a wider spectrum of the market, they would also be permitted to structure their borrowing as a FCCB. The end use of funds through a FCCB should conform to the norms prescribed by Government for ECB from time to time. While the time frame for conversion of FCCB is flexible, the non‑converted portion should have a minimum average tenor of five years.

 

VI. PRESS NOTE DATED 20TH JUNE, 19% RELATING TO GUIDELINES ON EURO­ ISSUES, ISSUED BY THE DEPARTMENT OF ECONOMIC AFFAIRS

 

1.         A Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) was notified by Government of India in November, 1993. Revisions/modifications in the operative guidelines for Euro‑ issues are announced from time to time.

 

2.         On the basis of the periodic review and assessment of the current situation, the following Euro‑issue guidelines, in continuation of the Notification of November, 1993, shall come into effect for approvals granted on or after the date of issue of these guidelines, in supersession of all previous guidelines on the subject.

 

Track record

 

3.         An issuing company seeking permission for raising foreign funds by Euro‑issues having a consistent track record of good performance (financial or otherwise) for a period of three years shall be allowed to issue global depository receipts ('GDRs') foreign currency convertible bonds ('FCCBs').

 

4.         In view of the importance of the infrastructure projects, and the need to encourage equity financing of such projects, the three‑year track record requirement would be relaxed in case of companies seeking GDR/FCCB issues to finance investments in infrastructure industries such as power generation, tele‑communication, petroleum exploration and refining, ports, airports and roads.

 

I. Track record requirement

 

At present, only listed companies are being permitted to issue GDRs/ADRs/FCCBs subject to the fulfilment of the track record requirement of good performance (financial or otherwise for a period of 3 years). Considering the undin requirements of unlisted companies it has been decided to permit all unlisted companies to float Euro/ADR Issues provided they fulfil the three years track record eligibility requirement.

 

However, the current provisions for relaxing the 3‑year track record requirement in the case of companies seeking GDR/ADR/FCCB issues to finance investments in infrastructure industries such as power generation, telecommunications, petroleum, petroleum exploration and refining, ports, airports and roads will continue.

 

These unlisted companies floating GDR/ADR/FCCB issues would, however, need to comply with the standard listing requirement of listing on the domestic stock exchanges within 3 years of having started making profit.

 

Approvals

 

5.         Euro‑issues shall be treated as direct foreign investment (subject to extant policies governing direct foreign investments) in the issuing company. Accordingly, a company which is implementing projects not predominantly contained in Annexure III of the New Industrial Policy of 1991, or a company which undertakes a project contained in Annexure III but whose direct foreign investment after the proposed Euro‑issue is likely to exceed 51 per cent of the post issue subscribed capital, will need to obtain prior FIPB clearance before final approval to the Euro‑issue is given by the Finance Ministry.

 

Number of issues

 

6.         Some restrictions had been imposed previously on the number of issues that could be floated by an individual company or a group of companies during a financial year. There will henceforth be no restrictions on the number of Euro‑issues to be floated by a company or a group of companies in a financial year.

 

End‑use: GDRs

 

7.         In relaxation of earlier guidelines, GDR end‑uses will include-

 

(a)        financing capital goods imports;

 

(b)        capital expenditure including domestic purchase/installation of plant, equipment and buildings and investments in software development;

 

(c)        prepayment or scheduled repayment of earlier external borrowings;

 

(d)        investments abroad where these have been approved by competent authorities;

 

(e)        equity investment in Joint ventures ('JVs')/wholly‑owned subsidiaries (‘WOSs') in India.

 

End Uses

 

GDRs/ADRs are equity instruments and there is no repayment liability on the issuing company. Unlike a commercial borrowing or a foreign currency convertible bond which carries a repayment liability on the company, GDRs/ADRs are full risk equity. It has, therefore, been decided that all end use restrictions on GDR/ADR issue proceeds be removed.]

 

8.         However, investments in stock markets and real estate will not be permitted.

 

9.         Within this framework, GDR raising companies will be allowed full flexibility in deploying the proceeds.

 

10.       Upto a maximum of 25 per cent of the total proceeds may be used for general, corporate restructuring, including working capital requirements of the company raising the GDR.

 

11.       However, banks, financial institutions ('FIs') and non banking finance companies ('NBFCs') registered with the Reserve Bank of India ('RBI') will be eligible for GDR issues without reference to the end‑use criteria mentioned in paras 7 to 10 above with the restriction that investments in stock markets and real estate will not be permitted.

 

12.       A company shall be required to specify the proposed end‑uses of the issue proceeds at the time of making their application, and will be required to submit quarterly statement of utilisation of funds for the approved end‑uses, duly certified by their auditors.

 

End‑use ‑ FCCBs

 

13.       Currently, companies are permitted to access foreign capital market through FCCBs for restructunng of external debt which helps to lengthen maturity and soften terms and for end‑use of funds which conform to the norms prescribed by the Government for external commercial borrowings ('ECB') from time to time. In addition to these, not more than 25 per cent of FCCB issue proceeds may be used for general corporate restructuring including working capital requirements.

 

FCCB pricing

 

14.       FCCBs are available and accessible more freely as compared to external debt and the expectation of the Government is that FCCBs should have subsequently finer spread than ECBs. Accordingly, the all‑in costs for FCCBs should be significantly better than the corresponding debt instruments (ECBs).

 

15.       Companies will not be permitted to issue warrants along with their Euro‑issue.

 

Repatriation of proceeds

 

16.       Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end‑uses.

 

Validity

 

17.       Both the in‑principle and final approvals will be valid for three months from the date of their respective issue.

 

In partial modification, the 90 days validity period for final approval for GDRs and ADRs'is being withdrawn.

 

Review

 

18.       The policy and guidelines for Euro‑issues will be subject to review periodically.

 

VII. POLICY ON INDIAN INVESTMIENTS OVERSEAS LIBERALIZED

 

[Issued by the Deptt. of Economic Affairs, Ministry of Finance, through PIB vide Press Release, dated 20‑6‑1997].

 

With a view to encouraging Indian corporates to globalize, and in line with Government policy to move towards capital account convertibility, the Government have decided to further liberalize the existing policy on Indian investments overseas. The following modifications have been decided upon in the existing policy, and will take immediate effect.

 

I. Fast Track Windows.‑ In addition to the existing Fast Track under which RBI issues approvals, within 21 days, for proposals of overseas investments upto US $ 4M on the basis of export track record (upto 25 per cent of average annual export earnings over the past 3 years are eligible for Fast Track treatment under this window), the following 2 new Fast Track windows would be available for overseas investments:

 

(a)        Investmentsfrom Balances in Exchange Earners Foreign Currency (EEFC) AccountsAs per Finance Minister's announcement in the Budget Speech 1997‑98, investments in overseas Joint Ventures and Wholly Owned Subsidiaries, upto a maximum of US $ 15M, to be funded out of EEFC balances, would be permitted by Authorized Dealers (ADs) without reference to the Reserve Bank of India. Such investments would be permitted without reference to the norms and guidelines in the existing policy on investments overseas. The ceiling of US $ 15M would be inclusive of the ceiling of US $ 4M under the existing Fast Track and would be applied in respect of overseas investments by a corporate over a block of 3 financial years.

 

(b)        Investments out of Global Depository Receipts (GDRs).‑Indian corporates raising GDRs would be permitted to, invest, in ventures overseas, a maximum of 50 per cent of GDRs to be raised, under the normal GDR approval process of Ministry of Finance with overseas investment as a permitted end‑use. Separate clearance from the overseas investment angle would not be necessary in such cases nor would such investments be subject to obligation of neutralizing the investment amount through inward remittances over five years.

 

II. Special Committee Route.‑ All cases not covered under the Fast Track windows would be considered by the special inter‑Ministerial Committee, located in RBI, under the Chairmanship of Commerce Secretary. The norms and parameters already notified by the Government ‑would continue to be applicable for such cases, with the following modifications.

 

(a)        investment proposals with a sizeable GDR and or/EEFC component would have priority.

 

(b)        in respect of investment proposals in excess of US $ 15M, the additional amount can be funded through EEFC balances, in addition to GDR funds. Exemption from the requirement of GDR/EEFC funding for such investments would be considered in cases where the companies have a strong track record in exports, or where there are other compelling benefits in the investment proposal.

 

III. Delegation to Special Committee.‑ Under present procedures, the inter‑Ministerial Special Committee in RBI is authorized to give final approval for investment proposals upto US $ 10M, beyond which proposals require Finance Minister's approval. It has now been decided to enhance the empowered mandate of the Special Committee to cover investment proposals upto US $ 15M.

 

IV. Clearance under Companies Act.‑ Under present procedures, all proposals of Indian investment overseas require a separate clearance of the Central Government under sections 370 and 372 of the Companies Act, 1956. It has now been decided that such clearance would be considered during the Special Committee's consideration of the investment proposal, and the approval grantea by the Special Committee would include the approval under sections 370 and 372 of the Companies Act as well.

 

 

 (VIII) CLARIFICATION ON‑ELIGIBILITY/ENTITLEMENTS OF GDR/ADR HOLDERS TO THE RIGHTS AND BONUS ISSUES

 

Indian companies are permitted to access the international capital markets through issue of GDRs/ADRs under the provisions of the "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993" and subsequent guidelines on Euro Issues publicised through Press Notes by the Government of India, Ministry of Finance, Department of Economic Affairs. Under the Scheme, GDRs/ADRs are issued by overseas depositories against ordinary shares issued and placed with the domestic custodian by Indian companies.

 

2.         Representations have been received from issuer companies seeking clarification on the eligibility/entitlements of GDR/ADR holders to the rights and bonus issues made by the company and on entitlements of GDR/ADR holders in cases of business reorganisation/mergers/demergers.

 

3.         It is clarified that under the Scheme, a GDR/ADR holder is entitled to hold or transfer GDRs/ADRs, or redeem them into underlying ordinary shares with the option to continue holding underlying shares, and thus has a right to the ordinary shares underlying the GDRs/ADRs. Therefore, if an ordinary shareholder of the issuing company acquires a right or entitlement by virtue of ownership of ordinary shares, the GDR/ADR holder also matures the same rights or entitlements owing to his rights over underlying ordinary shares. GDR/ADR holders, therefore, are entitled to same bonus and rights issue of shares as any ordinary shareholders of the company. Similarly, if ordinary shareholders of a company 'A' become entitled to shares of another company 'B' as a consequence of a genuine business reorganisations, and which is duly approved by the High Court under section 391/394 of the Indian Companies Act, then the GDR/ADR holders of company 'A' also mature the same entitlement to shares of company 'B'.

 

4.         Furthermore, when GDR/ADR holders mature an entitlement to shares in a company, the company would need to issue and place ordinary shares with the domestic custodian against which the overseas depository would issue corresponding ADRs/GDRs to the ADR/GDR holders.

 

5.         It has, therefore, been decided to allow Indian companies to issue GDRs/ADRs in cases of bonus or right issue of shares or genuine business reorganisations duly approved by the High Court, in accordance with the provisions of the Scheme and the guidelines issued thereunder. Indian companies would be required to apply to the Department of Economic Affairs for obtaining approval for issue of GDRs/ADRs in all these cases. The Department of Economic Affairs would consider such requests on the basis of necessary supporting documents to assess that the proposed GDRs/ADRs issue is on account of the entitlements of GDR/ADR holders as stated above. [Issued by the Ministry of Finance, Department of Economic Affairs (Investment Division) vide F. No. S II(25)/CCI‑II/89/NRI, dated 17‑8‑1998].

 

(IX)     GDR/ADR LINKED STOCK OPTION FOR SOFTWARE COMPANIES

 

In the budget speech 1998‑99 the Finance Minister announced a special stock option scheme for Indian software companies linked with ADR/GDR offerings by these companies as an instrument to enable these companies to provide incentives to retain their highly skilled professionals. The scheme would enable Indian software companies to offer terms comparable to the packages offered by international companies in the field.

 

2.         The scheme would be governed by the following guidelines:

 

(i)         A software company which has already floated ADR/GDR or a company which is proposing to float ADR/GDR would be entitled to issue ADR/GDR linked stock options to its employees.

 

A software company which proposes to issue GDR/ADR linked stock option to its employees should clearly include such proposal as part of its application for GDRs/ADRs. While DEA approval will be for total issue size inclusive of stock option, the GDRs/ADRs earmarked for the employees upto the specified limit will be issued by the company as and when an employee exercises his stock option. Accordingly, the company shall never exceed the approved level of GDRs/ADRs to be issued.

 

In the case of software companies which have already issued GDRs/ADRs, such companies may seek permission for issue of stock options related to the existing GDR/ADR issue observing the general parameters of the guidelines.

 

 (ii)       The scheme would be available to listed and unlisted software Indian companies which fulfil the performance track record eligibility and other requirements under ADR/GDR guidelines.

 

(iii)       A software company would be defined as a company engaged in manufacture or production of software where not less than 80 per cent of the company's turnover is from software activities.

 

The software company applying for issue of GDR/ADR linked stock options shall be required to submit relevant documents certified by a Chartered Accountant, establishing that they are a software company conforming to the stipulation indicated above. The relevant documents shall also be submitted to RBI while applying for permission for remittance of foreign currency for acquisition of GDRs/ADRs in exercise of the stock option.

 

(iv)       The stock options shall be available to non‑resident and resident permanent employees (including Indian and overseas Working directors) of the company. The stock options shall not be available to the promoters and their relatives (as defined under the Companies Act).

 

(v)        The general FERA permission for resident employees of software companies under the ADR/GDR linked Stock Option Scheme shall be granted by RBI. Requisite notification for this purpose will be issued by RBI. This would entitle a resident employee to acquire and/or hold ADR/GDR linked stock option acquire ADR/GDR on exercise of the option, remit funds up to a limit of $ 50,000 in a block of five years for acquisition of ADRs/GDRs and to retain or continue holding ADRs/GDRs so acquired. The resident employee upon liquidation of ADR/GDR holdings would need to repatriate the proceeds to India unless a general/specific permission from RBI is obtained for its retention or use abroad.

 

(vi)       Issue of stock options shall require a special resolution as applicable for preferential allotment of shares. The allotment of stock options shall be done by a Committee of the Board of Directors of the company. The Committee of Directors shall have a minimum of two non‑executive members of the Board as its members.

 

(vii)      The issuing company would be entitled to issue options not exceeding 10 per cent of its issued and paid‑up equity capital.

 

(viii)      The stock options may be issued at a discount of not more than 10 per cent to the market price at the time of the issue of the stock option.

 

(ix)       While GDRs/ADRs acquired in exercise of the stock option shall be freely transferable, the stock options themselves shall be non‑transferable.

 

(x)        Full disclosure should be made in the Directors report or in an annexure to the Directors report of the details of the stock option scheme by the company.

 

(xi)       ADRs/GDRs acquired on exercise of stock options would be eligible for concessional tax treatment under section 115AC of Income‑tax Act, 1961. Necessary amendments under section 115AC of the Income‑tax Act, 1961 shall be notified by the Department of Revenue separately.

 

[Issued by the Ministry of Finance (Investment Division) vide F. No. 17/2/97‑NRI, dt. 23‑6‑1998]

 

(X) Employees Stock Option to all Companies engaged in 'IT Software' and 'IT Services'

 

The Government has decided to extend the facility for issue of ADR/GDR linked stock option to all companies engaged in the IT Software and IT Services as defined in the Gazette Notification dated 25th July, 1998. It may be recalled that the Government had decided in June 1998 to facilitate issue of GDR/ADR linked stock options to its employees by companies engaged in manufacture or production of Software. At that time it was decided that such companies should have a turn‑over of not less than 80 per cent from Software activities. This condition would continue to be applicable. As per the definition in the Gazette Notification "IT Software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactively to a user, by means of an automatic data processing machine, falling under heading 'IT Products', but does not include 'non‑IT products', 'IT service' is defined as any service which results from the use of any software over a system of IT products for realising value addition. The term 'IT Industry' shall cover development, production and services related to IT Products. The term 'IT Software' shall be substituted in place of 'Computer Software' in all notifications. The change has been done in view of the recommendations made in the Information Technology Action Plan of the Prime Minister's National Task Force on Information Technology and Software Development.

 

(XI) Modifications to EURO issue Guidelines‑GDR/ADR Linked Stock Option Scheme for Software Companies, dated 16‑9‑1998

 

Guidelines were issued through a Press Note dated 23‑6‑1998 facilitating issue of GDR/ADR linked stock option to its employees by companies engaged in manufacture or production of software where not less than 80 per cent of the company's turnover is from software activities.

 

2.         A Notification was issued on 25‑7‑1998 by the Planning Commission announcing the recommendations made in the Information Technology Action Plan of the Prime Minister's National Task Force on Information Technology and Software Development. Among others, the Task Force had recommended that the ADR/GDR linked stock option scheme for software companies be modified to include all companies engaged in Information Technology Software and Information Technology Services as defined in recommendation No. 19(a) and (b) of the Planning Commission Notification dated 25‑7‑1998.

 

3.         Taking in view the recommendations, it has been decided by the Government to extend the facility for issue of ADR/GDR linked stock options to all companies engaged in the IT Software and IT Services as defined in the Notification referred to. in para 2 above. All other parameters/requirements indicated in the EURO issue guidelines dated 23‑6‑1998 would continue to be applicable.

 

4.         These guidelines come into force with immediate effect.

 

Group on Hi‑ Tech IT Habitats to be set up by the Task Force

 

(19) (a) Definition:      "IT Software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine falling under heading 'IT Products', but does not include 'non‑IT products'. 'IT service' is defined as any service which results from the use of any IT software over a system of IT products for realising value addition. The term 'IT Industry' shall cover development, production and services related to IT Products. The term 'IT Software' shall be substituted in place of 'Computer Software' in all notifications.

 

(b)        Finance Ministry (CBEC) shall introduce a new classification called 'Information Technology (IT) Products' including Computer, Digital/Data Communication and Digital/Data Broadcasting products, by recognising the progressive technological convergence of these three categories including all items in the classification list in Attachment A (Section‑I and Section‑II) of the WTO (ITA) Agreement and, additionally, Data Communication equipment.

 

(c)        IT Software shall be entitled for zero customs duty and zero excise duty.

 

(20)      A revised Notification giving the following new schedule for the Government of India acceding to the WTO‑ITA Ministerial Declaration of 13 December, 1996 at Singapore shall be issued by the Ministry of Finance:

 

In Attachment A. Sections‑I and II of WTO‑ITA:

 

(a)        Duty shall be brought down to zero by January 1, 1999 on the following items: Parts & components excluding populated PCBs in HSN 8473.30, all storage devices in HSN 8471.70, ICs above Rs. 1000 in HSN 8542, Stepper Motors in HSN 8501.10, Colour Graphic Display Tube in HSN 8540.40 and Deflective components for Colour monitor in HSN 8504.

 

(b)        Out of the 217 items listed in ITA‑1, 94 items which were proposed earlier for zero duty by 1st January, 2000 shall now be advanced to 1st January, 1999.

 

[Issued by the Ministry of Finance (Investment Division) vide F.No. 1712197‑NRI, dated 16‑91998].

 

(XII) Acquisition of shares of overseas joint venturestwholly owned subsidiaries by employees of Indian promoter companies in the software field, dated 2‑12‑1998

 

1.         Attention of authorised dealers is drawn to paragraph 12.7 of Exchange Control Manual in terms of which the Reserve Bank of India ('RBI') considers applications from employees of Indian offices/branches/joint ventures/subsidiaries in India of foreign companies for acquisition of foreign currency shares of the foreign companies. It has been decided that the RBI may consider applications for remittance towards acquisition of the shares of the overseas joint ventures/wholly owned subsidiaries in the software field by the employees of the Indian promoter company provided (a) the remittance does not exceed US$ 10,000 or its equivalent per employee in a block of five years, (b) the shares so allotted to Indian employees do not exceed 5 per cent of the paid‑up capital of the overseas concern, and (c) as a result of allotment of shares of the overseas concern to the Indian employees, the shareholding of the Indian promoter company does not fall below the existing percentage of shareholding.

 

2.         The applications for this purpose should be made by the Indian promoter company to the concerned regional office of the RBI together with relevant documents such as the names and addresses of Indian employees, name and address of the overseas concern whose shares are proposed to be issued, total number and face value of foreign currency shares to be allotted to each employees together with the certified copies of the overseas concern's latest audited balance‑sheet and resolution passed by its Board of Directors in support of offer of shares to the employees of its parent Indian company.

 

3.         The following amendments, which also include amendments arising from issue of AD (MA Series) Circular No. 25, dated August 7, 1998, may be carried out in the Exchange Control Manual, Volume I.

 

(i)         New sub‑paragraph (v) may be added to paragraph 12.6 as per Slip 1.

 

(ii)        New paragraph 12.7 A may be inserted as per Slip 2 after paragraph 12.7 and its entry made in the Index of the said Chapter.

 

(iii)       A note may be inserted after paragraph 9A.4 (ii) as per Slip 3.

 

*          *          *          *          *

 

4.         Authorised dealers may bring the contents of this circular to the notice of their concerned constituents.

 

5.         The directions contained in this circular have been issued under section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non‑observance thereof is subject to the penalties prescribed under the Act.

 

 

Slip I

 

[AD/MA 46/1998]

 

12.6 (v) Indian software companies are allowed to offer ADR/GDR linked stock option schemes to their non‑resident/resident permanent employees (including Indian and overseas working directors). The scheme is outlined in the Annexure to the Chapter 12. Indian software companies desiring to offer ADR/GDR linked stock option schemes for their resident employees should approach the concerned Regional Office of Reserve Bank on behalf of their resident employees, for necessary permission, with relevant documents such as certificates from a Chartered Accountant that the company is engaged in manufacturing and/or production of software and its turnover from software activities is not less than 89 per cent of the total turnover, together with certified copies of approval of Ministry of Finance, Department of Economic Affairs, Government of India for issue of ADR/GDR, special resolution passed by the Board of Directors and a list of eligible employees. On exercise of the option each resident employee will be permitted to remit upto U.S. $ 50,000 in a block of 5 years to acquire the ADRs/GDRs. As the non‑resident employees would normally be required to pay the cost of acquisition of the ADR/GDR issues out of their own resources abroad, no remittance of funds from India should be involved. However, non‑resident Indian employees would be required to approach Reserve Bank on their return to India for issue of a licence for holding the ADRs/GDRs acquired during their stay abroad, if their continuous stay abroad before return to India is less than one year.

 

Slip 2

 

[AD/MA 46/1998]

 

Acquisition of Foreign Currency Shares of Overseas Joint Ventures/Wholly Owned Subsidiaries by employees of Indian Promoter Company engaged in the field of software.

 

12.7A  Reserve Bank may consider applications from Indian companies, for remittance towards acquisition of the shares of the overseas joint ventures/wholly owned subsidiaries in the software field by the employees of the Indian promoter company provided (a) the remittance does not exceed U.S. $ 10,000 or its equivalent per employee in a block of five years and (b) the shares so allotted to Indian employees do not exceed 5% of the paid‑up capital of the overseas concern and (c) as a result of allotment of shares of the overseas concern to the Indian employees the shareholding of the Indian parent company does not fall below the existing percentage of shareholding.

 

The applications for this purpose should be made by the Indian promoter company to the concerned Regional Office of Reserve Bank together with relevant documents such as the names and addresses of Indian employees, name and address of the overseas concern, total number and face value of foreign currency shares to be allotted to each employee, certified copies of the overseas concern's latest audited balance sheet and resolution passed by its Board of Directors in support of offer of shares to the employees of its parent Indian company.

 

 

Slip 3

 

[AD/MA 46/1998]

 

9A. 4(ii)

 

Note:   For subscription to shares of overseas joint ventures/wholly owned subsidiaries by employees of Indian promoter company in the field of software refer to paragraph 123A.

 

ANNEXURE

 

Scheme for issue of ADR/GDR Linked Stock Option for Employees of Software Companies in India

 

(i)         A software company which has already floated ADR/GDR or a company which is proposing to float ADR/GDR would be entitled to issue ADR/GDR linked Stock options to its employees.

 

A software company which proposes to issue ADR/GDR linked stock option to its employees should clearly include such proposal as part of its application for ADRs/GDRs. While Government of India, Ministry of Finance, Department of Economic Affairs approval will be for total issue size inclusive of stock option, the ADRs/GDRs earmarked for the employees upto the specified limit will be issued by the company as and when an employee exercises his stock option. Accordingly, the company shall not exceed the approved level of ADRs1GDRs to be issued by it at any point of time.

 

In the case of software companies which have already issued ADRs/GDRs, such companies may seek permission for issue of stock options for existing ADR/GDR issue, observing the general parameters of the guidelines.

 

(ii)        The scheme would be available to listed and unlisted software Indian companies which fulfil the performance track record eligibility and other requirements under ADR/GDR guidelines of the Government of India.

 

(iii)       A software company would be defined as a company engaged in manufacture or production of software whose turnover from software activities is not less than 80 per cent.

 

(iv)       A software company applying to the Government of India for issue of ADR/GDR linked stock options shall be required to submit relevant documents certified by a chartered accountant, establishing that they are a software company conforming to the stipulation indicated above. The relevant documents shall also be submitted to the RBI while applying for permission for remittances of foreign exchange for acquisition of ADRs/GDRs in exercise of the stock option.

 

(v)        The stock option shall be available to non‑resident and resident permanent employees (including Indian and overseas working directors) of the company. ne stock options shall not be available to the promoters and their relatives (as defined under the Companies Act, 1956).

 

(vi)       The eligible employees can remit upto US$ 50,000 in a block of five years for acquisition of ADRs/GDRs. Upon liquidation of ADR/GDR holdings the proceeds should be repatriated to India unless permission from the RBI is obtained for its retention or use abroad.

 

(vii)      Issue of stock options shall require a special resolution as applicable for preferential allotment of shares. The allotment of stock options shall be done by a committee of the Board of directors of the company. The committee of directors shall have a minimum of two non‑executive members of the Board as its members.

 

(viii)      The issuing company would be entitled to issue options not exceeding 10 per cent of its issued and paid‑up equity capital.

 

(ix)       The stock options may be issued at a discount of not more than 10 per cent to the market price prevailing at the time of the issue of the stock option.

 

 

Khyati – 1925

Khyati 1926

 

overseas exchange. In addition, companies who obtain one time "Balnket Approval" from the Special Composite Committee, would also be eligible for automatic approval.

 

Limit for acquisition

 

5.         Financial limit specified in paras 6(A) and (B) below:

 

Approval mechanism

 

6.         Overseas acquisition of software companies by Indian software companies would be governed by the following guidelines:

 

(A)       Business Acquisition abroad by Indian software companies upto the value limit of US $ 100 million

 

(i)         Indian Software Companies which have already floated an ADR/GDR issue and are currently listed in the overseas exchange, would be eligible to acquire overseas software companies and issue ADRs/GDRs of the value of the cost of acquisition, on a back to back basis, on an automatic basis without reference either to the Government or the RBI.

 

(ii)        In addition, Indian software companies not covered by (i) above, may obtain a one time "Blanket Approval" from the Special Composite Committee, by an application made to RBI, and would thereafter be eligible for automatic approval as in the case of Indian software companies which have already floated an ADR/GDR issued and are currently listed in the overseas exchange.

 

(iii)       Such transaction would be exempt from the prior approval requirement either from the Government or from the Reserve Bank of India subject to the condition that the cost of acquisition is met with ADRs/GDRs real i sation/stock swaps on a back to back basis.

 

(iv)       At present, ADR/GDR offerings require a two stage approval by the Department of Economic Affairs an 'in principle' approval based on track record requirement and the final approval for issue parameters. The two stage approval requirement will not be required for ADR/GDR offerings/stock swap which are being raised/issued specifically for the purpose of overseas business acquisition by the Indian software companies as defined above.

 

(v)        The existing limit of use of upto 50% of the ADR/GDR proceeds for overseas investment is also removed. Under the revised norms, limited to such acquisition, upto 100% of the ADR/GDR proceeds may be utilised for such business acquisition.

 

(vi)       The value limit of US‑$ 100 million under the above ADR/GDR stock swap would be an annual limit for each company for one or more acquisitions.

 

(B)       Overseas Business acquisition beyond $ 100 million

 

In the case of proposals which do not meet the conditions at (A) above and where the cost involved in the transaction/overseas business acquisition exceeds $ 100 million, the Indian software company would need to send the proposal to RBI for consideration by a Special Composite Committee on overseas investment and ADR/GDR approvals. The Committee would consider according a composite approval, prescribing a ceiling for overseas acquisition under the above scheme. The company would, thereafter, report to the committee after finalising the acquisition, of the details of the transaction.

 

Criteria for automatic approval

 

7.         The liberalised approval mechanism is subject to the following norms:

 

(i)         The existing foreign equity including on account of any existing ADR/GDR offering and the proposed ADR/GDR issue/stock swap in the expanded capital base is within the limit operative for RBI automatic approval for FDI in the software sector. No FIPB approval would be required in such cases even if the ADRs/GDRs are issued otherwise than in cash.

 

(ii)        The proposed ADR/GDR stock swap for purposes of acquisition of business abroad is by way of expansion in the capital base or to be precise by way of issue of fresh underlying shares.

 

(iii)       The present ADR/GDR guidelines provides for redemption of the ADRs/GDRs into the underlying rupee denominated shares of the Indian company, sale in the domestic market, and full repatriation of sale proceeds subject to payment of prescribed tax. The same provision would extend to ADR/GDR holders of the acquired company. Reconversion of the underlying shares into ADRs/GDRs is not permissible.

 

(iv)       The proposal would have to conform to the following valuation norms:

 

(a)        The valuation of the transaction and of the overseas company shall be as per the recommendation of an Investment Banker;

 

(b)        In the case of a listed overseas company, the valuation will be based on the current market capitalisation of the overseas company (based on the monthly average trading on the overseas exchange, for the three months preceding the month in which the acquisition is committed to) and premium, if any, as per the recommendations of the Investment Banker in the Due‑diligence reports;

 

(c)        In the case of an unlisted overseas company, the valuation will be based on the recommendations of the Investment Banker.

 

(v)        The proposal being in conformity with all provisions of the Companies Act, 1956.

 

(vi)       The companies are required to report full details of the transaction including value of the transaction/acquisition cost, foreign equity level in the Indian software company on account of issue of ADRs/GDRs, as detailed in paragraph 8 below.

 

(vii)      Compliance with RBI Regulations.

 

(viii)      Other clearances as applicable being obtained by the Company.

 

(For the purpose of this scheme, an Investment Banker would be defined as an Investment Banker registered with the Securities and Exchange Commission in the USA, or under Financial Services Authority in U.K. or the appropriate regulatory authority in Germany, France, Singapore or in Japan).

 

Reporting

 

8.         After completing the transactions/acquisitions, Indian companies should furnish full particulars thereof including amount of ADRs/GDRs issued, percentage of foreign equity level in Indian company on account of such issue, name/s of the overseas company his acquired, cost of acquisition, percentage of holding of Indian company in the foreign company, details of its line of activity, country of location, etc. together with relevant documents like valuation report by the investment banker to the Ministry of Finance, Department of Economic Affairs and Reserve Bank of India, Exchange Control Department, Overseas Investment Division, Mumbai within 30 days of completion of such transactions. On receipt of these particulars, Reserve Bank will issue specific identification number in respect of each overseas company acquired and Indian companies will have to comply with the existing requirement regarding submission of Annual Performance Reports, repatriation of entitlements from the overseas concerns, etc.

 

Format of the application

 

9.         The application will have to be submitted to the Reserve Bank of India in the existing forms of overseas investment and for ADR/GDR together by an applicant, for the time being, who will have the option to supplement the information.

 

10.       This scheme is in addition to the existing routes available for overseas investment including the automatic approval route. [Circular : F. No. 15/22/99‑NRI, dated 27‑12‑1999, issued by Ministry of Finance, Department of Economic Affairs.]

 

(XV) Guidelines for ADR/GDR issues by the Indian Companies, dated 19‑1‑2000

 

A Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism) was notified by the Government of India in November, 1993. Revisions/modifications in the operative guidelines for Euro‑issues are announced from time to time.

 

2.         With a view to further liberalising the operational guidelines and in particular track record scrutiny of the ADR/GDR proposals and approval mechanism various options were considered by the Government. Given the fact that track record scrutiny process for ADRIGDR issues and the two stage approval by the Ministry of Finance, Department of Economic Affairs could be dispensed with.

 

3.         The following guidelines for ADR/GDR issues, in continuation of the Notification of November, 1993 (amendment in November, 1999) shall come into effect from the date of issue of these guidelines. These guidelines will also extend to proposals which have already been filed with the Ministry of Finance as also in cases were an 'in principle' approval has been issued by the Ministry of Finance, Department of Economic Affairs. These modified guidelines will, however, not extend to Foreign Currency Convertible Bond (FCCB) issues which will continue to be governed by existing guidelines. Further, the issue of ADRs/GDRs under the liberalised guidelines would be only against expansion of the existing capital base through issuance of fresh equity shares as underlying shares for ADRs/GDRs.

 

4.         ADR/GDR are reckoned as part of Foreign Direct Investment (FDI). Accordingly, such issues would need to conform to the existing FDI Policy and only in areas where FDI is permissible.

 

5. Approvals

 

5.1       Indian companies raising money through ADRs/GDRs through registered exchanges would henceforth be free to access the ADR/GDR markets through an automatic route without the prior approval of the Ministry of Finance, Department of Economic Affairs. Private placement of ADR/GDRs would also be eligible for the automatic approval provided the issue is lead managed by an investment banker. (For the purpose of this scheme, an Investment Bank would be defined as an Investment Banker registered with the Securities and Exchange Commission in the USA, or under Financial Services Act in U.K. or the appropriate regulatory authority in Europe, Singapore or in Japan). The track record condition will not be operative for ADR/GDR issues.

 

5.2       Automatic route for ADR/GDR issue would also cover issue of Employee Stock Options by Indian Software Companies/Companies in the IT Sector in conformity with the guidelines dated 23‑6‑1998 and 16‑9‑1998 issued for ADR/GDR linked employees stock options by Indian Software Companies/ Companies in the IT Sector, subject to other approval requirements, as indicated in para 6 below.

 

5.3       Issue of ADRs/GDRs arising out of business reorganisation/merger/demerger would also be governed by Automatic route subject to the guidelines issued by this Department on 17th August, 1998.

 

6. Mandatory Approval Requirements

 

6.1       In all cases of automatic approval mentioned above, the mandatory approval requirements under FDI policy, approvals such as under the Companies Act, approvals for overseas investments/business acquisition (where ADR/GDR proceeds are utilised for overseas investments), etc. would need to be obtained by the company prior to the ADR/GDR issues.

 

6.2       The issuer company would need to obtain RBI approval under the provisions FERA/FEMA prior to the overseas issue.

 

6.3       Reserve Bank of India will be issuing necessary guidelines.

 

7. Option for retention of funds abroad/repatriation

 

7.1       Existing guidelines on euro issues providing for the option of retention of issue proceeds abroad or repatriation of funds into the country in anticipation of deployment towards the purposes for which the funds have been raised would continue to be applicable.

 

7.2       Retention and deployment of funds abroad would be as prescribed by RBI.

 

8. End uses

 

While no detailed end uses are specified, the existing bar on investments in stock markets and real estate would continue to be operative.

 

9. Issue related expenses

 

The issue related expenses (covering both fixed expenses like underwriting commissions, lead managers charges, legal expenses and other reimbursible expenses) shall be subject to a ceiling of 4% in the case of GDRs and 7% in the case of listing on US Exchange. Issue expenses beyond the ceiling would need the approval of RBI.

 

10. Reporting

 

After completing the transactions, the companies would be required to furnish full particulars thereof including amount of ADRs/GDRs issued, number of underlying fresh equity shares issued, percentage of foreign equity level in the Indian company on account of issue of ADRs/GDRs (stating whether under automatic route or with FIPB approval), detailed issue parameters to the Ministry of Finance, Department of Economic Affairs and the Exchange Control Department of the Reserve Bank of India, Central Office, Mumbai within 30 days of completion of such transactions.

 

[F. No. 15/7/99‑NRI Ministry of Finance, Department of Economic Affairs (Investment Division), dated 19‑1‑2000].

 

(XVI) RBI gives general permission for issue of ADRs/GDRs, dated 20‑1‑2000

 

In order to further simplify the procedure, the Reserve Bank of India has today granted general permissions under the Foreign Exchange Regulation Act, 1973 (FERA) to Indian companies to make an international offering of Rupee derion‑driated equity shares of the company by way of issue of American Depositary Receipts/Global Depositary Receipt (ADRs/GDRs). Besides, the necessary permissions under FERA, 1973 for issue and export of ADRs/GDRs by the Indian company and acquisition of ADRs/GDRs by foreign investors have also been granted. Various other permissions necessary for launching an ADR/GDR issue have also been granted to the issuing companies.

 

Recently, the Government of India has made certain changes in the guidelines for ADRIGDR issues by the Indian companies in terms of which Indian companies issuing ADRs/GDRs need not approach Ministry of Finance, Government of India for prior approval, subject to the Reserve Bank of India's (RBI) approval under FERA, 1973. These changes seek to further liberalise the operational procedures by dispensing with the track record scrutiny process and the two‑stage approval by the Ministry of Finance, Department of Economic Affairs for ADR/GDR issues.

 

Issuing companies may now enter into agreements in respect of or ancillary to the offer including but not limited to the Subscription Agreements and Deposit Agreement and to provide the necessary warranties and indemnities in accordance with international practices.

 

Depositories may remit the dividends by purchasing foreign currency at the prevailing market rates through an authorised dealer in foreign exchange.

 

[Press Release : 1999‑2000/952, dated 20‑1‑2000 issued by the Press Relations Division, RBI]

 

(XVII) Permission to issue Global Depository Receipts/American Depository Receipts

 

Notification No. G.S.R. 109(E), dated 20th January, 2000

 

In pursuance of clause (a) and clause (d) of sub‑section (1) of section 19 and clause (b) of subsection (1) of section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and all other powers enabling it in this regard, the Reserve Bank is pleased to permit:

 

(a)        a company incorporated in India which fulfils the eligibility criteria laid down in para 2,

 

(i)         to make an international offering of rupee denominated equity shares of the company by way of issue of Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) to persons resident outside India;

 

(ii)        to export the said securities to investors outside India and

 

(b)        the investors to acquire the securities so purchased.

 

2.        

(i)         the issuing company has necessary approval from the Ministry of Finance, Government of India to issue such ADRs/GDRs or is eligible to issue ADRs/GDRs in terms of the relevant scheme or notification issued by the Ministry of Finance, and

 

(ii)        the issuing company is eligible to issue shares to foreign investors under the Automatic Route of Reserve Bank of India or has necessary approval from Secretariat for Industrial Assistance (SIA)/Foreign Investment Promotion Board (FIPB) and the percentage of foreign equity does not exceed the limits specified under the Automatic Route or the limits specified by the SIA/FIPB.

 

3.         The company issuing GDRs/ADRs is also permitted

 

(i)         to issue shares in the name of the depository or its nominees and to place the share certificates in respect of the said shares in the physical custody of a Custodian in India against which the depository will issue DGRs/ADRs outside India;

 

(ii)        to remit dividends through an authorised dealer as and when due subject to payment of Indian taxes as applicable;

 

(iii)       to issue rights or bonus shares that may accrue in respect of the GDRs/ADRs;

 

(iv)       to incur issue related expenses as approved by the Ministry of Finance, Government of India or up to the limits laid down in the relevant guidelines issued by the Government of India;

 

(v)        to pay the issue related expenses by way of deductions from the issue proceeds as approved by the Ministry of Finance, Government of India or up to the limits laid down in the relevant guidelines issued by the Government of India;

 

(vi)       to remit and pay for filing, listing, agency or other fees on ongoing basis in respect of any international stock exchange where the GDRs/ADRs are listed;

 

(vii)      to maintain a foreign register of members, if so required;

 

(viii)      to open an account abroad to receive the subscription monies in foreign currency;

 

(ix)       to pay any foreign tax in the nature of sales or value added tax in respect of services provided to the issuing company and reimburse any out of pocket expenses;

 

(x)        to repatriate the proceeds of the issue to India for deployment for purposes permitted by the Government of India. Pending repatriation of issue proceeds to India:

 

(a)        to invest the funds as an interim arrangement on short‑term basis as deposits in foreign banks which are rated for short‑term obligations A1+by Standard and Poor or P1 by Moody's or with the branches of Indian banks abroad or;

 

(b)        to invest in treasury bills and other monetary instruments with maturities not exceeding one year or;

 

(c)        to keep the funds as foreign currency deposits with authorised dealers and/or public financial institutions in India or;

 

(d)        to invest in certificate of deposit or other paper issued outside India by banks incorporated in India.

 

4.         The issuing company shall:

 

(i)         furnish a statement to Exchange Control Department of Reserve Bank of India, Central Office, Mumbai, within thirty days from the date of closing of the issue providing full particulars of the issue such as amount of GDRs/ADRs issued, a number of underlying fresh equity shares issued, listing arrangements, total amount raised, amount retained abroad and other relevant details regarding launching and initial trading of the GDRs;

 

(ii)        furnish capital structure of the company before and after the issue within thirty days from the closure of the issue;

 

(iii)       inform Reserve Bank of any repatriation of issue proceeds held abroad immediately on such repatriation.

 

[No. FERA 214/2000‑RB]

 

(XVIII) Details of GDR/ADR Issue Launched to be submitted within stipulated time

 

Attention of authorised dealers is invited to Reserve Bank Notification No. FEMA‑ 20/2000‑RB dated 3 May 2000. In terms of paragraphs 4(2) and (3) of Schedule I to the above notification, Indian companies issuing ADRs/GDRs shall furnish to Reserve Bank full details of such issue in the form specified in Annexure 'C' within 30 days from the date of closing of the issue and a quarterly return in the form specified in Annexure 'D' within fifteen days from the close of the calendar quarter, respectively. However, it is observed that some of the companies are not submitting Annexures 'C' and 'D' within the stipulated time.

 

2.         Authorised dealers may advise their constituents who have issued ADRs/GDRs or who are going for ADR/GDR issues to submit Annexures 'C' and 'D' within the stipulated time.

 

3.         The directions contained in this circular have been issued under section 10(4) and section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and any contravention or nonobservance thereof is subject to the penalties prescribed under the Act.

 

[Circular No. 14 A.P. (DIR Series) issued by Reserve Bank of India, Exchange Control Department, dated 26 September, 2000].