Fedai 12thsept

DIRECT INVESTMENT BY RESIDENTS
IN JOINT VENTURE ( JV ) / WHOLLY

OWNED SUBSIDIARY ( WOS )
ABROAD

1. Regulatory guidelines.
2. Check list
3. Case studies

1
TO BE READ WITH LATEST RBI
MASTER CIRCULAR & FEMA
GUIDELINES
ODI regulatory guidelines
Basic concepts
An Indian party can make investment in JV or WOS
not exceeding 400% of Net Worth as on date of
last Audited Balance Sheet of the Indian party. This
includes total financial commitments of all JVs /
WOS put together.
Total financial commitment includes equity shares /
convertible preference shares, preference shares,
loans & guarantees.
Ceiling of 400% not applicable if investment made
out of EEFC a/c or funds raised through ADR /
GDR.

2
GUIDELINES
Conditions of investment
Indian company can extend loan / guarantee to an overseas
JV / WOS in which it has equity participation.
Any form of guarantee allowed provided that all financial
commitments are within overall ceiling, no guarantee is open-
ended and reported to RBI.
In event of invocation, if ceiling is breached, prior approval of
RBI required.
Guarantees issued by Banks would be subject to RBI
DBOD guidelines & reporting to RBI in ODI Part II
NOC from AD Bank required for creating charge on
immovable property/pledge of shares & subject to specified
conditions.

3
GUIDELINES
Conditions of Investment
Indian entity should not be on Exporters Caution list /
List of Defaulters of RBI / CIBIL / or any other credit
information company as approved by RBI
All transactions to be routed through same AD
Acquisition of shares of a foreign company engaged in a
bonafide activity, in exchange for ADRs / GDRs is
permitted, subject to the condition that if the valuation
is more than USD 5 Mn, certificate from Class I
merchant banker is required.

4
GUIDELINES
Issuance of guarantees
Indian entities can issue corporate guarantees on
behalf of their first level step down operating company
set up by the JV / WOS operating as an SPV under the
Automatic Route, within prevailing limit for ODI, under
report to RBI in Form ODI through designated AD
Category I Bank
In respect of second generation or further step down
subsidiary, issuance of such guarantees will be
considered under the APPROVAL ROUTE , subject to the
condition that the Indian entity indirectly owns 51% or
more stake in overseas subsidiaries.
5
GUIDELINES
Investments in JV / WOS Methods of funding.
Drawal of Exchange from AD Bank
Capitalization of Exports & other dues
Swap of shares
Proceeds of ECBs / FCCBs
Balances in EEFC a/cs ( Without limit )
Proceeds of foreign currency funds raised through ADRs
/ GDRs ( Without any limit )

6
GUIDELINES
Investment in JV / WOS Financial services sector
INVESTMENT IN FINANCIAL SERVICES SECTOR BY
REGULATED ENTITIES :
Investing entity should be registered with the
regulatory authority of India, having earned Net
Profit in preceding 3 F Ys, should have obtained
regulatory approval in India and abroad and should
have fulfilled prudential norms relating to capital
adequacy.
Additional investment by an existing JV / WOS or
its step down subsidiary in the financial sector also
needs to comply with above conditions
7
GUIDELINES
Capitalization of Export Proceeds
Capitalization of Export proceeds ( non-overdue
bills)
Indian s/w cos. Permitted to receive 25% of value
of Exports as shares without JV agreement, with
prior RBI approval

8
GUIDELINES
PROPRIETORSHIP / PARTNERSHIP CONCERNS
CONDITIONS FOR INVESTMENT :

The firm / concern should be a DGFT recognized
Star Export House

KYC Compliance

Exporter is engaged in the proposed business &
has proven track-record - overdue exports do not
exceed 10% of average export realizations in the
preceding 3 fin. Yrs.
9
GUIDELINES
Proprietorship/Partnership contd
CONDITIONS FOR INVESTMENT :

Exporter should not have come to the adverse
notice of any Govt. agency like ED / CBI and is not
a defaulter
Amt. of investment outside India not to exceed 10
% of average export realization of preceding 3 fin.
Yrs. or 200 % of NOF ( Net owned funds ),
whichever is lower
Prior RBI Approval to be sought in Form ODI
Prior RBI Approval to be sought in Form ODI in
case of overseas investment by Regd. Trust /
Society which is subject to certain conditions

10
GUIDELINES
Miscellaneous aspects
Post-Investment Changes including
diversification /
Addl. investment in existing JV / WOS
Indian party to report to RBI through AD Cat.I
Bank, details within 30 days of the approval by the
competent authority of the JV / WOS concerned

Such details also to be reported in the Annual
Performance Report ( APR Part III OF Form ODI
)

Failure to submit the APRs & handling further
remittances is under the approval route.
11
GUIDELINES
Pledge of foreign security by a person resident in
India

Shares acquired by persons resident in India in
accordance
with FEMA Rules and regulations are allowed to be
pledged for obtaining credit facilities in India from an
AD
Cat.- I Bank / Public fin. Instn.

Hedging by resident entities of ODI in equity and loan
is
permitted
12
GUIDELINES
GENERAL PERMISSION IN CERTAIN CASES
Residents are permitted to acquire foreign securities if it
represents :
Gifts from Non residents / under ESOP / Inheritance
Qualification shares for becoming Director of a co. outside
India, subject to LRS ceiling.
Part / Full consideration of professional services rendered to
the foreign companies or in lieu of Directors remuneration,
subject to LRS ceiling.
Rights shares provided that they are being issued by virtue of
holding shares in accordance with the law
Foreign securities under ADR / GDR linked stock option
schemes by resident employees of Indian cos. provided
purchase consideration does not exceed $50000
Resident may transfer by sale, shares acquired & repatriate
proceeds within 90 days

13
GUIDELINES
OPERATIONAL INSTRUCTIONS TO AD BANKS

Designated branches only one branch to be
designated. Different AD Banks for different JVs /
WOS can be designated.

AD Banks can allow investments up to permissible
limits. Application in Form ODI along with A2 to be
obtained. All necessary documents and
compliances should be ensured by AD Bank

14
GUIDELINES
Checklist Form ODI
Part I
A- Details of the Indian Entity
B- Details of Investment in the New Project
C- Details of Investment in the Existing Project
D- Funding for JV/WOS
E- Declaration by the Indian Entity
F Statutory Auditors Certificate
Part II Reporting of remittances
Part III Annual Performance Report
Part IV Report on closure/Disinvestment/Winding
Up
15
GUIDELINES
Checklist
The actual economic activity (activity code) carried on
by the Indian entity to be ascertained on the basis of
the main objects clause of its Memorandum of
Association and the latest audited financial statements.
The proposed economic activity to be undertaken by
the JV/WOS. ODI is not permitted in an entity engaged
in real estate business, banking business, etc.
For undertaking activity in the financial sector,
additional conditions under Regulation 7 is to be
fulfilled.
Review of the ODI with respect to 400 % net worth
as per the last audited financials & not exceeding
USD 1 Billion.,

16
GUIDELINES
Checklist
Second/further remittances to be made only after
obtaining UIN from RBI.
Remittances towards loan/issue of guarantees to
or on behalf of the JV/WOS can be made only after
ensuring that the Indian entity has equity stake in
the JV/WOS.
Where laws of the host country permit
incorporation of a company without equity
participation by the Indian entity, prior approval of
RBI is to be obtained for remittances towards loan
or issuance of guarantees.
Share certificates/documents evidencing
investments to be obtained within 6 months from
date of remittance. AD Bank to certify to this effect
in the APR.

17
GUIDELINES
Checklist
Indian entity to submit the APR before 30
th
June
each year to RBI through the AD Bank. In case of
failure to submit the APRs, further remittances will
be effected under the approval route of RBI.
ODI by Trust :- (a) the trust should be registered
under the Indian Trust Act (b) the trust deed
permits proposed investment (c) the AD Bank is
satisfied about the KYC & that the trust is engaged
in a bonafide activity (d) The trust has been in
existence at least for a period of 3 years (e) not
come under the adverse notice of any regulatory or
enforcement agency.

18
GUIDELINES
Checklist
Societies:- (a)registered under the Societies Registration
Act (b) The Memorandum of Association permit the
society to make overseas investment (c) the AD Bank is
satisfied on the KYC of the Society (d) the society is in
existence at least for a period of 3 years (e) The society
has not come under the adverse notice of the
regulatory or enforcement authorities.
Documents :- Form ODI, Statutory Auditors certificate,
Last audited financial statements, Share valuation
report, Copy of the MOA & AOA, Certification of
Incorporation of the Overseas entity, Form A2 and other
documents as prescribed by the AD Bank.

19
GUIDELINES
Checklist
Disinvestment :- (a) the Overseas entity is in
operation for at least one full year & APR together
with audited accounts have been submitted to the
RBI (b) The Indian entity should not have any
outstanding dues by way of dividend, technical
know how fees, royalty, consultancy, from the
JV/WOS (c) The Indian entity should have
submitted the post investment documents (d)If
JV/WOS is listed on the stock exchange, sale
should be effected through the stock exchange(e)if
by private arrangement the AD Bank should ensure
that the share price is not less than the value
certified by the CA/CPA based on the latest
financials of the JV/WOS (f) reporting to RBI within
30 days from the date of disinvestment.

20
GUIDELINES
Checklist
Disinvestment of shares where the amount to be
repatriated is less than the amount of original
investment:-
a) JV/WOS is listed in the Overseas Stock Exchange
b) Where the Indian entity is listed on a stock
exchange in India & has a net worth of not less
than Rs. 100 Cr.
c) Where the net worth is less than Rs. 100 Cr & the
investment does not exceed USD 10 Mn.
d) Where the Indian entity is unlisted and the
investment does not exceed USD 10 Mn.
e) The documentary evidence for the realization of
the sale proceeds to be submitted to the R.O of
RBI.

21
GUIDELINES
CASE STUDIES
Case Study 1ODI
Co. A has a Net Worth of Rs.2 Crs. They are
interested in investing in a JV to the extent of Rs.
10 Crs., of which Rs.5 Crs. would be in the form of
a Corporate Guarantee to be issued on behalf of
second level step-down subsidiary.
Is this permissible ? How can the transaction be
handled?
What would be the procedure ?
What are the documents to be obtained ?
Case Study 2 ODI

Co. A engaged in Software development has a
Net Worth of Rs. 5 Crs. & is interested in investing
in a JV to the extent of Rs. 25 Crs., out of EEFC
funds

handled?

Case Study 3 ODI

Co. A , having a Net worth of Rs.25 Crs has a Jt.
Venture in Malaysia , to which it has exported
goods to the tune of Rs.20 Crs. The Co. desires to
covert the unrealized exports into equity

handled and what are the attendant conditions ?

Case Study 4 ODI

Co. A , is a partnership concern interested in
investing in a JV in Singapore


Case Study 5 ODI

Co. A , is a Limited company having a Branch
Office in US and interested in converting the
Branch into a WOS.


Case Study 6 ODI

Co. XYZ a Limited company having dealings with
SBI has received an inward remittance through
your Bank towards disinvestment proceeds of their
subsidiary in Cayman Islands and intending to
transfer the funds in foreign currency to SBI.


Case Study 7 ODI

Co. ABC a Limited company dealing in stock &
share brokings has received a proposal from an
Overseas company which is into printing of security
paper & designs, for 100 % acquisition.


Case Study 8 ODI

In continuation of the previous case, is the
procedural guidelines/regulatory guidelines any
different,if ABC Co is not into stock & share
brokings but into printing of security paper &
designs but the Overseas company where 100 %
acquisition is intended is into stock and share
brokings.


FOREIGN INVESTMENT
IN INDIA

CASE STUDY 1FDI

ABC CO. INVOLVED IN FLORICULTURE ACTIVITY HAS
RECEIVED AN INTEREST EXPRESSION BY ONE OF THE
LEADING OVERSEAS FINANCIAL SERVICES COMPANY
FOR EQUITY INVESTMENT THROUGH THE FDI ROUTE.
FOR THEIR EXPANSION PURPOSES.

IS THIS PERMITTED ? IF SO, WHAT ARE THE
CONDITIONS TO BE FULFILLED ?

WHAT ARE THE PROCEDURAL GUIDELINES TO BE
ADHERED TO ?

CASE STUDY 2FDI

SYLVIA SMILES, A FOREIGN NATIONAL WORKING IN THE
OVERSEAS BRANCH OF XYZ CO PVT LTD. DESIRES TO
SELL THE SHARES ALLOTED TO HER THROUGH ESOPS
AND REPATRIATE THE REMITTANCE.


ADHERED TO ?

CASE STUDY 3FDI

IN THE INSTANT CASE, XYZ CO. INFORMS THAT THEY
WERE NOT AWARE OF THE REGULATORY GUIDELINES
AND HAVE NOT COMPLETED THE FORMALITIES.

IS THE REPATRIATION STILL POSSIBLE.? IF SO, WHAT
ARE THE CONDITIONS TO BE FULFILLED ?

ADHERED TO ?

CASE STUDY 4FDI

XYZ CO. HAS RECEIVED AN INWARD REMITTANCE
TOWARDS EQUITY PARTICIPATION INTO THEIR
COMPANY BY AN OVERSEAS COMPANY ENGAGED IN
MANUFACTURING ACTIVITIES.

WHAT ARE THE DOCUMENTATION FORMALITIES TO BE
COMPLETED BEFORE PROCESSING THE
REMITTANCES.?

ADHERED TO ?

CASE STUDY 5FDI

IN CONTINUATION OF THE PREVIOUS CASE, XYZ CO.
INFORMS THAT THIS IS A SUBSEQUENT REMITTANCE
FOR EQUITY PARTICIPATION INTO THEIR COMPANY,
THE FIRST SUCH REMITTANCE HAVING COME
THROUGH ANOTHER AD BANK UNDER THE FDI ROUTE.
FOR THEIR EXPANSION PURPOSES.

WHAT ARE THE CONDITIONS TO BE FULFILLED ?

ADHERED TO ?

CASE STUDY 6FDI

HAVING ALREADY RECEIVED THE EQUITY
PARTICIPATION INTO THEIR COMPANY THROUGH
ANOTHER AD BANK EARLIER, XYZ CO., WHO IS NOW
DEALING WITH YOUR BANK DESIRES TO REPATRIATE
THE SALE PROCEEDS IN RESPECT OF SALE OF
SHARES BY THE OVERSEAS INVESTOR.


ADHERED TO ?

EXTERNAL COMMERCIAL
BORROWINGS

CASE STUDY 1.ECB

XYZ INC. , USA IS AN EQUITY HOLDER IN XYZ INDIA,
HOLDING EQUITY OF 27%
XYZ INDIA DESIRES TO AVAIL ECB OF US$ 10 MN FROM
XYZ INC., USA UNDER AUTOMATIC ROUTE
IS THIS PERMISSIBLE ? IF SO, ARE THERE ANY OTHER
CONDITIONS ?
WHAT ARE THE DOCUMENTARY REQUIREMENTS ?
CASE STUDY 2.ECB

SWEET DREAMS HOTELS LTD. HAS PLANS TO SET UP A
TOURIST RESORT NEAR RATNAGIRI AND DESIRE TO
AVAIL ECB OF US$ 200 MIO FOR ACQUIRING LAND FOR
THE PURPOSE.
IS THIS PERMISSIBLE & IF SO, WHETHER UNDER
AUTOMATIC ROUTE OR APPROVAL ROUTE ?
IF UNDER AUTOMATIC ROUTE, WHAT ARE THE
FORMALITIES TO BE COMPLETED ?
IF THE ECB IS BEING AVAILED FROM AN OVERSEAS
BRANCH OF AN INDIAN BANK, WHAT ARE THE
ADDITIONAL FORMALITIES?
CASE STUDY 3ECB

PEACOCK AIRLINES DESIRES TO AVAIL ECB OF US$
800 MN. FROM THEIR STRATEGIC PARTNER FOR
WORKING CAPITAL REQUIREMENTS.

CASE STUDY 4ECB

ABC DESIRES TO AVAIL ECB OF US$ 700 MN. FROM
ADB TO CLEAR THEIR EXISTING RUPEE TERMS
LOANS WITH AN AD BANK IN INDIA.

CASE STUDY 5ECB

IN CONTINUATION OF THE FACT THAT ABC HAS
ALREADY AVAILED AN ECB FOR USD 700 MN FROM ADB,
INTENDS TO RESCHEDULE/REPHAASE THE EXISITING
ECB.
WILL THE PROCEDURE BE DIFFERENT HAD THE ECB
BEEN AVAILED FROM AN OVERSEAS BRANCH OF AN
INDIAN BANK.

THANK YOU

Fedai 12thsept

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DIRECT INVESTMENT BY RESIDENTS

IN JOINT VENTURE ( JV ) / WHOLLY

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