Foreign
Exchange Management (Overseas Investment) Regulations, 2022
[No. FEMA 400/2022-RB dated August 22, 2022]
1. Short title and commencement
2. Definitions
3. Financial commitment by Indian entity by modes other than equity capital
4. Financial commitment by Indian entity by way of debt
5. Financial commitment by way of guarantee
6. Financial commitment by way of pledge or charge
7. Acquisition or transfer by way of deferred payment
8. Mode of payment
9. Obligations of person resident in India
10. Reporting requirements for Overseas Investment
11. Delay in reporting
12. Restriction on further financial commitment or transfer
In exercise of the powers
conferred by sub-section (1) and clause (a) of sub-section (2) of section 47 of
the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby
makes the following regulations, namely:–
1. Short title and commencement.– (1) These regulations
may be called the Foreign Exchange Management (Overseas Investment) Regulations,
2022.
(2) They shall come into force on the date of their
publication in the Official Gazette.
2. Definitions.– (1) In these regulations,
unless the context otherwise requires,–
(a) “Act” means the Foreign Exchange
Management Act, 1999 (42 of 1999);
(b) “debt instruments” shall have
the same meaning as assigned to it in the Foreign Exchange Management (Overseas Investment) Rules, 2022;
(2) The words and expressions
used but not defined in these regulations shall have the meanings respectively assigned
to them in the Act or the Foreign Exchange Management (Overseas Investment) Rules, 2022.
3. Financial commitment
by Indian entity by modes other than equity capital,– (1) The Indian entity
may lend or invest in any debt instrument issued by a foreign entity or extend non-fund
based commitment to or on behalf of a foreign entity including overseas step down
subsidiaries of such Indian entity subject to the following conditions within the
financial commitment limit as prescribed in the Foreign Exchange Management (Overseas Investment) Rules, 2022:–
(i) the Indian entity is eligible to make Overseas
Direct Investment (ODI);
(ii)
the Indian entity has made ODI in the foreign
entity;
(iii) the Indian entity has acquired control in such
foreign entity at the time of making such financial commitment.
(2) The financial commitments
under regulations 4, 5, 6 and 7 shall be reckoned towards the financial commitment
limit referred to in sub-regulation (1).
4. Financial commitment
by Indian entity by way of debt.– An Indian entity may lend or invest in any debt instruments
issued by a foreign entity subject to the condition that such loans are duly backed
by a loan agreement where the rate of interest shall be charged on an arm’s length
basis.
Explanation.–– For the purpose of this regulation, the expression “arm’s length” means
a transaction between two related parties that is conducted as if they were unrelated,
so that there is no conflict of interest.
5. Financial commitment
by way of guarantee.– (1) The following guarantees may be issued to or on behalf of the foreign
entity or any of its step down subsidiary in which the Indian entity has acquired
control through the foreign entity, namely:–
(i) corporate or performance guarantee
by such Indian entity;
(ii) corporate or performance guarantee by a group
company of such Indian entity in India, being a holding company (which holds at
least 51 per cent. stake in the Indian entity) or a subsidiary company (in which
the Indian entity holds at least 51 per cent. stake) or a promoter group company,
which is a body corporate;
(iii) personal guarantee by the resident
individual promoter of such an Indian entity;
(iv)
bank guarantee, which is backed by a counter-guarantee
or collateral by the Indian entity or its group company as above, and issued, by
a bank in India.
(2) Where the guarantee
is extended by a group company, it shall be counted towards the utilisation of its
financial commitment limit independently and in case of a resident individual promoter,
the same shall be counted towards the financial commitment limit of the Indian entity:
Provided that where the
commitment under sub-regulation (1) is extended by a group company, any fund-based
exposure to or from the Indian entity shall be deducted from the net worth of such
group company for computing its financial commitment limit:
Provided further that
where the guarantee under sub-regulation (1) is extended by a promoter, which is
a body corporate or an individual, the Indian entity shall be a part of the promoter
group.
Explanation.– For the purposes of this sub-regulation, the expression “promoter group”
shall have the meaning as assigned to it in the Securities and Exchange Board of
India (Issue of Capital and Disclosure Requirements) Regulations 2018.
(3) No guarantee shall
be open-ended.
(4) The guarantee, to
the extent of the amount invoked, shall cease to be a part of the non-fund based
commitment but be considered as lending.
(5) Where a guarantee
has been extended jointly and severally by two or more Indian entities, 100 per
cent. of the amount of such guarantee shall be reckoned towards the individual limits
of each of such Indian entities.
(6) In case of performance
guarantee, 50 per cent. of the amount of guarantee shall be reckoned towards the
financial commitment limit.
(7) Roll-over of guarantee
shall not be treated as fresh financial commitment where the amount on account of
such roll-over does not exceed the amount of original guarantee.
6. Financial commitment
by way of pledge or charge,– An Indian entity, which has made ODI by way of investment in equity capital
in a foreign entity, may––
(a) pledge the equity capital of the foreign entity
in which it has made ODI or of its step down subsidiary outside India, held directly
by the Indian entity in a foreign entity and indirectly in step down subsidiary,
in favour of an AD bank or a public financial institution in India or an overseas
lender, for availing fund based or non-fund based facilities for itself or for any
foreign entity in which it has made ODI or its step down subsidiaries outside India
or in favour of a debenture trustee registered with SEBI for availing fund based
facilities for itself;
(b) create charge by way of mortgage, pledge, hypothecation
or any other identical mode on–
(i)
its assets in India, including the assets
of its group company or associate company, promoter or director, in favour of an
AD bank or a public financial institution in India or an overseas lender as security
for availing of the fund based or non-fund based facility or both, for any foreign
entity in which it has made ODI or for its step down subsidiary outside India; or
(ii)
the assets outside India of the foreign entity
in which it has made ODI or of its step down subsidiary outside India in favour
of an AD bank in India or a public financial institution in India as security for
availing of the fund based or non-fund based facility or both, for itself or any
foreign entity in which it has made ODI or for its step down subsidiary outside
India or in favour of a debenture trustee registered with SEBI in India for availing
fund based facilities for itself:
Provided
that–
(i) the value of the pledge or charge or the amount of the
facility, whichever is less, shall be reckoned towards the financial commitment
limit in force at the time of such pledge or charge provided such facility has not
already been reckoned towards such limit and excluding cases where the facility
has been availed by the Indian entity for itself;
(ii) overseas lender in whose
favour there is such a pledge or charge shall not be from any country or jurisdiction
in which financial commitment is not permissible under the Foreign Exchange Management (Overseas Investment) Rules, 2022;
(iii) the creation or enforcement
of such pledge or charge shall be in accordance with the provisions of the Act or
rules or regulations made or directions issued thereunder.
Explanation.– For the purposes of this regulation–
(i)
the expression “public financial institution”
shall have the same meaning as assigned to it under clause (72) of section 2 of
the Companies Act, 2013 (18 of 2013);
(ii)
the “negative pledge” or “negative charge”
created by an Indian entity or a bid bond guarantee obtained in accordance with
these regulations for participation in a bidding or tender procedure for the acquisition
of a foreign entity shall not be reckoned towards the financial commitment limit
referred to in sub-regulation (1) of regulation 3.
7. Acquisition or transfer
by way of deferred payment.– (1) Where a person resident in India acquires equity capital by way of
subscription to an issue or by way of purchase from a person resident outside India
or where a person resident outside India acquires equity capital by way of purchase
from a person resident in India, and where such equity capital is reckoned as ODI,
the payment of amount of consideration for the equity capital acquired may be deferred
for such definite period from the date of the agreement as provided in such agreement
subject to the following terms and conditions, namely:–
(i) the foreign securities equivalent to the amount
of total consideration shall be transferred or issued, as the case may be, upfront
by the seller to the buyer;
(ii) the full consideration finally paid shall be compliant
with the applicable pricing guidelines:
Provided that the deferred
part of the consideration in case of acquisition of equity capital of a foreign
entity by a person resident in India shall be treated as non-fund based commitment.
(2) The buyer may be indemnified
by the seller up to such amount and be subject to such terms and conditions as may
be mutually agreed upon and laid down in the agreement:
Provided that such agreement
is in compliance with the provisions of the Act and the rules and regulations made
thereunder.
8. Mode of payment. – A person resident
in India making Overseas Investment may make payment –
(i) by remittance made through
banking channels;
(ii) from funds held in an
account maintained in accordance with the provisions of the Act;
(iii) by swap of securities;
(iv) by using the proceeds
of American Depository Receipts or Global Depositary Receipts or stock- swap of
such receipts or external commercial borrowings raised in accordance with the provisions
of the Act and the rules and regulations made thereunder for making ODI or financial
commitment by way of debt by an Indian entity.
9. Obligations of person
resident in India.– (1) A person resident in India acquiring equity capital in a foreign entity,
which is reckoned as ODI, shall submit to the AD bank share certificates or any
other relevant documents as per the applicable laws of the host country or the host
jurisdiction, as the case may be, as an evidence of such investment in the foreign
entity within six months from the date of effecting remittance or the date on which
the dues to such person are capitalised or the date on which the amount due was
allowed to be capitalised, as the case may be.
(2) A person resident
in India, through its designated AD bank, shall obtain a Unique Identification Number
or “UIN” from the Reserve Bank for the foreign entity in which the ODI is intended
to be made before sending outward remittance or acquisition of equity capital in
a foreign entity, whichever is earlier. (3) A person resident in India making ODI
shall designate an AD bank and route all transactions relating to a particular UIN
through such AD:
Provided that where more
than one person resident in India makes financial commitment in the same foreign
entity, all such persons shall route all transactions relating to that UIN through
the AD bank designated for that UIN.
(4) A person resident
in India having ODI in a foreign entity, wherever applicable, shall realise and
repatriate to India, all dues receivable from the foreign entity with respect to
investment in such foreign entity, the amount of consideration received on account
of transfer or disinvestment of such ODI and the net realisable value of the assets
on account of the liquidation of the foreign entity as per the laws of the host
country or the host jurisdiction, as the case may be, within ninety days from the
date when such receivables fall due or the date of such transfer or disinvestment
or the date of the actual distribution of assets made by the official liquidator.
(5) A person resident
in India who is eligible to make ODI may make remittance towards earnest money deposit
or obtain a bid bond guarantee from an AD bank for participation in bidding or tender
procedure for the acquisition of a foreign entity:
Provided that in case
of an open-ended bid bond guarantee, it shall be converted into a close- ended guarantee
not later than three months from the date of award of the contract.
10. Reporting requirements
for Overseas Investment.– (1) Unless otherwise provided in these regulations, all reporting by a
person resident in India, as specified, shall be made through the designated AD
bank in the manner provided in this regulation and in the format provided by the
Reserve Bank.
(2) A person resident
in India who has made ODI or making financial commitment or undertaking disinvestment
in a foreign entity shall report the following, namely:–
(a)
financial commitment, whether it is reckoned
towards the financial commitment limit or not, at the time of sending outward remittance
or making a financial commitment, whichever is earlier;
(b)
disinvestment within thirty days of receipt
of disinvestment proceeds;
(c)
restructuring within thirty days from the
date of such restructuring.
(3) A person resident
in India other than a resident individual making any Overseas Portfolio Investment
(OPI) or transferring such OPI by way of sale shall report such investment or transfer
of investment within sixty days from the end of the half-year in which such investment
or transfer is made as of September or March-end:
Provided that in case
of OPI by way of acquisition of shares or interest under Employee Stock Ownership
Plan or Employee Benefits Scheme, the reporting shall be done by the office in India
or branch of an overseas entity or a subsidiary in India of an overseas entity or
the Indian entity in which the overseas entity has direct or indirect equity holding
where the resident individual is an employee or director.
(4) A person resident
in India acquiring equity capital in a foreign entity which is reckoned as ODI,
shall submit an Annual Performance Report (APR) with respect to each foreign entity
every year by 31st
December and where the accounting year of such foreign entity ends on 31st December, the
APR shall be submitted by 31st December of the next year:
Provided that no such
reporting shall be required where–
(i)
a person resident in India is holding less
than 10 per cent. of the equity capital without control in the foreign entity and
there is no other financial commitment other than by way of equity capital; or
(ii)
a foreign entity is under liquidation.
Explanation.– For the purposes of this sub-regulation–
(a) the APR shall be based
on the audited financial statements of the foreign entity:
Provided that where the
person resident in India does not have control in the foreign entity and the laws
of the host country or host jurisdiction, as the case may be, do not provide for
mandatory auditing of the books of accounts, the APR may be submitted based on unaudited
financial statements certified as such by the statutory auditor of the Indian entity
or by a chartered accountant where the statutory audit is not applicable;
(b) in case more than one
person resident in India have made ODI in the same foreign entity, the person holding
the highest stake in the foreign entity shall be required to submit APR and in case
of holdings being equal, APR may be filed jointly by such persons;
(c)
the person resident in India shall report
the details regarding acquisition or setting up or winding up or transfer of a step
down subsidiary or alteration in the shareholding pattern in the foreign entity
during the reporting year in the APR.
(5) An Indian entity which
has made ODI shall submit an Annual Return on Foreign Liabilities and Assets within
such time as may be decided by the Reserve Bank from time to time, to the Department
of Statistics and Information Management, Reserve Bank of India.
11. Delay in reporting.– (1) A person resident
in India who does not submit the evidence of investment within the time specified
under sub-regulation (1) of regulation 9 or does not make any filing within the
time specified under regulation 10, may make such submission or filing, as the case
may be, along with Late Submission Fee within such period as may be advised, and
at the rates and in the manner as may be directed by the Reserve Bank, from time
to time:
Provided that such facility
can be availed within a maximum period of three years from the due date of such
submission or filing, as the case may be.
(2) A person resident
in India responsible for submitting the evidence or any filing relating to overseas
investment in accordance with the Act or regulations made thereunder before the
date of publication of these regulations in the Official Gazette and who has not
made or does not make such submission or filing within the time specified thereunder,
may make such submission or filing along with Late Submission Fee or make payment
of Late Submission Fee where such submission or filing has been done, as the case
may be, within such period as may be advised, and at the rates and in the manner
as may be directed by the Reserve Bank, from time to time.
Provided that such facility
can be availed within a maximum period of three years from the date of publication
of these regulations in the Official Gazette.
12. Restriction on further
financial commitment or transfer.– A person resident in India who has made a financial
commitment in a foreign entity in accordance with the Act or rules or regulations
made thereunder, shall not make any further financial commitment, whether fund-based
or non-fund-based, directly or indirectly, towards such foreign entity or transfer
such investment till any delay in reporting is regularised.
Published in the Official
Gazette of Government of India – Extraordinary – Part-III, Section 4, vide Gazette
ID CG- MH-E-22082022-238242 dated August 22, 2022