A.P.(DIR Series) (2003-2004) Circular No. 53, dated 17-12-2003
Attention of
Authorised Dealers is invited to Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident outside India) Regulations, 2000 issued vide
Notification No. FEMA.20/2000-RB dated May 3, 2000. In terms of Regulation 5(2)
read with clause 1 (1) of Schedule 2 thereof, a SEBI registered FII may apply
to the Reserve Bank for grant of permission to purchase shares or convertible
debentures of an Indian company under Portfolio Investment Scheme (PIS).
2. It has now been decided to
permit SEBI registered FIIs/sub-accounts of FIIs to buy/sell equity
shares/debentures of Indian companies (excluding companies engaged in the print
media sector), units of domestic mutual funds, dated Government Securities and
Treasury Bills through stock exchanges in India at the ruling market price,
invest/trade in exchange traded derivative contracts, and also to buy/sell
shares and debentures etc. of listed/unlisted companies otherwise than on stock
exchange at a price approved by SEBI/Reserve Bank as per terms and conditions
prescribed in the Annexure. For the purpose of FII investment, Government
Securities would include dated securities of both Government of India and State
Governments of all maturities and Treasury Bills of Government of India.
Investment in Government dated securities and Treasury Bills by FIIs may be
made either in the primary market (at the auction/floatation) or in the
secondary market. The investments will be made subject to SEBI (FIIs)
Regulations, 1995 modified by SEBI/Government of India from time to time as published
in the Official Gazette of India.
3. The permission granted may
also be treated as Reserve Bank’s permission under section 6 of the Foreign
Exchange Management Act, 1999 to the investee company/ies for (a)
registering the transfer of shares/debentures etc.,in favour of the SEBI
registered FIIs/sub-accounts of FIIs, and (b) for issue of shares on
account of conversion of debentures purchased by the SEBI registered
FIIs/sub-accounts of FIIs.
4. Necessary amendments to the
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2000 issued vide Notification No.
FEMA.20/2000-RB dated May 3, 2000 are being issued separately.
5. Authorised Dealers may bring
the contents of this circular to the notice of their constituents concerned.
6. The directions contained in
this circular have been issued under sections 10(4) and 11(1) of the Foreign
Exchange Management Act, 1999 (42 of 1999).
ANNEXURE
1. A SEBI registered FII/approved sub-account is permitted to open a
Foreign Currency denominated Account and/or a Special Non-Resident Rupee
Account and to transfer sums from the foreign currency account to the rupee
account for making genuine investments in the securities in terms of the SEBI
(FIIs) Regulations, 1995. The sums may be transferred from foreign currency
account to rupee account at the prevailing market rate and the Authorised
Dealer may transfer repatriable proceeds (after payment of tax) from the rupee
account to the foreign currency account.
2. The Special Non-Resident Rupee Account may be credited with the proceeds
of sale of shares/debentures, dated Government securities, Treasury Bills etc.,
dividend, income received by way of interest, forward contracts booked etc., by
compensation received towards sale/renouncements of right offerings of shares
and income earned on securities lent under SEBI’s Securities Lending Scheme,
1997 after deduction of appropriate tax, if any subject to the condition that
the Authorized Dealer should obtain confirmation from the investee company/FII
concerned that tax at source, wherever necessary, has been deducted from the
gross amount of dividend/interest payable/approved income to the
share/debenture/Government securities holder at the applicable rate, in
accordance with the Income Tax Act.
3. The Special Non-Resident Rupee Account may be debited for purchase of
shares/debentures, dated Government securities, Treasury Bills etc., and for
payment of fees to applicant FIIs’ local Chartered Accountant/Tax Consultant
where such fees constitute an integral part of their investment process.
4. The SEBI registered FII/sub-account is/are permitted to purchase
shares/convertible debentures of an Indian company through offer/private
arrangement subject to the applicable ceiling and the Indian company is
permitted to issue such shares provided that:
(i) in
the case of public offer, the price of shares to be issued is not less than the
price at which shares are issued to residents and
(ii) in
the case of issue by private placement, the price is not less than the price
arrived at in terms of SEBI guidelines or guidelines issued by the erstwhile
Controller of Capital Issues, as applicable. Purchases can also be made of
PCDs/FCDs/Right Renunciations/Warrants/Units of Domestic Mutual Fund Schemes.
5. FII shall not engage in short selling and shall take delivery of
securities purchased and give delivery of securities sold. There shall be no
squaring off of transactions during the no-delivery period of a security.
6. The SEBI registered FII shall restrict allocation of its total
investment between equities and debt in the Indian capital market in the ratio
of 70:30. The FII may form a 100% debt fund and get such fund registered with
SEBI.
7. The purchase of equity shares by a single SEBI registered
FII/sub-account in each company shall not exceed 10% (ten per cent) of the
paid-up equity capital of the company. The purchase of equity shares by each
foreign corporate and foreign individual shall not exceed 5% of the paid-up
equity capital of the company within the overall aggregate limit of 24% or the
sectoral cap/statutory ceiling, as applicable. These limits shall include
acquisition of shares in primary/secondary market.
8. SEBI registered FII may trade in all exchange traded derivative contracts
on the stock exchanges in India subject to the position limits as prescribed by
SEBI from time to time. The SEBI registered FII/sub-account may open a separate
sub-account of their Special Non-Resident Rupee Account through which all
receipts and payments pertaining to trading/investment in exchange traded
derivative contracts including initial margin and mark to market settlement,
transaction charges, brokerage etc., will be made. Further transfer between the
Special Non-Resident Rupee Account and the sub-account maintained for the
purpose of trading in exchange traded derivative contracts can be freely
effected. However, repatriation of the rupee amount will be effected only
through their Special Non-Resident Rupee Account subject to payment of relevant
taxes. The Authorised Dealer may keep proper records of the sub-account and
submit them to Reserve Bank as and when required.
9. SEBI registered FIIs/sub-accounts may keep with the Trading
Member/Clearing Member amount sufficient to cover the margins prescribed by the
Exchange/Clearing House and such amounts as may be considered necessary to meet
the immediate needs.
10. A daily statement in respect of all transactions (except derivative
trade) should be submitted in floppy/soft copy in the prescribed format
directly to the Chief General Manager, Exchange Control Department, Reserve
Bank of India, Foreign Investment Division, Central Office, Central Office
Building, Mumbai - 400 001 to monitor the overall ceiling/sectoral
cap/statutory ceiling. When the total holdings of FIIs reach within 2% of the
applicable limit, Reserve Bank will issue a notice to all designated branches
of Authorised Dealers stating that any further purchases of shares of the said
company require prior approval of Reserve Bank. No purchases shall be made once
the prescribed overall ceiling/sectoral cap/statutory limit is reached.