Indian Direct Investment in JV/WOS outside India
Indian Direct Investment in Joint Ventures (JV) Wholly Owned Subsidiaries (WOS) outside India
Attention
of authorised dealers is invited to the Reserve Bank Notification No. FEMA
19/RB/2000, dated 3rd May, 2000 making “Foreign Exchange Management (Transfer
or Issue of any Foreign Security) Regulations, 2000” under clause (a) of
sub-section (3) of section 6 read with section 47 of the Foreign Exchange
Management Act, 1999 (42 of 1999).
2. In terms
of the Regulations 6 and 7 of the Notification, Indian parties are permitted to
make direct investment in Joint Venture (JV) or Wholly Owned Subsidiary outside
India, subject to their complying with the conditions specified therein.
Authorised dealers may allow remittance upto the permissible limit on receipt
of an application in form ODA, in triplicate, together with form A-2, duly
filled in, from the investing company. Before allowing the remittance authorised
dealer should ensure that the necessary documents, as prescribed in form ODA,
have been submitted. Immediately after the remittance is made, the authorised
dealer should forward to the Regional Office of the Exchange Control
Department, under whose jurisdiction it is functioning, two copies of form ODA
along with a report on remittance in the form ODR, in duplicate (format
enclosed). In cases where the investment is being made jointly by more than one
Indian company, form ODA should be signed jointly by all the investing
companies and submitted to the designated branch of the authorised dealer, who
in turn should immediately forward the same to the Reserve Bank, together with
a consolidated form ODR. The same procedure should also be followed where the
investment is made out of the proceeds of ADR/GDR issues of Indian party in
terms of Regulation 6(6) of the Notification.
3. Clause
(vi) of sub-regulation (2) of Regulation 6 provides that all transactions
relating to investment in a JV/WOS are to be routed through only one branch of
an authorised dealer designated by the Indian party. For proper follow-up, the
authorised dealers are advised to maintain party-wise record in respect of each
JV/WOS separately.
4. Authorised
dealers may allow remittance towards loan to the JV/WOS and/or issue guarantee
to/on behalf of the JV/WOS abroad provided the applicant has an equity stake in
the JV/WOS.
5. In terms
of Regulation 11 of the Notification dated 3rd May, 2000 under reference Indian
parties are also permitted to make direct investment in JV/WOS abroad by way of
capitalisation of exports or other dues/entitlements like royalties, technical
know-how fees, consultancy fees, etc. In such cases also the Indian party
should be advised to submit details of the capitalisation in form ODA which
should be forwarded by the designated branch of authorised dealer to the
Regional Office of the Reserve Bank under whose jurisdiction it is functioning
together with a report in form ODR. In this regard, it is clarified that the
amount of investment by way of capitalisation of exports and other dues made in
terms of Regulation 11 together with the investment made by way of market
purchase of foreign exchange in terms of Regulation 6(3)(ii) should not exceed
25% of the net-worth of the Indian party as on the date of last audited balance
sheet. In cases where the export proceeds are being capitalised in accordance
with the provisions of Regulation 11, the authorised dealer should also obtain
a custom certified copy of the invoice as required under regulation 12(2) and
forward it to the Reserve Bank together with forms ODA and ODR.
6. On
receipt of the forms ODA and ODR from the authorised dealers, the Reserve Bank
will allot a unique identification number to each JV or WOS abroad, which
should be quoted in all future correspondence by the authorised dealer or
Indian party with the Reserve Bank. Where investment is being made in an
existing JV/WOS the unique identification number already allotted by the
Reserve Bank should be cited in the forms and all the correspondence by the
Indian party as well as authorised dealers.
7. In terms
of Regulation 9 of the Notification under reference in certain cases investment
in JV/WOS requires prior approval of the Reserve Bank. All investments made in
terms of such approval obtained from the Reserve Bank are also required to be
reported to the concerned Regional Office of the Reserve Bank in the form ODR
by the designated authorised dealer. Before allowing remittance, authorised
dealers should ensure that the terms and conditions stipulated by the Reserve
Bank have been complied with.
8. In
respect of approvals already issued by the Reserve Bank where the name of the
designated branch of authorised dealer has not been indicated, the remittance
may be allowed by the authorised dealer after satisfying itself that no
remittance has been effected through any other authorised dealer against the
relative approval letter and after obtaining an undertaking from the party that
all its future foreign exchange transactions relating to the JV/WOS shall be
effected through this authorised dealer only. The investment by way of
capitalisation of exports and other entitlements made by the Indian party in
accordance with the approval obtained from Reserve Bank should also be reported
in form ODR based on the information furnished by the party.
Remittance towards Earnest Money Deposit or Issue of Bid Bond Guarantee
(a) In terms of Regulation 14 of the
Notification dated 3rd May, 2000 cited above, authorised dealers may, on being approached by
an Indian party which is eligible for investmentunder Regulation 6, allow remittance towards earnest
money deposit (EMD) after obtaining
Form A2 duly filled in or may issue bid bond guarantee on their behalf for participation in bidding or tender
procedure for acquisition of a company incorporated outside India. On winning the bid, authorised dealers may
remit the acquisition value after obtaining
Form A2 duly filled in and report such remittance (including the amount initially remitted towards EMD) to the
Regional Office of the Exchange Control Department under whose jurisdiction it is
functioning, in form ODR, along with the details of the investment in form ODA, in duplicate, submitted by
the Indian party. Authorised dealers while permitting remittance towards EMD should advise the Indian party
that in case they are not successful
in the bid, they should ensure that the amount remitted is repatriated in accordance with Foreign Exchange
Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000. (cf. Notification
No. FEMA 9/2000-RB, dated 3rd
May, 2000).
(b) In cases where an Indian party, after being successful in the bid/tender decides not to proceed further with the investment, authorised dealers should submit details of remittance allowed towards EMD/invoked bid bond guarantee in form ODR to the concerned Regional Office of the Reserve Bank.
Authorised
dealers may dispose of the pending investment proposals received by them before
31st May, 2000 under erstwhile EEFC Fast Track Route, in accordance with
Regulation 6 of the Notification dated 3rd May, 2000 under reference and report
the details of remittance in the form ODR [instead of in form ODA-I prescribed
under A.D. (M.A. Series) Circular No. 33, dated 5th November, 1999] along with
form ODA, in duplicate, in the existing format.
The
directions contained in this Circular are issued under section 10(4) and
section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999). Any
contravention or non-observance of these directions is subject to the penalties
prescribed under the Act.