RBI Permits Issue of Equity Shares for Capital
Goods Imports against FDI in Govt. Route
[RBI
Circular No. 74 dated 30th June 2011]
Sub: Foreign
Direct Investment (FDI) in India - Issue of equity shares under the FDI Scheme
allowed under the Government route
Attention of Authorised Dealers Category – I (AD
Category - I) banks is invited to the Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident Outside India) Regulations, 2000,
notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended
from time to time.
2. In terms of
the Schedule 1 of the Notification, ibid, an Indian company may, under the
automatic route, issue equity shares/ preference shares to a person resident
outside India, being a provider of technology / technical know-how and against
royalty / lumpsum fees due for payment subject to certain conditions like entry
route, sectoral cap, pricing guidelines and compliance with the applicable tax
laws.
3. The extant
guidelines for issue of equity shares/ preference shares under the Government
route have been reviewed in consultation with the Government of India and,
accordingly, it has been decided to permit issue of equity shares / preference
shares under the Government route of the FDI scheme for the following
categories of transactions:
(I) Import of
capital goods/ machineries / equipments (including second-hand machineries),
subject to compliance with the following conditions:
(a) The import of
capital goods, machineries, etc., made by a resident in India, is in accordance
with the Export / Import Policy issued by the Government of India as notified
by the Directorate General of Foreign
Trade (DGFT) and the regulations issued under the
Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the
Reserve Bank;
(b) There is an
independent valuation of the capital goods / machineries / equipments
(including second-hand machineries) by a third party entity, preferably by an
independent valuer from the country of import along with production of copies
of documents /certificates issued by the customs authorities towards assessment
of the fair-value of such imports;
(c) The
application should clearly indicate the beneficial ownership and identity of
the importer company as well as the overseas entity; and
(d) All such
conversions of import payables for capital goods into FDI should be completed
within 180 days from the date of shipment of goods.
(II) Pre-operative/pre-incorporation
expenses (including payments of rent, etc.) subject to compliance with the
following conditions:
(a) Submission of
FIRC for remittance of funds by the overseas promoters for the expenditure
incurred;
(b) Verification
and certification of the pre-incorporation/ pre-operative expenses by the
statutory auditor;
(c) Payments
should be made directly by the foreign investor to the company. Payments made
through third parties citing the absence of a bank account or similar such
reasons will not be eligible for issuance of shares towards FDI; and
(d) The
capitalization should be completed within the stipulated period of 180 days
permitted for retention of advance against equity under the extant FDI policy.
4. (i) All
requests for conversion should be accompanied by a special resolution of the
company.
(ii) Government’s
approval would be subject to pricing guidelines of the Reserve Bank and
appropriate tax clearance.
5. These directions have been issued with reference to the relevant
paras of the Consolidated FDI Policy Circular 1 of 2011 dated March 31, 2011,
issued by the Department of Industrial Policy & Promotion, Ministry of
Commerce & Industry, Government of India.
6. AD Category –
I banks may bring the contents of this circular to the notice of their
constituents and customers concerned.
7. Necessary
amendments to the Foreign Exchange Management (Transfer or Issue of Security by
a Person Resident outside India) Regulations, 2000 notified vide Notification
No. FEMA 20/2000-RB dated May 3, 2000 will be issued separately.
8. 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) and are without
prejudice to permissions / approvals, if any, required under any other law.