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    Prior Approval of RBI: Made By:-Megha Goel Manvinder Singh Manjot Kaur Mehak Agarwal Nishanth Unni Somya Sharma

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    The document discusses the various forms of business that a foreign company can establish in India, including incorporating a subsidiary or joint venture, or establishing a liaison, representative, project, or branch office. It also outlines the automatic and government routes for foreign direct investment in Indian companies, noting that proposals not meeting automatic route conditions require RBI approval. Lastly, it provides details on the types of capital account transactions that require prior RBI approval.

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    Prior Approval of RBI: Made By:-Megha Goel Manvinder Singh Manjot Kaur Mehak Agarwal Nishanth Unni Somya Sharma

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    16 views23 pages
    The document discusses the various forms of business that a foreign company can establish in India, including incorporating a subsidiary or joint venture, or establishing a liaison, representative, project, or branch office. It also outlines the automatic and government routes for foreign direct investment in Indian companies, noting that proposals not meeting automatic route conditions require RBI approval. Lastly, it provides details on the types of capital account transactions that require prior RBI approval.

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    CORPORATE LAW (1)

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    The document discusses the various forms of business that a foreign company can establish in India, including incorporating a subsidiary or joint venture, or establishing a liaison, representative, project, or branch office. It also outlines the automatic and government routes for foreign direct investment in Indian companies, noting that proposals not meeting automatic route conditions require RBI approval. Lastly, it provides details on the types of capital account transactions that require prior RBI approval.

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    Attribution Non-Commercial (BY-NC)
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    16 views23 pages

    Prior Approval of RBI: Made By:-Megha Goel Manvinder Singh Manjot Kaur Mehak Agarwal Nishanth Unni Somya Sharma

    Uploaded by

    somya_sharma_2
    The document discusses the various forms of business that a foreign company can establish in India, including incorporating a subsidiary or joint venture, or establishing a liaison, representative, project, or branch office. It also outlines the automatic and government routes for foreign direct investment in Indian companies, noting that proposals not meeting automatic route conditions require RBI approval. Lastly, it provides details on the types of capital account transactions that require prior RBI approval.

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    of 23

    FEMA

    Prior Approval of RBI

    Made By:- Megha Goel


    Manvinder Singh
    Manjot Kaur
    Mehak Agarwal
    Nishanth Unni
    Somya Sharma
    What are the forms in which business
    can be conducted by a foreign company
    in India?
    • A foreign company planning to set up business operations in India
    may:
    • Incorporate a company under the Companies Act, 1956, as a Joint
    Venture or a Wholly Owned Subsidiary.
    • Set up a Liaison Office / Representative Office or a Project Office or a
    Branch Office of the foreign company which can undertake activities
    permitted under the Foreign Exchange Management (Establishment in
    India of Branch Office or Other Place of Business) Regulations, 2000.
    What is the procedure for receiving Foreign
    Direct Investment in an Indian company?

    • Automatic Route

    • Government Route
    What is Automatic Route?
    Under the automatic route, a company does not
    require any prior approval from the regulatory
    authority for setting up a JV/WOS abroad.
    What is Government Route?
    Proposals not covered by the conditions under
    the automatic route require the prior clearance
    of the regulatory authority for which a specific
    application in form ODI is required to be made
    to the Reserve Bank of India.
    Historical Background
    • The Foreign Exchange Regulation Act of 1973
    (FERA) enacted in 1973, is the backdrop of
    acute shortage of foreign exchange in the
    country, FERA had a controversial 27 year stint
    during which bosses of the Indian Corporate
    world found themselves at the mercy of the
    Enforcement Directorate (E.D.).
    FERA
    • FERA was repealed on 1st June, 2000. it was
    replaced by the Foreign Exchange
    Management Act (FEMA), which was passed I
    the winter session of parliament in 1999.
    FEMA
    • FERA had become incompatible with the pro-
    liberalization policies of the government of
    India.
    • FEMA had brought a new management regime
    of foreign exchange consistent with the
    emerging framework of the World Trade
    Organization.
    FEMA
    • It is another matter that enactment of FEMA
    also brought with t Prevention of Money
    Laundering Act, 2002 which came into effect
    recently from 1st July, 2005 and the heat of
    which is yet to be felt as ‘enforcement
    Directorate” would be investigating the cases
    under PMLA too.
    Objectives and Extent of FEMA
    • The object of the Act is to consolidate and amend the law
    relating to foreign exchange with the objective of facilitating
    external trade and payments and for promoting the orderly
    development and maintenance of foreign exchange in India
    • FEMA extend to the whole of the India. It applies to all
    branches, offices and agencies outside India owned or
    controlled by a person who is the resident of India and also
    to any contravention there under committed outside India
    by any person to whom this Act applies.
    Difference between FERA and FEMA
    1/2
    • The objective of FERA was to conserve forex
    and to prevent its misuse. The objective of
    FEMA is to facilitate external trade and
    payment and maintenance of forex market in
    India
    • Violation of FERA was a criminal offence
    whereas violation of FEMA is the civil offence.
    2/2
    • Offences under FERA were not compoundable,
    while offences under FEMA are compoundable
    • Citizenship was a criteria to determine the
    residential status of a person under FERA, while
    stay of more than 182 days in India is the criteria
    to decide residential status under FEMA
    Prior approval of Reserve
    Bank of India 1/8

    1. Release of exchange exceeding US$ 10,000 or its


    equivalent in one financial year for one or more private
    visits to any country (except Nepal and Bhutan).

    2. Gift remittance exceeding US$ 5,000 per financial year


    per remitter or donor other than resident individual.
    2/8
    3. (i) Donation exceeding US$ 5,000 per financial year per
    remitter or donor other than resident individual;
    (ii) Donations by corporate, exceeding one per cent of their
    foreign exchange earnings during the previous three financial
    years or US$ 5,000,000, whichever is less, for,-
    (a) creation of Chairs in reputed educational institutes;
    (b) to funds (not being an investment fund) promoted by
    educational institutes; and
    (c) to a technical institution or body or association in the field
    of activity of the donor company
    3/8
    4. Exchange facilities exceeding US$
    100,000 for persons going abroad for
    employment.

    5. Exchange facilities for emigration


    exceeding US$ 100,000 or amount prescribed
    by country or emigration.
    4/8
    6. Remittance for maintenance of close relatives abroad,

    (i) exceeding net salary (after deduction of taxes, contribution to provident


    fund and other deductions) of a person who is resident but not
    permanently resident in India and -
    (a) is a citizen of a foreign State other Pakistan; or
    (b) is a citizen of India, who is on deputation to the office or branch or
    subsidiary or joint venture in India of such foreign company
    (ii) Exceeding US$ 5,000 per year per recipient, in all other cases.
    Explanation: For the purpose of this item, a person resident in India on
    account of his employment or deputation of a specified duration
    (irrespective of length thereof) or for a specific job or assignment; the
    duration of which does not exceed three years, is a resident but not
    permanently resident".
    5/8
    7. Release of foreign exchange, exceeding US$ 25,000 to a
    person, irrespective of period of stay, for business travel, or
    attending a conference or specialised training or for maintenance
    expenses of a patient going abroad for medical treatment or
    check-up abroad, or for accompanying as attendant to a patient
    going abroad for medical treatment/check-up.

    8. Release of exchange for meeting expenses for medical


    treatment abroad exceeding the estimate from the doctor in
    India or hospital/doctor abroad.
    6/8
    9. Release of exchange for studies abroad exceeding the
    estimates from the institution abroad or US$ 100,000 per
    academic year, whichever is higher.

    10. Commission, per transaction, to agents abroad for sale of


    residential flats or commercial plots in India exceeding USD
    25,000 or 5% of the inward remittance whichever is more.
    .
    7/8
    11. Remittances exceeding US$ 10,000,000 per project, for any consultancy
    services in respect of infrastructure projects and US$ 1,000,000 per project
    for other consultancy services procured from outside India.
    Explanation : For the purposes of this item number 'infrastructure project' is
    those related to -
    (i) Power,
    (ii) Telecommunication,
    (iii Railways,
    (iv) Roads including bridges,
    (v) Sea port and airport,
    (vi) Industrial parks, and
    (vii) Urban infrastructure (water supply, sanitation and sewage).]
    8/8
    12. Remittances exceeding five per cent of the
    investment brought into India or US$ 1,00,000
    whichever is higher, by an entity in India by way of
    reimbursement of pre-incorporation expenses.

    13. Remittance exceeding US$ 1,000,000, per


    project, for any consultancy service procured from
    outside India."
     What are the regulations pertaining to issue of ADRs/ GDRs
    by Indian companies?

    • Indian companies can raise foreign currency resources abroad through the issue of ADRs/ GDRs, in accordance with the Scheme for issue of
    Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by
    the Government of India there under from time to time.
    • A company can issue ADRs / GDRs, if it is eligible to issue shares to persons resident outside India under the FDI Scheme. However, an
    Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained
    from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs.
    • Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market, would require prior or
    simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already
    issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of
    ADRs/GDRs, whichever is earlier.
    • After the issue of ADRs/GDRs, the company has to file a return in Form DR as   indicated in the RBI Notification No. FEMA.20/ 2000-RB
    dated May 3, 2000, as amended from time to time. The company is also required to file a quarterly return in Form DR- Quarterly as
    indicated in the RBI Notification ibid.
    • There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stock markets.
    • Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy, sell or deal in securities by SEBI will not be eligible to
    subscribe to ADRs / GDRs issued by Indian companies.
    • The pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at a price determined under the provisions of the
    Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and
    guidelines issued by the Government of India and directions issued by the Reserve Bank, from time to time.
    What are the other modes of issues of shares for which general permission is
    available under RBI Notification No. FEMA 20 dated May 3, 2000?

    • Issue of shares under ESOP by Indian companies to its


    employees or employees of its joint venture or wholly owned
    subsidiary abroad who are resident outside India directly or
    through a Trust up to 5% of the paid up capital of the company.
    • Issue and acquisition of shares by non-residents after merger
    or de-merger or amalgamation of Indian companies.
    • Issue shares or preference shares or convertible debentures on
    rights basis by an Indian company to a person resident outside
    India.
    Which are the sectors where FDI is not allowed in India, both under
    the Automatic Route as well as under the Government Route?

    •  FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

    i)  Retail Trading (except single brand product retailing) 

    ii) Atomic Energy

    iii) Lottery Business

    iv) Gambling and Betting

    v) Business of Chit Fund

    vi) Nidhi Company

    vii) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under
    controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) (cf. Notification No. FEMA 94/2003-RB
    dated June 18, 2003).

    viii) Housing and Real Estate business (except development of townships, construction of residen­tial/commercial premises, roads or bridges to the  extent
    specified in Notification No. FEMA 136/2005-RB dated July 19, 2005).

    ix) Trading in Transferable Development Rights (TDRs).

    x ) Manufacture  of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.


    THANKS

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