I.  Foreign Direct Investment (FDI)

Q. 1.    What are the forms in which business can be conducted by a foreign company in India?

Ans.   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.

Q.2.   What is the procedure for receiving Foreign Direct Investment in an Indian company?

Ans.   An Indian company may receive Foreign Direct Investment under the two routes as given under :

i.  Automatic Route

FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy, paragraph on 'Entry Routes for Investment' issued by the Government of India from time to time, are attracted.

FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.

ii.  Government Route

FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.

Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.

The Indian company having received FDI either under the Automatic route or the Government route is required to report in the Advance Reporting Form, the details of the receipt of the amount of consideration for issue of equity instrument viz. shares / fully and mandatorily convertible debentures / fully and mandatorily convertible preference shares through an AD Category –I Bank, together with copy/ ies of the FIRC evidencing the receipt of inward remittances along with the Know Your Customer (KYC) report on the non-resident investors from the overseas bank remitting the amount, to the Regional Office concerned of the Reserve Bank of India within 30 days from the date of receipt of inward remittances.

Further, the Indian company is required to issue the equity instrument within 180 days, from the date of receipt of inward remittance or debit to NRE/FCNR (B) account in case of NRI/ PIO.

After issue of shares / fully and mandatorily convertible debentures / fully and mandatorily convertible preference shares, the Indian company has to file the required documents along with Form FC-GPR with the Regional Office concerned of the Reserve Bank of India within 30 days of issue of shares to the non-resident investors.

The form can also be downloaded from the Reserve Bank's website at the following address :

 http://www.rbi.org.in/Scripts/BSViewFemaForms.aspx

Q.3.   Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?

Ans.   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.

Q.4.   What is the procedure to be followed after investment is made under the Automatic Route or with Government approval?

Ans.   A two-stage reporting procedure has to be followed :.

• On receipt of share application money :

Within 30 days of receipt of share application money/amount of consideration from the non-resident investor, the Indian company is required to report to the Regional Office concerned of the Reserve Bank of India, under whose jurisdiction its Registered Office is located, the Advance Reporting Form, containing the following details :

• • Name and address of the foreign investor/s;  

  • Date of receipt of funds and the Rupee equivalent;

  • Name and address of the authorised dealer through whom the funds have been received;

  • Details of the Government approval, if any; and

  • KYC report on the non-resident investor from the overseas bank remitting the amount of consideration.

• Upon issue of shares to non-resident investors :

Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A together with the following documents should be filed with the Regional Office concerned of the Reserve Bank of India. 

• • Certificate from the Company Secretary of the company accepting   investment from persons resident outside India certifying that:  

    • • The company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time.

      • The investment is within the sectoral cap / statutory ceiling permissible under the Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for investments under the Automatic Route, namely-

a) Non-resident entity/ies - (other than individuals), to whom it has issued shares have existing joint venture or technology transfer or trade mark agreement in India in the same field and Conditions stipulated at Paragraph 4.2 of the Consolidated FDI policy Circular of Government of India have been complied with.

• • • OR

Non-resident entity/ ies - (other than individuals), to whom it has issued shares do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field.

Note – For the purpose of the 'same' field, 4 digit NIC 1987 code would be relevant.

b) The company is not an Industrial Undertaking manufacturing items reserved for small sector.

OR

The company is an Industrial Undertaking manufacturing items reserved for the small sector and the investment limit of 24 per cent of paid-up capital has been observed/ requisite approvals have been obtained.

c) Shares issued on rights basis to non-residents are in conformity with Regulation 6 of the RBI Notification No FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time.

OR

Shares issued are bonus shares.

OR

Shares have been issued under a scheme of merger and amalgamation of two or more Indian companies or reconstruction by way of de-merger or otherwise of an Indian company, duly approved by a court in India.

OR

Shares are issued under ESOP and the conditions regarding this issue have been satisfied.

• Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated -------------------- 

• Certificate from Statutory Auditors/ SEBI registered Category - I Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

Q.5. What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?

Ans.   A. Transfer of shares/ fully and mandatorily convertible debentures from Non-Resident to Resident:

The term ‘transfer’ is defined under FEMA as including "sale, purchase, acquisition, mortgage, pledge, gift, loan or any other form of transfer of right, possession or lien” {Section 2 (ze) of FEMA, 1999}.

The FEMA Regulations give specific permission covering the following forms of transfer i.e. transfer by way of sale and gift. These permissions are discussed below :

i. Transfer of shares/ fully and mandatorily convertible debentures by way of sale :

A person resident outside India can freely transfer shares/ fully and mandatorily convertible debenture by way of sale to a person resident in India as under :

• • Any person resident outside India (not being a NRI or an erstwhile OCB), can transfer by way of sale the shares/ fully and mandatorily convertible debentures to any person resident outside India or an NRI may transfer by way of sale, the shares/ fully and mandatorily convertible debentures held by him to another NRI only provided that the person to whom the shares are being transferred has obtained prior permission of the Central Government to acquire the shares if he has previous venture or tie up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company whose shares are being transferred is engaged.

  • Any person resident outside India may sell shares/ fully and mandatorily convertible debenture acquired in accordance with the FEMA Regulations, on a recognized Stock Exchange in India through a registered broker.

  • Any person resident outside India may also sell share or convertible debenture of an Indian company to a resident subject to adherence to pricing guidelines, documentation and reporting requirements as specified from time to time.

  •  Shares/convertible debentures of Indian companies purchased under Portfolio Investment Scheme by NRIs and erstwhile OCBs cannot be transferred, by way of sale under private arrangement.

ii. Transfer of shares/ fully and mandatorily convertible debentures by way of Gift :

A person resident outside India can freely transfer shares/ fully and mandatorily convertible debentures by way of gift to a person resident in India as under :

• • Any person resident outside India, (not being a NRI or an erstwhile OCB), can transfer by way of gift the shares/ fully and mandatorily convertible debentures to any person resident outside India;

  • a NRI may transfer by way of gift, the shares/convertible debentures held by him to another NRI only,  provided that the person to whom the shares are being transferred has obtained prior permission of the Central Government to acquire the shares if he has previous venture or tie up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company whose shares are being transferred is engaged.

  • Any person resident outside India may transfer share/ fully and mandatorily convertible debentures to a person resident in India by way of gift.

B. Transfer of shares/ fully and mandatorily convertible debentures from Resident to Non-Resident :

i. Transfer of shares/ fully and mandatorily convertible debentures by way of sale - General Permission under Regulation 10 of Notification No. FEMA 20/2000-RB dated May 3, 2000

A person resident in India may transfer by way of sale to a person resident outside India any shares/ fully and mandatorily convertible debenture of an Indian company whose activities (other than financial service sector activities1) fall under the Automatic Route of the FDI Scheme  provided the parties concerned comply with the FDI sectoral limits, pricing guidelines, documentation and reporting requirements for such transfers, as may be specified by the Reserve Bank of India, from time to time. 

However, the above general permission is not available where :

a) The transfer of shares/ fully and mandatorily convertible debentures falls within the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended from time to time.

b) The transfer of shares/ fully and mandatorily convertible debentures is at a price which does not adhere to the pricing guidelines specified  by the Reserve Bank  of India from time to time

c) The  activity of the Indian investee company falls outside the automatic route and where FIPB approval has been obtained for the said transfer.

Q.6. Can a person resident in India transfer security by way of gift to a person resident outside India?

Ans.   A person resident in India who proposes to transfer security by way of gift to a person resident outside India [other than an erstwhile OCBs] shall make an application to the Central Office of the Foreign Exchange Department, Reserve Bank of India furnishing the following information, namely:

• • Name and address of the transferor and the proposed transferee

  • Relationship between the transferor and the proposed transferee

  • Reasons for making the gift. 

  • In case of Government dated securities, treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such securities.

  • In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.

  • In case of shares/ fully and mandatorily convertible debentures, a certificate from a Chartered Account on the value of such securities according to the guidelines issued by the Securities & Exchange Board of India or the Discount Free Cash Flow Cash (DCF) method with regard to listed companies and unlisted companies, respectively.

  • Certificate from the Indian company concerned certifying that the proposed transfer of shares/convertible debentures, by way of gift, from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company.

The transfer of security by way of gift may be permitted by the Reserve bank provided :

(i)  The donee is eligible to hold such security under Schedules 1, 4 and 5 to Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

(ii) The gift does not exceed 5 per cent of the paid up capital of the Indian company/ each series of debentures/ each mutual fund scheme

(iii) The applicable sectoral cap/ foreign direct investment limit in the Indian company is not breached

(iv) The donor and the donee are relatives as defined in section 6 of the Companies Act, 1956.

(v) The value of security to be transferred by the donor together with any security transferred to any person residing outside India as gift in the calendar year does not exceed the rupee equivalent of USD 25,000.

(vii) Such other conditions as considered necessary in public interest by the Reserve Bank.

Q.7. What if the transfer of shares from resident to non-resident does not fall under the above categories?

Ans.   In case the transfer does not fit into any of the above categories, either the transferor (resident) or the transferee (non-resident) can make an application to the Reserve Bank for permission for the transfer of shares. The application has to be accompanied with the following documents:

• • A copy of the FIPB approval (if required).

  • Consent letter from transferor and transferee clearly indicating the number of shares, name of the investee company and the price at which the transfer is proposed to be effected.

  • The present/post transfer shareholding pattern of the Indian investee company showing the equity participation by residents and non-residents category-wise.

  • Copies of the Reserve Bank of India's approvals/ acknowledged copies of FC-GPR evidencing the existing holdings of the non-residents.

  • If the sellers/ transferors are NRIs / OCBs, the copies of the Reserve Bank of India's approvals evidencing the shares held by them on repatriation / non-repatriation basis.

  • Open Offer document filed with the SEBI if the acquisition of shares by non-resident is under SEBI Takeover Regulations.

  • Fair Valuation Certificate from the SEBI registered Category-I-Merchant Banker or Chartered Accountant indicating the value of shares as per the following guidelines :

a)  where shares of an Indian company are listed on a recognized stock exchange in India, the price of shares transferred by way of sale shall not be less than the price at which a preferential allotment of shares can be made under the SEBI Guidelines, as applicable, provided that the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares.

(b) where the shares of an Indian company are not listed on a recognized stock exchange in India, the transfer of shares shall be at a price not less than the fair value to be determined by a SEBI registered Category – I - Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow (DCF) method.

Q8. What are the reporting obligations in case of transfer of shares between resident and non-resident ?

Ans. The transaction should be reported by submission of form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt/remittance of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe would be on the resident in India, the transferor or transferee, as the case may be.

Q.9. What is the method of payment and remittance/credit of sale proceeds in case of transfer of shares between resident and non-resident ?

Ans.  The sale consideration in respect of the shares purchased by a person resident outside India shall be remitted to India through normal banking channels. In case the buyer is a Foreign Institutional Investor (FII), payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is a NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts. However, if the shares are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal banking channel or paid out of funds held in NRE/FCNR (B)/NRO accounts.

The sale proceeds of shares (net of taxes) sold by a person resident outside India) may be remitted outside India. In case of FII the sale proceeds may be credited to its special Non-Resident Rupee Account. In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE/FCNR(B) accounts and if the shares sold were held on non repatriation basis, the sale proceeds may be credited to his NRO account subject to payment of taxes. The sale proceeds of shares (net of taxes) sold by an erstwhile OCB may be remitted outside India directly if the shares were held on repatriation basis and if the shares sold were held on non-repatriation basis, the sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the case of erstwhile OCBs whose accounts have been blocked by Reserve Bank.

Q. 10. Are the investments and profits earned in India repatriable?

Ans.   All foreign investments are freely repatriable (net of applicable taxes) except in cases where:

i)  the foreign investment is in a sector like Construction and Development Projects and Defence wherein the foreign investment is subject to a lock-in-period; and

ii)  NRIs choose to invest specifically under non-repatriable schemes.

Further, dividends (net of applicable taxes) declared on foreign investments can be remitted freely through an Authorised Dealer bank.

Q.11. What are the guidelines on issue and valuation of shares in case of existing companies?

Ans.     A. The price of shares issued to persons resident outside India under the FDI Scheme shall not be less than :

• 1. the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India;

  2. the fair valuation of shares done by a SEBI registered Category - I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method, where the shares of the company is not listed on any recognised stock exchange in India; and

  3. the price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment.

B. The price of shares transferred from resident to a non-resident and vice versa should be determined as under:

i) Transfer of shares from a resident to a non-resident:

a)   In case of listed shares, at a price which is not less than the price at which a preferential allotment of shares would be made under SEBI guidelines.

b)  In case of unlisted shares at a price which is not less than the fair value as per the Discount Free Cash Flow (DCF) Method to be determined by a SEBI registered Category-I- Merchant Banker/Chartered Accountant.

ii)    Transfer of shares from a non-resident to a resident - The price should not be more than the minimum price at which the transfer of shares would have been made from a resident to a non-resident.

In any case, the price per share arrived at as per the above method should be certified by a SEBI registered Category-I-Merchant Banker / Chartered Accountant.

Q. 12.  What are the regulations pertaining to issue of ADRs/ GDRs by Indian companies?

Ans.   

• • 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 thereunder 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.

Q.13. What is meant by Sponsored ADR & Two-way fungibility Scheme of ADR/ GDR?

Ans.   Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/ GDR with an overseas depository against shares held by its shareholders at a price to be determined by the Lead Manager. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.

Two-way fungibility Scheme : Under the limited Two-way fungibility Scheme, a registered broker in India can purchase shares of an Indian company on behalf of a person resident outside India for the purpose of converting the shares so purchased into ADRs/ GDRs. The operative guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21 dated February 13, 2002. The Scheme provides for purchase and re-conversion of only as many shares into ADRs/ GDRs which are equal to or less than the number of shares emerging on surrender of ADRs/ GDRs which have been actually sold in the market. Thus, it is only a limited two-way fungibility wherein the headroom available for fresh purchase of shares from domestic market is restricted to the number of converted shares sold in the domestic market by non-resident investors. So long the ADRs/ GDRs are quoted at discount to the value of shares in domestic market, an investor will gain by converting the ADRs/ GDRs into underlying shares and selling them in the domestic market. In case of ADRs/ GDRs being quoted at premium, there will be demand for reverse fungibility, i.e. purchase of shares in domestic market for re-conversion into ADRs/ GDRs. The scheme is operationalised through the Custodians of securities and stock brokers under SEBI.

Q.14. Can Indian companies issue Foreign Currency Convertible Bonds (FCCBs)?

Ans.   FCCBs can be issued by Indian companies in the overseas market in accordance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.

The FCCB being a debt security, the issue needs to conform to the External Commercial Borrowing guidelines, issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3, 2000, as amended from time to time.

Q.15. Can a foreign investor invest in Preference Shares? What are the regulations applicable in case of such investments?

Ans.   Yes. Foreign investment through preference shares is treated as foreign direct investment. However, the preference shares should be fully and mandatorily convertible into equity shares within a specified time to be reckoned as part of share capital under FDI. Investment in other forms of preference shares requires to comply with the ECB norms. 

Q.16. Can a company issue debentures as part of FDI ?

Ans. Yes. Debentures which are fully and mandatorily convertible into equity within a specified time would be reckoned as part of equity under the FDI Policy.

Q.17. Can shares be issued against Lumpsum Fee, Royalty and ECB?

Ans.  An Indian company eligible to issue shares under the FDI policy and subject to pricing guidelines as specified by the Reserve Bank from time to time, may issue shares to a person resident outside India :

• 1. being a provider of technology / technical know-how, against Royalty / Lumpsum fees due for payment; and

  2. against External Commercial Borrowing (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI Guidelines).

Provided, that the foreign equity in the company, after the conversion of royalty / lumpsum fee / ECB into equity, is within the sectoral cap notified, if any.

Q.18. 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?

Ans.

• • 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.

Q.19. Can a foreign investor invest in shares issued by an unlisted  company in India?

Ans. Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in shares issued by an unlisted Indian company.

Q. 20. Can a foreigner set up a partnership/ proprietorship concern in India?

Ans. No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.

Q.21. Can a foreign investor invest in Rights shares issued by an Indian company at a discount?

Ans. There are no restrictions under FEMA for investment in Rights shares issued at a discount by an Indian company, provided the rights shares so issued are being offered at the same price to residents and non-residents. The offer on right basis to the persons resident outside India shall be :

 (a) in the case of shares of a company listed on a recognized stock  exchange in India, at a price as determined by the company; and

(b) in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders.

II. Foreign Technology Collaboration Agreement

Whether the payment in terms of foreign technology collaboration agreement' can be made by an Authorised Dealer (AD) bank?

Ans.  Yes, RBI has delegated the powers, to make payments for royalty, lumpsum fee for transfer of technology and payment for use of trademark/brand name in terms of the foreign technology collaboration agreement entered by the Indian company with its foreign partners, to the AD banks subject to compliance with the provisions of Foreign Exchange Management (Current Account Transactions) Rules, 2000. Further, the requirement of registration of the agreement with the Regional Office of Reserve Bank of India has also been done away with.

III.  Foreign Portfolio Investment

Q.1. What are the regulations regarding Portfolio Investments by SEBI registered Foreign Institutional Investors (FIIs)?

Ans.

• • Investment by SEBI registered FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000, as amended from time to time. FIIs include Asset Management Companies, Pension Funds, Mutual Funds, Investment Trusts as Nominee Companies, Incorporated / Institutional Portfolio Managers or their Power of Attorney holders, University Funds, Endowment Foundations, Charitable Trusts and Charitable Societies.

  • SEBI acts as the nodal point in the registration of FIIs. The Reserve Bank of India has granted general permission to SEBI Registered FIIs to invest in India under the Portfolio Investment Scheme (PIS).

  • Investment by SEBI registered FIIs and its sub accounts cannot exceed 10per cent of the paid up capital of the Indian company. However, in case of foreign corporates or High Networth Individuals (HNIs) registered as sub accounts of an FII, their investment shall be restricted to 5 per cent of the paid up capital of the Indian company.  All FIIs and their sub-accounts taken together cannot acquire more than 24 per cent of the paid up capital of an Indian Company. An Indian company can raise the 24 per cent ceiling to the sectoral cap / statutory ceiling, as applicable, by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by their General Body. The Indian company has to intimate the raising of the FII limit to the Reserve Bank to enable the Bank to notify the same on its website for larger public dissemination.

Q.2. What are the regulations regarding Portfolio Investments by NRIs/PIOs?

Ans.

• • Non- Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase or sell shares/ fully and mandatorily convertible debentures of Indian companies on the Stock Exchanges under the Portfolio Investment Scheme. For this purpose, the NRI/ PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment. All sale/ purchase transactions are to be routed through the designated branch.

  • An NRI or a PIO can purchase shares up to 5 per cent of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10 per cent of the paid up value of the company. This limit can be increased by the Indian company to 24 per cent by passing a General Body resolution. The Indian company has to intimate the raising of the FII limit to the Reserve Bank to enable the Bank to notify the same on its website for larger public dissemination.

  • The sale proceeds of the repatriable investments can be credited to the NRE/ NRO, etc. accounts of the NRI/ PIO, whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.

  • The sale of shares will be subject to payment of applicable taxes.

IV.  Investment in other securities

Q.1. Can a Non-resident Indian(NRI) and SEBI registered Foreign Institutional Investor (FII) invest in Government Securities/ Treasury bills and Corporate debt?

Ans. Under the FEMA Regulations, only NRIs andSEBI registered FIIs are permitted to purchase Government Securities/Treasury bills and Corporate debt. The details are as under :

A.    A Non-resident Indian can purchase without limit,

(1)  on repatriation basis

i)   Dated Government securities (other than bearer securities) or treasury bills or units of domestic mutual funds;

ii) Bonds issued by a public sector undertaking (PSU) in India; and 

iii) Shares in Public Sector Enterprises being disinvested by the Government of India.

(2) on non-repatriation basis

• 1.  Dated Government securities (other than bearer securities) or treasury bills or units of domestic mutual funds;

  2.  Units of Money Market Mutual Funds in India; and

  3. National Plan/Savings Certificates.

B.  A SEBI registered FII may purchase, on repatriation basis, dated Government securities/ treasury bills, listed non-convertible debentures/ bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India.

The FII investment in Government securities and Corporate debt is subject to a ceiling decided in consultation with the Government of India. Investment limit for the FIIs as a group in Government securities currently is USD 10 billion and in Corporate debt is USD 20 billion.

Q.2. Can a NRI and SEBI registered FII invest in Tier I and Tier II instruments issued by banks in India?

Ans . SEBI registered FIIs and NRIs have been permitted to subscribe to the Perpetual Debt instruments (eligible for inclusion as Tier I capital) and Debt Capital instruments (eligible for inclusion as upper Tier II capital), issued by banks in India and denominated in Indian Rupees, subject to the following conditions :

a.  Investment by all FIIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 49 per cent of each issue and investment by individual FII should not exceed the limit of 10 per cent of each issue.

b. Investments by all NRIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 24 per cent of each issue and investments by a single NRI should not exceed 5 percent of each issue.

c. Investment by FIIs in Rupee denominated Debt Capital instruments (Tier II) shall be within the limits stipulated by SEBI for FII investment in corporate debt instruments.

d. Investment by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.

e. Investment by FIIs in Rupee denominated Upper Tier II Instruments raised in Indian Rupees will be within the limit prescribed by the SEBI for investment in corporate debt instruments. However, investment by FIIs in these instruments will be subject to a separate ceiling of USD 500 million.

f.  The details of the secondary market sales / purchases by FIIs and the NRIs in these instruments on the floor of the stock exchange are to be reported by the custodians and designated Authorised Dealer banks respectively, to the Reserve Bank through the soft copy of the Forms LEC (FII) and LEC (NRI).

Q.3.  Can a NRI and SEBI registered FIIinvest in Indian Depository Receipts (IDRs)?

Ans.  NRI and SEBI registered FIIs have been permitted to invest, purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market, subject to the following conditions :

(i) The purchase, hold and transfer of IDRs is in accordance with 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.

(ii) Automatic fungibility of IDRs is not permitted.

(iii) IDRs shall not be redeemable into underlying equity shares before the expiry of one year period from the date of issue of the IDRs.

(iv)  At the time of redemption / conversion of IDRs into the underlying shares, the Indian holders (persons resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004 dated July 7 2004, as amended from time to time.

(v) The FEMA provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs and NRIs.

Q.4. Can aperson resident in India invest in the Indian Depository Receipts (IDRs)? What is the procedure for redemption of IDRs held by persons resident in India?

Ans.  A person resident in India may purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market. The FEMA Regulations shall not be applicable to persons resident in India as defined under section 2(v) of FEMA, 1999, for investing in IDRs and subsequent transfer arising out of a transaction on a recognized Stock Exchange in India.  However, at the time of redemption / conversion of IDRs into underlying shares, the Indian holders (persons resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004 dated July 7 2004, as amended from time to time. The following guidelines shall be followed on redemption of IDRs by persons resident in India:

i.  Listed Indian companies may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulations 6B and 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.

ii. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulation 6C of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.

iii. Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares.

V.   Foreign Venture Capital Investment

Q.5. What are the regulations for Foreign Venture Capital Investment?

Ans.

• • A SEBI registered Foreign Venture Capital Investor has general permission from the Reserve Bank of India to invest in a Venture Capital Fund (VCF) or an Indian Venture Capital Undertaking (IVCU), in the manner and subject to the terms and conditions specified in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. These investments by SEBI registered FVCI, would be subject to the SEBI regulation and sector specific caps of FDI.

  • FVCIs can purchase equity / equity linked instruments / debt / debt instruments, debentures of an IVCU or of a VCF through initial public offer or private placement in units of schemes / funds set up by a VCF. At the time of granting approval, the Reserve Bank permits the FVCI to open a Foreign Currency Account and/ or a Rupee Account with a designated branch of an AD Category – I bank.

  • The purchase / sale of shares, debentures and units can be at a price that is mutually acceptable to the buyer and the seller.

  • AD Category – I banks can offer forward cover to FVCIs to the extent of total inward remittance. In case the FVCI has made any remittance by liquidating some investments, original cost of the investments has to be deducted from the eligible cover to arrive at the actual cover that can be offered.

VI.   Branch/ Project/ Liaison Office of a foreign company in India

Q.1. How can foreign companies open Liaison /Branch office in India?

Ans.

A. With effect from February 1, 2010, foreign companies/entities desirous of  setting up of Liaison Office / Branch Office (LO/BO) are required to submit their application in Form FNC along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai through an Authorised Dealer bank. This form is available at www.rbi.org.in

B. The applications from such entities in Form FNC will be considered by the Reserve Bank under two routes:

• • Reserve Bank Route - Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.

  • Government Route - Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non - Government Organisations / Non - Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

C. The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison/Branch Offices of foreign entities :

• Track Record

• • For Branch Office — a profit making track record during the immediately preceding five financial years in the home country.

  • For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.

• Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name].

• • For Branch Office — not less than USD 100,000 or its equivalent.

  • For Liaison Office — not less than USD 50,000 or its equivalent. 

D. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Authorised Dealer in whose jurisdiction the office is set up. The Branch / Liaison offices established with the Reserve Bank's approval will be allotted a Unique Identification Number (UIN) ( www.rbi.org.in/scripts/Fema.aspx ). The BOs / LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

E. Liaison/Branch offices have to file an Annual Activity Certificate (AACs) from the Auditors, as at end of March 31, along with the audited Balance Sheet on or before September 30 of that year, stating that the Liaison Office has undertaken only those activities permitted by Reserve Bank of India. In case the annual accounts of the LO/ BO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet.

Q.2. What are the permitted activities of Liaison Office/ Representative Office?

Ans. A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. A Liaison Office can undertake the following activities in India :

i. Representing in India the parent company / group compa­nies.

ii. Promoting export / import from / to India.

iii. Promoting technical/financial collaborations be­tween parent/group companies and companies in India.

iv. Acting as a communication channel between the parent company and Indian companies.

Q.3.  Can Foreign Insurance Companies / Banks set up Liaison Office in India?

Ans. Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Similarly, foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), Reserve Bank of India.

Q. 4. What is the procedure for setting up Branch office?

Ans. Permission for setting up branch offices is granted by the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. Reserve Bank of India considers the track record of the applicant company, existing trade relations with India, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinising the application. The application in Form FNC should be submitted to the Reserve Bank through the Authorised Dealer bank.

Q.5. What are the permitted activities of Branch Office?

Ans. Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India :

i. Export / Import of goods2.

ii. Rendering professional or consultancy services.

iii. Carrying out research work, in areas in which the parent company is engaged.

iv. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

v. Representing the parent company in India and acting as buying / selling agent in India.

vi. Rendering services in information technology and devel­opment of software in India.

vii. Rendering technical support to the products sup­plied by parent/group companies. 

viii. Foreign airline / shipping company. 

Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.

Note :

• 1. Retail trading activities of any nature is not allowed for a Branch Office in India.

  2. A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.

  3. Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

Q.6. Whether Branch Offices are permitted to remit profit outside India?

Ans. Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the Authorised Dealer through whom the remittance is effected :

a. A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year;

b. A Chartered Accountant’s certificate certifying -

i  . the manner of arriving at the remittable profit

ii. that the entire remittable profit has been earned by undertaking the permitted activities

iii. that the profit does not include any profit on revaluation of the assets of the branch.

Q.7  What are the documents to be submitted to the AD bank at the time of closure of the Liaison/ Branch Office?

Ans. At the time of winding up of Branch/Liaison offices, the company has to approach the designated AD Category - I bank with the following documents:

a)   Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s) for establishing the BO / LO.

b)   Auditor’s certificate - i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;

ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and

iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.

c)   No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.

d)   Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.

e)   A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the Office in India.

f)    Any other document/s, specified by the Reserve Bank while granting approval.

Q.8. What is the procedure for setting up Project Office?

Ans. The Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and

• 1.   the project is funded directly by inward remittance from abroad; or

  2.   the project is funded by a bilateral or multilateral International Financing Agency; or

  3.   the project has been cleared by an appropriate authority; or

  4.   a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

However, if the above criteria are not met or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai for approval.

Q.9. What are the bank accounts permitted to a Project Office?

Ans.  AD Category – I banks can open non-interest bearing Foreign Currency   Account for Project Offices in India subject to the following:

• 1. The Project Office has been established in India, with the general / specific permission of Reserve Bank, having the requisite approval from the concerned Project Sanctioning Authority concerned.

  2. The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.

  3. Each Project Office can open two Foreign Currency Accounts, usually one denominated in USD and other in home currency, provided both are maintained with the same AD category–I  bank.

  4. The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority, and remittances from parent/ group company abroad or bilateral / multilateral international financing agency.

  5. The responsibility of ensuring that only the approved debits and credits are allowed in the Foreign Currency Account shall rest solely with the branch concerned of the AD. Further, the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD banks.

  6. The Foreign Currency accounts have to be closed at the completion of the Project.

Q.10. What are the general conditions applicable to Liaison / Branch / Project Office of foreign entities in India?

Ans. The general conditions applicable to Liaison/Branch/Project Office of foreign entities in India are as under;

(i) Without prior permission of the Reserve Bank, no person  being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China can establish  in India, a Branch or a Liaison Office or a Project Office or any other place of business.

(ii) Partnership / Proprietary concerns set up abroad are not allowed to establish Branch /Liaison/Project Offices in India.

(iii) Entities from Nepal are allowed to establish only Liaison Offices in India.

(iv) Branch/Project Offices of a foreign entity, excluding a Liaison Office are permitted to acquire property for their own use and to carry out permitted/incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India even for a Branch Office. These entities are allowed to lease such property for a period not exceeding five years.

(v) Branch / Liaison / Project Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorised Dealers for opening the accounts.

(vi) Transfer of assets of Liaison / Branch Office to subsidiaries or other Liaison/Branch Offices is allowed with specific approval of the Central Office of the Reserve Bank.

(viii) Authorised Dealers can allow term deposit account for a period not exceeding 6 months in favor of a branch/office of a person resident outside India provided the bank is satisfied that the term deposit is out of temporary surplus funds and the branch / office furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.

1 financial services sector means service rendered by banking and non-banking finance companies regulated by the Reserve Bank of India, insurance companies regulated by the Insurance Regulatory and Development Authority (IRDA) and other companies regulated by any other financial regulator, as the case may be.

2Procurement of goods for export and sale of goods after import are allowed only on wholesale basis.

====================================================================================================

Consolidated FDI Policy Of India 2012 By DIPP: Objectives

Consolidated FDI Policy Of India 2012 By DIPP: Definitions

Government Approvals for Foreign Companies Doing Business in India

or Investment Routes for Investing in India, Entry Strategies for Foreign Investors

India's foreign trade policy has been formulated with a view to invite and encourage FDI in India.  The Reserve Bank of India has prescribed the administrative and compliance aspects of FDI. A foreign company planning to set up business operations in India has the following options:

• • investment under automatic route; and

  • investment through prior approval of Government.

Procedure under automatic route

FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.

List of activities or items for which automatic route for foreign investment is not available, include the following:

• • Banking

  • NBFC's Activities in Financial Services Sector

  • Civil Aviation

  • Petroleum Including Exploration/Refinery/Marketing

  • Housing & Real Estate Development Sector for Investment from Persons other 

  • than NRIs/OCBs.

  • Venture Capital Fund and Venture Capital Company

  • Investing Companies in Infrastructure & Service Sector

  • Atomic Energy & Related Projects

  • Defense and Strategic Industries

  • Agriculture (Including Plantation)

  • Print Media

  • Broadcasting

  • Postal Services

Procedure under Government approval

FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/foreign technical collaboration are also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.

Investment by way of Share Acquisition

A foreign investing company is entitled to acquire the shares of an Indian company without obtaining any prior permission of the FIPB subject to prescribed parameters/ guidelines. If the acquisition of shares directly or indirectly results in the acquisition of a company listed on the stock exchange, it would require the approval of the Security Exchange Board of India.

New investment by an existing collaborator in India

A foreign investor with an existing venture or collaboration (technical and financial) with an Indian partner in particular field proposes to invest in another area, such type of additional investment is subject to a prior approval from the FIPB, wherein both the parties are required to participate to demonstrate that the new venture does not prejudice the old one.

General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The companies are required to notify the concerned Regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.

Participation by International Financial Institutions

Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI.

FDI In Small Scale Sector (SSI) Units

A small-scale unit cannot have more than 24 per cent equity in its paid up capital from any industrial undertaking, either foreign or domestic. If the equity from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit looses its small-scale status and shall require an industrial license to manufacture items reserved for small-scale sector. See also FDI in Small Scale Sector in India Further Liberalized

Sector wise Regulation in Foreign Investment

i) Automatic route for specified activities subject to Sectoral cap and conditions.

Prior Approval from FIPB where investment is above Sectoral caps for activities listed below.

==========================================================================

Department of Industrial Policy and 

Promotion

Ministry of Commerce and Industry

Government of India

CONSOLIDATED FDI POLICY

(EFFECTIVE FROM APRIL 10, 2012)1

Government of India

Ministry of Commerce & Industry

Department of Industrial Policy & Promotion

(FC Section)

CIRCULAR 1 OF 2012

SUBJECT: CONSOLIDATED FDI POLICY.

The ―Consolidated FDI Policy‖ is attached. 

2. This circular will take effect from April 10, 2012.

(Anjali Prasad)

Joint Secretary to the Government of India

D/o IPP F. No. 5(2)/2012-FC-I Dated  10.04.2012

Copy forwarded to:

1. Press Information Officer, Press Information Bureau- for giving wide publicity to the 

above circular.

2. BE Section for uploading the circular on DIPP's website.

3. Department of  Economic Affairs, Ministry of Finance, New Delhi

4. Reserve Bank of India, Mumbai

5. Hindi Section for Hindi Translation2

I N D E X

DESCRIPTION PAGE 

NUMBER

CHAPTER-1  INTENT AND OBJECTIVE 5

1.1  Intent And Objective 5

CHAPTER-2  DEFINITIONS 7

2.1  Definitions 7

CHAPTER-3  GENERAL CONDITIONS ON FDI 13

3.1   Who can invest in India? 13

3.2.  Entities into which FDI can be made  15

3.3   Types of Instruments 17

3.4   Issue/Transfer of Shares 20

3.5   Specific conditions in certain cases 27

3.6   Entry routes for Investment 31

3.7   Caps on Investments 32

3.8   Entry conditions on investment 32

3.9   Other conditions on Investment besides entry conditions 32

3.10 Foreign Investment into/Downstream Investment by Indian Companies 33

CHAPTER-4  CALCULATION OF FOREIGN 

INVESTMENT

35

4.1    Total Foreign Investment i.e. Direct and Indirect Foreign Investment in 

Indian Companies

35

CHAPTER-5  FOREIGN INVESTMENT PROMOTION 

BOARD (FIPB)

39

5.1   Constitution of FIPB  39

5.2   Levels of approval for cases under Government Route 39

5.3   Cases which do not require fresh Approval   39

5.4   Online filing of applications for FIPB/Government‘s approval 40

CHAPTER-6  SECTOR SPECIFIC CONDITIONS ON FDI 41

6.1  PROHIBITED SECTORS 41

6.2  PERMITTED SECTORS 41

AGRICULTURE 42

6.2.1  Agriculture & Animal Husbandry 42

6.2.2  Tea plantation 44

MINING AND PETROLEUM & NATURAL GAS 44

6.2.3  Mining 443

6.2.4  Petroleum & Natural Gas 47

MANUFACTURING 47

6.2.5  Manufacture of items reserved for production in Micro and Small 

Enterprises (MSEs)

47

6.2.6  Defence  48

SERVICES SECTOR 51

6.2.7    Broadcasting   51

6.2.8    Print Media 52

6.2.9    Civil Aviation  53

6.2.10  Courier Services 56

6.2.11  Construction Development: Townships, Housing, Built-up infrastructure  56

6.2.12 Industrial Parks new and existing 58

6.2.13  Satellites – Establishment and operation  60

6.2.14  Private Security Agencies  60

6.2.15  Telecom Sector 60

6.2.16  Trading 65

FINANCIAL SERVICES 69

6.2.17  Asset Reconstruction Companies 69

6.2.18  Banking –Private sector   70

6.2.19  Banking- Public Sector 72

6.2.20  Commodity Exchanges 73

6.2.21  Credit Information Companies (CIC) 74

6.2.22  Infrastructure Company in the Securities Market 75

6.2.23  Insurance 75

6.2.24  Non-Banking Finance Companies (NBFC) 75

6.2.25  Pharmaceuticals 78

CHAPTER-7 REMITTANCE, REPORTING AND 

VIOLATION

79

7.1  Remittance and Repatriation 79

7.2  Reporting of FDI 80

7.3  Adherence to Guidelines/Orders and Consequences of Violation

         Penalties

Adjudication and Appeals

Compounding Proceedings

83

83

83

84

ANNEXURES

Annex-1 Form FC-GPR  85

Annex-2 Terms and conditions for transfer of capital instruments from resident to 

non-resident and vice-versa

92

Annex-3 Documents to be submitted by a person resident in India for transfer of

shares to a person resident outside India by way of gift

964

Annex-4 Definition of "relative" as given in Section 6 of Companies Act, 1956 97

Annex-5 Report by the Indian company receiving amount of consideration for

issue of shares / convertible debentures under the FDI scheme

98

Annex-6 Know Your Customer (KYC) Form in respect of the non-resident 

investor

100

Annex-7 Form Annual Return on Foreign Liabilities and Assets  101

Annex-8 Form FC-TRS 114

Annex-9 Form DR 119

Annex-10 Form DR - Quarterly 1215

CHAPTER 1:INTENT AND OBJECTIVE

1.1 INTENT AND OBJECTIVE

1.1.1 It is the intent and objective of the Government of India to attract and promote foreign 

direct investment in order to supplement domestic capital, technology and skills, for accelerated

economic growth.  Foreign Direct Investment, as distinguished from portfolio investment,  has 

the connotation of establishing a ‗lasting interest‘ in an enterprise that is resident in an economy 

other than that of the investor.

1.1.2 The Government has put in place a policy framework on Foreign  Direct Investment, 

which is transparent, predictable and easily comprehensible. This framework is embodied in the 

Circular on Consolidated FDI Policy, which may be updated every  year, to capture and keep 

pace with the regulatory changes, effected in the  interregnum. The Department of Industrial 

Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes 

policy pronouncements on FDI through Press Notes/ Press Releases which are notified by the 

Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer or Issue 

of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 

20/2000-RB dated May 3, 2000).  These notifications take effect from the date of issue of Press 

Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant 

FEMA Notification will prevail.  The procedural instructions are issued by the Reserve Bank of 

India vide A.P. Dir. (series) Circulars.  The regulatory framework, over a period of time, thus,

consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

1.1.3 The present consolidation subsumes and supersedes all Press Notes/Press 

Releases/Clarifications/ Circulars issued by DIPP, which were in force as on April 09, 2012, and 

reflects the FDI Policy as on April 10, 2012.   This Circular accordingly will take effect from 

April  10, 2012.  Reference to any statute or legislation made in this Circular shall include 

modifications, amendments or re-enactments thereof.6

1.1.4 Notwithstanding the rescission of earlier Press Notes/Press 

Releases/Clarifications/Circulars, anything done or any action taken or purported to have been 

done or taken under the rescinded Press Notes/Press Releases/Clarifications/Circulars prior to 

April  10, 2012, shall, in so far as it is not inconsistent with those Press Notes/Press 

Releases/Clarifications/Circulars, be deemed to have been done or taken under the corresponding 

provisions of this circular and shall be valid and effective. 7

CHAPTER 2: DEFINITIONS

2.1 DEFINITIONS

2.1.1 ‗AD Category-I Bank‘ means a bank( Scheduled Commercial, State or Urban 

Cooperative) which is authorized under Section 10(1) of FEMA to undertake all 

current and capital account transactions according to the directions issued by 

the RBI from time to time.

2.1.2 ‗Authorized Bank‘ means a bank including a co-operative bank (other than an 

authorized dealer) authorized by the Reserve Bank to maintain an account of a 

person resident outside India

2.1.3 ‗Authorized Dealer‘ means a person authorized as an authorized dealer under 

sub-section (1) of section 10 of FEMA.

2.1.4 ‗Authorized Person‘ means an authorized dealer, money changer, offshore 

banking unit or any other person for the time being authorized under Subsection (a) of Section 10 of FEMA to deal in foreign exchange or foreign 

securities.

2.1.5 ‗Capital‘ means equity shares; fully, compulsorily & mandatorily convertible 

preference shares; fully, compulsorily & mandatorily convertible debentures.

Note : Warrants and partly paid shares can be issued to person/ (s) resident 

outside India only after approval through the Government route

1

. 

2.1.6 ‗Capital account transaction‘ means a transaction which alters the assets or 

liabilities, including contingent liabilities, outside India of persons resident in 

India or assets or liabilities in India of persons resident outside India, and 

includes transactions referred to in sub-section (3) of section 6 of FEMA.

2.1.7 A company is considered as ―Controlled‖ by resident Indian citizens if the 

resident Indian citizens and Indian companies, which are owned and controlled 

by resident Indian citizens, have the power to appoint a majority of its directors 

in that company .

2.1.8 ‗Depository Receipt‘ (DR) means a negotiable security issued outside India by 

1

Review of FDI policy to include warrants and partly-paid shares is under consideration of the Government.8

a Depository bank, on behalf of an Indian company, which represent the local 

Rupee denominated equity shares of the company held  as deposit by a 

Custodian bank in India. DRs are traded on Stock Exchanges in the US, 

Singapore, Luxembourg, etc. DRs listed and traded in the US markets are 

known as American Depository Receipts (ADRs) and those listed and traded 

anywhere/elsewhere are known as Global Depository Receipts (GDRs).

2.1.9 ‗Erstwhile Overseas Corporate Body‘ (OCB) means a company, partnership 

firm, society and other corporate body owned directly or indirectly to the extent 

of at least sixty percent by non-resident Indian and includes overseas trust in 

which not less than sixty percent beneficial interest is held by non-resident 

Indian directly or indirectly but irrevocably and which was in existence on the 

date of commencement of the Foreign Exchange Management (Withdrawal of 

General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003 

(the Regulations) and immediately prior to such commencement was eligible to 

undertake transactions pursuant to the general permission granted under the 

Regulations.

2.1.10 ‗Foreign Currency Convertible Bond‘(FCCB) means a bond issued by an 

Indian company expressed in foreign currency, the principal and interest of 

which is payable in foreign currency.  FCCBs are issued in accordance with the 

Foreign Currency Convertible Bonds and ordinary shares (through depository 

receipt mechanism) Scheme 1993 and subscribed by a non-resident entity in 

foreign currency and convertible into ordinary shares of the issuing company in 

any manner, either in whole, or in part.  

2.1.11 ‗FDI‘ means investment by non-resident entity/person resident outside India in 

the capital of  an Indian company under Schedule 1 of Foreign  Exchange 

Management (Transfer or Issue of Security by a Person Resident Outside India) 

Regulations 2000 (Original notification is available 

athttp://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174.  Subsequent 

amendment notifications are available at 

http://rbi.org.in/Scripts/BS_FemaNotifications.aspx)

2.1.12 ‗FEMA‘ means the Foreign Exchange Management Act 1999 (42 of 1999)9

(http://finmin.nic.in/law/index.asp).

2.1.13 ‗FIPB‘ means the Foreign Investment Promotion Board constituted by the 

Government of India.

2.1.14 ‗Foreign Institutional Investor‘(FII) means an entity established or incorporated 

outside India which proposes to make investment in India and which is 

registered as a FII in accordance with the SEBI (FII) Regulations 1995.

2.1.15 ‗Foreign Venture Capital Investor‘ (FVCI) means an investor incorporated and 

established outside India, which is registered under the Securities and Exchange 

Board of India (Foreign Venture Capital Investor) Regulations, 2000 

{SEBI(FVCI) Regulations} and proposes to make investment in accordance 

with these Regulations

2.1.16 ‗Government route‘ means that investment in the capital of resident entities by 

non-resident entities can be made only with the prior approval of Government 

(FIPB,  Department of Economic Affairs (DEA),  Ministry of Finance or 

Department of Industrial Policy & Promotion, as the case may be).

2.1.17 ‗Holding Company‘ would have the same meaning as defined in Companies 

Act 1956.

2.1.18 ‗Indian Company‘ means a company incorporated in India under the 

Companies Act, 1956.

2.1.19 ‗Indian Venture Capital Undertaking‘ (IVCU) means an Indian company:─

(i)  whose shares are not listed in a recognised stock exchange in India;

(ii) which is engaged in the business of providing services, production or 

manufacture of articles or things, but does not include such activities or sectors 

which are specified in the negative list by the SEBI, with approval of Central 

Government, by notification in the Official Gazette in this behalf.

2.1.20 ‗Investing Company‘ means an Indian Company holding only investments in 

other Indian company/ (ies), directly or indirectly, other than for trading of such 

holdings/securities.

2.1.21 ‗Investment on repatriable basis‘ means investment, the sale proceeds of which, 

net of taxes, are eligible to be repatriated out of India and the expression 

‗investment on non-repatriable basis‘ shall be construed accordingly.10

2.1.22 ‗Joint Venture‘ (JV) means an Indian entity incorporated in accordance with the 

laws and regulations in India in whose capital  a non-resident entity makes an 

investment.

2.1.23 "Limited Liability Partnership" means a Limited Liability Partnership firm, 

formed and registered under the Limited Liability Partnership Act, 2008.

2.1.24 ‗Non resident entity‘ means a ‗person resident outside India‘ as defined under 

FEMA.

2.1.25 ‗Non Resident Indian‘ (NRI) means an individual resident outside India who is 

a citizen of India or is a person of Indian origin.

2.1.26 A company is considered as 'Owned‘ by resident Indian citizens if more than 

50% of the capital in it is beneficially owned by resident Indian citizens and / or 

Indian companies, which are ultimately owned and controlled by resident 

Indian citizens; 

2.1.27 ‗Person‘ includes 

(i) an individual

(ii) a Hindu undivided family,

(iii) a company

(iv) a firm

         (v) an association of persons or a body of individuals whether 

incorporated or not, 

(vi) every artificial juridical person, not falling within any of the 

preceding sub-clauses, and

(vii) any agency, office, or branch owned or controlled by such person.

2.1.28 ‗Person of Indian Origin‘ (PIO) means a citizen of any country other than 

Bangladesh or Pakistan, if

(i) he at any time held Indian Passport

(ii) he or either of his parents or any of his grandparents was a citizen of 

India by virtue of the Constitution of India or the Citizenship Act, 1955 

(57 of 1955); or 

(iii) the person is a spouse of an Indian citizen or a person referred to in subclause (i) or (ii).11

2.1.29 ‗Person resident in India‘ means -

(i) a person residing in India for more than one hundred and eighty-two 

days during the course of the preceding financial year but does not 

include –

(A)A person who has gone out of India or who stays outside India, in 

either case-

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside 

India, or

(c) for any other purpose, in such circumstances as would indicate 

his intention to stay outside India for an uncertain period;

(B) A person who has come to or stays in India, in either case, otherwise 

than-

(a) for or on taking up employment in India; or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate 

his intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person 

resident outside India,

(iv)an office, branch or agency outside India owned or controlled by a 

person resident in India.

2.1.30 ‗Person resident outside India‘ means a person who is not a Person resident in 

India.

2.1.31 ‗Portfolio Investment Scheme‘ means the Portfolio Investment Scheme referred 

to in Schedules 2 & 3 of  FEM (Transfer or Issue of Security by a Person 

Resident Outside India) Regulations 2000.

2.1.32 ‗A Qualified Foreign Investor (QFI)‘ means a non-resident investor (other than 

SEBI registered FII and SEBI registered FVCI) who meets the KYC 

requirements of SEBI for the purpose of making investments in accordance 

with the regulations/orders/circulars of  RBI/SEBI. 12

2.1.33 ‗RBI‘ means the Reserve Bank of India established under the Reserve Bank of 

India Act, 1934.

2.1.34 ‗Resident Entity‘ means  ‗Person resident in India‘ excluding an individual.

2.1.35 ‗Resident Indian Citizen‘ shall be interpreted in line with the definition of 

‗person resident in India‘ as per FEMA, 1999, read in conjunction with the 

Indian Citizenship Act, 1955.

2.1.36 ‗SEBI‘ means the Securities and Exchange Board of India established under the 

Securities and Exchange Board of India Act, 1992.

2.1.37 ‗SEZ‘ means a Special Economic Zone as defined in Special Economic Zone 

Act, 2005.

2.1.38 ‗SIA‘ means Secretariat of Industrial Assistance in DIPP, Ministry of 

Commerce & Industry, Government of India.

2.1.39 ‗Transferable Development Rights‘ (TDR) means certificates issued in respect 

of category of land acquired for public purposes either by the Central or State 

Government in consideration of surrender of land by the owner without 

monetary compensation, which are transferable in part or whole.

2.1.40 ‗Venture Capital Fund‘ (VCF) means a Fund established in the form of a Trust,

a company including a body corporate and registered under Securities and 

Exchange Board of India (Venture Capital Fund) Regulations, 1996, which

(i) has a dedicated pool of capital;

(ii) raised in the manner specified under the Regulations; and

         (iii) invests in accordance with the Regulations.13

CHAPTER 3: GENERAL CONDITIONS ON FDI

3.1 WHO CAN INVEST IN INDIA?

3.1.1 A non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) 

can invest in India, subject to the FDI Policy.  A citizen of Bangladesh or an entity incorporated 

in Bangladesh can invest only under the Government route.

3.1.2  NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted 

to invest in the capital of Indian companies on repatriation basis, subject to the condition that the 

amount of consideration for such investment shall be paid only by way of inward remittance in 

free foreign exchange through normal banking channels. 

3.1.3 OCBs have been derecognized as a class of investors in India with effect from September 

16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse 

notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities, 

with the prior approval of Government of India if the investment is through Government route; 

and with the prior approval of RBI if the investment is through Automatic route. 

3.1.4 (i) An FII may invest in the capital of an Indian Company under the Portfolio Investment 

Scheme which limits the individual holding of an FII to 10% of the capital of the 

company and the aggregate limit for FII investment to 24% of the capital of the company. 

This aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling, as 

applicable, by the Indian Company concerned  through a resolution by its Board of 

Directors followed by a special resolution to that effect by its General Body and subject 

to prior  intimation to RBI. The aggregate FII investment, in the FDI and Portfolio 

Investment Scheme, should be within the above caps.

  (ii) The Indian company which has issued shares to FIIs under the FDI Policy for which the 

payment has been received directly into company‘s account should report these figures 

separately under item no. 5 of Form FC-GPR (Annex-1).14

(iii) A daily statement in respect of all transactions (except derivative trade) has to be 

submitted by the custodian bank in floppy / soft copy in the prescribed format directly to 

RBI.

3.1.5 Only SEBI registered FII and NRIs  as per Schedules 2 and 3 respectively of Foreign 

Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) 

Regulations 2000, can invest/trade through a registered broker in the capital of Indian Companies 

on recognised Indian Stock Exchanges. 

3.1.6 A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% 

of the capital of an Indian Venture Capital Undertaking (IVCU) and may also set up a domestic 

asset management company to manage the fund.  All such investments can be made under the 

automatic route in terms of Schedule 6 to Notification No. FEMA 20.   A SEBI registered FVCI 

can invest in a domestic venture capital fund registered under the SEBI (Venture Capital Fund) 

Regulations, 1996.  Such investments would also be subject to the extant FEMA regulations and 

extant FDI policy including sectoral caps, etc.  SEBI registered FVCIs are also allowed to invest 

under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and 

FEMA regulations. 

Further, FVCIs are allowed to invest in the eligible securities (equity, equity linked 

instruments, debt, debt instruments, debentures of an IVCU or VCF, units of schemes / funds set 

up by a VCF) by way of private arrangement / purchase from a third party also, subject to terms 

and conditions as stipulated in Schedule 6 of Notification No. FEMA 20 / 2000 -RB dated May 

3, 2000 as amended from time to time. It is also being clarified that SEBI registered FVCIs 

would also be allowed to invest in securities on a recognized stock exchange subject to the 

provisions of the SEBI (FVCI) Regulations, 2000, as amended from time to time, as well as the 

terms and conditions stipulated therein.

3.1.7 Qualified Foreign Investors (QFls) investment in equity shares: 

3.1.7.1 QFls are permitted to invest through SEBI registered Depository Participants 

(DPs) only in equity shares of listed Indian companies through recognized brokers on recognized 

stock exchanges in India as well as in equity shares of Indian companies which are offered to 15

public in India in terms of the relevant and applicable SEBI guidelines/regulations. QFls are also 

permitted to acquire equity shares by way of right shares, bonus shares or equity shares on 

account of stock split / consolidation or equity shares on account of amalgamation, demerger or 

such corporate actions subject to the prescribed investment limits. QFIs are allowed to sell the 

equity shares so acquired subject to the relevant SEBI guidelines.

3.1.7.2 The individual and aggregate investment limits for the QFls shall be 5% and 10%

respectively of the paid up capital of an Indian company. These limits shall be over and above 

the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme for 

foreign investment in India. Further, wherever there are composite sectoral caps under the extant 

FDI policy, these limits for QFI investment in equity shares shall also be within such overall FDI 

sectoral caps.

3.1.7.3  Dividend payments on equity shares held by QFls can either be directly remitted 

to the designated overseas bank accounts of the QFIs or credited to the single rupee pool bank 

account. In case dividend payments are credited to the single rupee pool bank account they shall 

be remitted to the designated overseas bank accounts of the QFIs within five working days 

(including the day of credit of such funds to the single rupee pool bank account). Within these 

five working days, the dividend payments can  be  also utilized for fresh purchases of equity 

shares under this scheme,  if so instructed by the QFI.

3.2 ENTITIES INTO WHICH FDI CAN BE MADE

3.2.1 FDI in an Indian Company:  Indian companies can issue capital against FDI.  

3.2.2 FDI in Partnership Firm / Proprietary Concern:

(i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India 

can invest in the capital of a firm or a proprietary concern in India on non-repatriation 

basis provided;

(a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account 

maintained with Authorized Dealers / Authorized banks.

(b) The firm or proprietary concern is not engaged in any agricultural/plantation or real

estate business or print media sector.

(c) Amount invested shall not be eligible for repatriation outside India.16

(ii) Investments with repatriation  option:  NRIs/PIO may seek prior permission of Reserve 

Bank for investment in sole proprietorship concerns/partnership firms with repatriation 

option.  The application will be decided in consultation with the Government of India.

(iii)Investment by non-residents other than NRIs/PIO: A person resident outside India other 

than NRIs/PIO may make an application and seek prior approval of Reserve Bank for 

making investment in the capital of a firm or a proprietorship concern or any association 

of persons in India.  The application will be decided in consultation with the Government 

of India.

(iv)Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern 

engaged in any agricultural/plantation activity or real estate business or print media.

3.2.3 FDI in Venture Capital Fund (VCF): FVCIs are allowed to invest in  Indian 

Venture Capital Undertakings (IVCUs)  /Venture Capital Funds (VCFs) /other companies, as 

stated in paragraph 3.1.6 of this Circular.  If a domestic VCF is set up as a trust, a person resident 

outside India (non-resident entity/individual including an NRI) can invest in such domestic VCF 

subject to approval of the FIPB. However, if a domestic VCF is set-up as an incorporated 

company under the Companies Act, 1956, then a person resident outside India (non-resident 

entity/individual including an NRI) can invest in such domestic VCF under the automatic route 

of FDI Scheme, subject to the pricing guidelines, reporting requirements, mode of payment, 

minimum capitalization norms, etc.

3.2.4 FDI in Trusts: FDI in Trusts other than VCF is not permitted. 

3.2.5 FDI in Limited Liability Partnerships (LLPs): FDI in LLPs is permitted, subject to the 

following conditions:

(a) FDI will be allowed, through the Government approval route, only  in LLPs operating in 

sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDIlinked performance conditions (such as 'Non Banking Finance Companies' or 'Development of 

Townships, Housing, Built-up infrastructure and Construction-development projects' etc.).

(b) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media 

or real estate business.17

(c) An Indian company, having FDI, will be permitted to make downstream investment in an 

LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is 

allowed, through the automatic route and there are no FDI-linked performance conditions.

(d) LLPs with FDI will not be eligible to make any downstream investments.

(e) Foreign Capital participation in LLPs will be allowed only by way of cash consideration, 

received by inward remittance, through normal banking channels or by debit to NRE/FCNR 

account of the person concerned, maintained with an authorized dealer/authorized bank.

(f) Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign Venture Capital 

Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External 

Commercial Borrowings (ECBs).

(g) In case the LLP with FDI has a body corporate that is a designated partner or nominates an 

individual to act as a designated partner in accordance with the provisions of Section 7 of the 

LLP Act, 2008, such a body corporate should only be a company registered in India under the 

Companies Act, 1956 and not any other body, such as an LLP or a trust.

(h) For such LLPs, the designated partner "resident in India", as defined under the

'Explanation' to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of 

"person resident in India", as prescribed under Section 2(v)(i) of the Foreign Exchange 

Management Act, 1999.

(i) The designated partners will be responsible for compliance with all the above conditions and 

also liable for all penalties imposed on the LLP for their contravention, if any.

(j) Conversion of a company with FDI, into an LLP, will be allowed only if the above 

stipulations are met and with the prior approval of FIPB/Government.

3.2.6 FDI in other Entities: FDI in resident entities other than those mentioned above is not 

permitted.

3.3 TYPES OF INSTRUMENTS.

3.3.1 Indian companies can issue equity shares, fully, compulsorily and mandatorily 

convertible debentures and fully, compulsorily and mandatorily convertible preference shares 

subject to pricing guidelines/valuation norms prescribed under FEMA Regulations.  The price/ 

conversion formula of convertible capital instruments should be determined upfront at the time 

of issue of the instruments. The price at the time of conversion should not in any case be lower 18

than the fair value worked out, at the time of issuance of such instruments, in accordance with 

the  extant FEMA regulations [the DCF method of valuation for the unlisted companies and 

valuation in terms of SEBI (ICDR) Regulations, for the listed companies].  

3.3.2 Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible 

or partially convertible for issue of which funds have been received on or after May 1, 2007 are 

considered as debt.  Accordingly all norms applicable for ECBs relating to eligible borrowers, 

recognized lenders, amount and maturity, end-use stipulations, etc. shall apply.  Since these 

instruments would be denominated in rupees, the rupee interest rate will be based on the swap 

equivalent of London Interbank Offered Rate (LIBOR) plus the spread as permissible for ECBs 

of corresponding maturity.

3.3.3 The inward remittance received by the Indian company vide issuance of DRs and FCCBs 

are treated as FDI and counted towards FDI.

3.3.4 Issue of shares by Indian Companies under FCCB/ADR/GDR

(i) Indian companies can raise foreign currency resources abroad through the issue of 

FCCB/DR (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.

(ii) A company can issue ADRs / GDRs if it is eligible to issue shares to persons resident 

outside India under the FDI Policy. 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.

(iii) 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. ADRs / GDRs are issued on the basis of the ratio worked out by the Indian 19

company in consultation with the Lead Manager to the issue. The proceeds so raised have 

to be kept abroad till actually required in India. Pending repatriation or utilization of the 

proceeds, the Indian company can invest the funds in:-

(a)  Deposits, Certificate of Deposits or other instruments offered by banks rated by 

Standard and Poor, Fitch, IBCA ,Moody's, etc. with rating not below the rating 

stipulated by Reserve Bank from time to time for the purpose;

(b) Deposits with branch/es of Indian Authorized Dealers outside India; and

(c) Treasury bills and other monetary instruments with a maturity or unexpired maturity 

of one year or less.

(iv) There are no end-use restrictions except for a ban on deployment / investment of such 

funds in real estate or the stock market. There is no monetary limit up to which an Indian 

company can raise ADRs / GDRs.

(v) The ADR / GDR proceeds can be utilized for first stage acquisition of shares in the 

disinvestment process of Public Sector Undertakings / Enterprises and also in the 

mandatory second stage offer to the public in view of their strategic importance.

(vi) Voting rights on shares issued under the Scheme shall be as per the provisions of 

Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on 

ADR/GDR issues shall be consistent with the Company Law provisions. Voting rights in 

the case of banking companies will continue to be in terms of the provisions of the 

Banking Regulation Act, 1949 and the instructions issued by the Reserve Bank from time 

to time, as applicable to all shareholders exercising voting rights.

(vii) Erstwhile OCBs who are not eligible to invest in India and entities prohibited from 

buying, selling or dealing in securities by SEBI will not be eligible to subscribe to ADRs/ 

GDRs issued by Indian companies.

(viii)The pricing of ADR / GDR issues 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.

(ix)The pricing of sponsored ADRs/GDRs would be determined under the provisions of the 

Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through 20

Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government 

of India and directions issued by the Reserve Bank, from time to time.

3.3.5 (i)     Two-way Fungibility Scheme:  A limited two-way Fungibility scheme has been put 

in place by the Government of India for ADRs / GDRs.  Under this Scheme, a stock broker in 

India, registered with SEBI, can purchase shares of an Indian company from the market for 

conversion into ADRs/GDRs based on instructions received from overseas investors. Reissuance of ADRs / GDRs would be permitted to the extent of ADRs / GDRs which have been 

redeemed into underlying shares and sold in the Indian market.

(ii) Sponsored ADR/GDR issue: An Indian company can also sponsor an issue of ADR / GDR. 

Under this mechanism, the company offers its resident shareholders a choice to submit their 

shares back to the company so that on the basis of such shares, ADRs / GDRs can be issued 

abroad. The proceeds of the ADR / GDR issue are remitted back to India and distributed among 

the resident investors who had offered their Rupee denominated shares for conversion. These 

proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident 

shareholders who have tendered such shares for conversion into ADRs / GDRs.

3.4 ISSUE/TRANSFER OF SHARES

3.4.1 The capital instruments should be issued within 180 days from the date of receipt of the 

inward remittance received through normal banking channels including escrow account opened 

and maintained for the purpose or by debit to the NRE/FCNR (B) account of the non-resident 

investor.  In case, the capital instruments are not issued within 180 days from the date of receipt 

of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of 

consideration so received should be refunded immediately to the non-resident investor by 

outward remittance through normal banking channels or by credit to the NRE/FCNR (B) 

account, as the case may be.  Non-compliance with the above provision would be reckoned as a 

contravention under FEMA and would attract penal provisions.  In exceptional cases, refund of 

the amount of consideration outstanding beyond a period of 180 days from the date of receipt 

may be considered by the RBI, on the merits of the case.

3.4.2 Issue price of shares – Price of shares issued to persons resident outside India under the 

FDI Policy, shall not be less than -21

a. the price worked out in accordance with the SEBI guidelines, as applicable, where the 

shares of the company is listed on any recognised stock exchange in India;

b. the fair valuation of shares done by a SEBI registered Category - I Merchant Banker or a 

Chartered Accountant as per the discounted free cash flow method, where the shares of 

the company is not listed on any recognised stock exchange in India ; and 

c. the price as applicable to transfer of shares from resident to non-resident as per the 

pricing guidelines laid down by the Reserve Bank from time to time, where the issue of 

shares is on preferential allotment.

3.4.3 Foreign Currency Account – Indian companies which are eligible to issue shares to 

persons resident outside India under the FDI Policy may be allowed to retain the share 

subscription amount in a Foreign Currency Account, with the prior approval of RBI.

3.4.4 Transfer of shares and convertible debentures –

(i) Subject to FDI sectoral policy (relating to sectoral caps and entry routes), applicable laws 

and other conditionalities including security conditions, non-resident investors can also 

invest in Indian companies by purchasing/acquiring existing shares from Indian

shareholders or from other non-resident shareholders.  General permission has been 

granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the 

following:

(a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by 

way of sale or gift, the shares or convertible debentures to any person resident outside 

India (including NRIs).

(b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by 

them to another NRI.

(c) A person resident outside India can transfer any security to a person resident in India 

by way of gift.

(d) A person resident outside India can sell the shares and convertible debentures of an 

Indian company on a recognized Stock Exchange in India through a stock broker 

registered with stock exchange or a merchant banker registered with SEBI.22

(e) A person resident in India can transfer by way of sale, shares/convertible debentures 

(including transfer of subscriber‘s shares), of an Indian company under private 

arrangement to a person resident outside India, subject to the guidelines given in para 

3.4.5.2 and Annex-2.

(f) General permission is also available for transfer of shares/convertible debentures, by 

way of sale under private arrangement by a person resident outside India to a person 

resident in India, subject to the guidelines given in para 3.4.5.2 and Annex-2.

(g) The above General Permission also covers transfer by a resident to a non-resident of 

shares/convertible debentures of an Indian company, engaged in an  activity earlier 

covered under the Government Route but now falling under Automatic Route, as well 

as transfer of shares by a non-resident to an Indian company under buyback and/or 

capital reduction scheme of the company.

(h) The Form FC-TRS should be submitted to the AD Category-I Bank, within 60 days 

from the date of receipt of the amount of consideration.  The onus of submission of 

the Form FC-TRS within the given timeframe would be on the transferor/transferee, 

resident in India.

(ii) The sale consideration in respect of equity instruments purchased by a person resident 

outside India, remitted into India through normal banking channels, shall be subjected to 

a Know Your Customer (KYC) check by the remittance receiving AD Category-I  bank 

at the time of receipt of funds. In case, the remittance receiving AD Category-I  bank is 

different from the AD Category-I  bank handling the transfer transaction, the KYC check 

should be carried out by the remittance receiving bank and the KYC report be submitted 

by the customer to the AD Category-I  bank carrying out the transaction along with the 

Form FC-TRS.                                                         

(iii) Escrow:  AD  Category-I  banks have been given general permission to open Escrow 

account and Special account of non-resident corporate for open offers / exit offers and 

delisting of shares. The relevant SEBI (SAST) Regulations or any other applicable SEBI 

Regulations/ provisions of the Companies Act, 1956 will be applicable.   AD Category-I 

banks have also been permitted to open and maintain, without prior approval of RBI, 

non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents 

and/or non-residents, towards payment of share purchase consideration and/or provide 23

Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms 

and conditions specified by RBI.  SEBI authorised Depository Participants have also 

been permitted to open and maintain, without prior approval of RBI, Escrow accounts for 

securities subject to the terms and conditions as specified by RBI.  In both cases, the 

Escrow agent shall necessarily be an AD Category- I bank or SEBI authorised Depository 

Participant (in case of securities‘ accounts). These facilities will be applicable for both 

issue of fresh shares to the non- residents as well as transfer of shares from / to the nonresidents.

3.4.5 Prior permission of RBI in certain cases for transfer of capital instruments  

3.4.5.1 Except cases mentioned in paragraph 3.4.5.2 below, the following cases require prior 

approval of RBI:

(i) Transfer of capital instruments from resident to non-residents by way of sale where :

(a) Transfer is at a price which falls outside the pricing guidelines specified by the 

Reserve Bank from time to time and the transaction does not fall under the exception 

given in para 3.4.5.2.

(b) Transfer of capital instruments  by the non-resident acquirer involving deferment of 

payment of the amount of consideration.  Further, in case approval is granted for a 

transaction, the same should be reported in Form FC-TRS, to an AD Category-I bank 

for necessary due diligence, within 60 days from the date of receipt of the full and 

final amount of consideration.  

(ii) Transfer of any capital instrument, by way of gift by a person resident in India to a person 

resident outside India. While forwarding applications to Reserve Bank for approval for transfer 

of capital instruments by way of gift, the documents mentioned in Annex-3 should be enclosed.  

Reserve Bank considers the following factors while processing such applications:

(a) The proposed transferee (donee) is eligible to hold such capital instruments under 

Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as 

amended from time to time.

(b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each 

series of debentures/each mutual fund scheme.

(c) The applicable sectoral cap limit in the Indian company is not breached.24

(d) The transferor (donor) and the proposed transferee (donee) are close relatives as 

defined in Section 6 of the Companies Act, 1956, as amended from time to time.  The 

current list is reproduced in Annex-4.

(e) The value of capital instruments to be transferred together with any capital 

instruments already transferred by the transferor, as gift, to any person residing 

outside India does not exceed the rupee equivalent of USD  50,000 during the 

financial year.

(f) Such other conditions as stipulated by Reserve Bank in public interest from time to 

time.

(iii) Transfer of shares from NRI to non-resident .

3.4.5.2 In the following cases, approval of RBI is not required:

A. Transfer of shares from a Non Resident to Resident under the FDI scheme where the 

pricing guidelines under FEMA, 1999 are not met provided that :-

i. The original and resultant investment are in line with the extant FDI policy and FEMA 

regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, 

etc.), reporting requirements, documentation, etc.; 

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant 

SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, 

open offer/ substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI 

regulations / guidelines as indicated above is attached to the form FC-TRS to be filed 

with the AD bank. 

B. Transfer of shares from Resident to Non Resident:

i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI 

policy provided that :

a)   the requisite approval of the FIPB has been obtained; and25

b) the transfer of share adheres with the pricing guidelines and documentation requirements as 

specified by the Reserve Bank of India from time to time.

ii) where the transfer of shares attract SEBI (SAST) guidelines subject to the adherence with 

the pricing guidelines and documentation requirements as specified by Reserve Bank of India 

from time to time.

iii) where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999 

provided that:-

a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms 

of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, 

documentation etc.;

b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant 

SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open 

offer/ substantial acquisition / SEBI SAST); and

c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI 

regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the 

AD bank.

iv) where the investee company is in the financial sector provided that :

a) NOCs are obtained from the respective financial sector regulators/ regulators of the investee 

company as well as transferor and transferee entities and such NOCs are filed along with the 

form FC-TRS with the AD bank; and

b). The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as 

minimum capitalization, pricing, etc.), reporting requirements, documentation etc., are complied 

with.26

3.4.6 Conversion of ECB/Lumpsum Fee/Royalty etc. into Equity

(i) Indian companies have been granted general permission for conversion of External 

Commercial Borrowings (ECB) (excluding those deemed as ECB) in convertible foreign 

currency into equity shares/fully compulsorily and mandatorily convertible preference 

shares, subject to the following conditions and reporting requirements.

(a) The activity of the company is covered under the Automatic Route for FDI or the 

company has obtained Government approval for foreign equity in the company;

(b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if 

any;

(c) Pricing of shares is as per the provision of para 3.4.2 above;  

(d) Compliance with the requirements prescribed under any other statute and regulation 

in force; and

(e) The conversion facility is available for ECBs availed under the Automatic or 

Government Route and is applicable to ECBs, due for payment or not, as well as 

secured/unsecured loans availed from non-resident collaborators.

(ii) General permission is also  available for issue of shares/preference shares against lump 

sum technical know-how fee, royalty, subject to  entry route, sectoral cap and  pricing 

guidelines (as per the provision of para 3.4.2 above) and compliance with applicable tax 

laws.

(iii) Issue of equity shares under the FDI policy is allowed under the Government route for 

the following:

(I)    import of capital goods/ machinery/ equipment (excluding second-hand   machinery), 

subject to compliance with the following conditions:

(a) Any import of capital goods/machinery etc., made by a resident in India, has to be 

in accordance with the Export/ Import Policy issued by Government of India/as 

defined by DGFT/FEMA provisions relating to imports.

(b) There is an independent valuation of the capital goods/machinery/equipments 

(including second-hand machinery) by a third party entity, preferably by an 

independent valuer from the country of import along with production of copies of 27

documents/certificates issued by the customs authorities towards assessment of the 

fair-value of such imports.

(c) The application clearly indicating the beneficial ownership and identity of the 

Importer Company as well as overseas entity.

(d) Applications  complete in all respects,  for  conversions of import payables for 

capital goods into FDI being made  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 by the foreign investor to the company  directly  or 

through the bank account opened by the foreign investor as provided under FEMA 

Regulations.

(d) The applications, complete in all respects, for capitalization being made within the 

period of 180 days from the date of incorporation of the company

General conditions:

(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 RBI and 

appropriate tax clearance.

3.5   SPECIFIC CONDITIONS IN CERTAIN CASES

3.5.1 Issue of Rights/Bonus Shares – FEMA provisions allow Indian companies to freely 

issue Rights/Bonus shares to existing non-resident shareholders, subject to adherence to sectoral 

cap, if any.  However, such issue of bonus / rights shares has to be in accordance with other 

laws/statutes like the Companies Act, 1956, SEBI (Issue of Capital and Disclosure 

Requirements) Regulations, 2009 (in case of listed companies), etc.  The offer on right basis to 

the persons resident outside India shall be:28

(a)   in the case of shares of a company listed on a recognized stock exchange in India, at a price 

as determined by the company;

(b)  in the case of shares of a company not listed on a recognized stock exchange in India, at a 

price which is not less than the price at which the offer on right basis  is made to resident 

shareholders.

3.5.2 Prior permission of RBI for Rights issue to erstwhile OCBs- OCBs have been derecognised as a class of investors from September 16, 2003. Therefore companies desiring to 

issue rights share to such erstwhile OCBs will have to take specific prior permission from RBI. 

As such, entitlement of rights share is not automatically available to erstwhile OCBs. However 

bonus shares can be issued to erstwhile OCBs without the approval of RBI.

3.5.3 Additional allocation of rights share by residents to non-residents  – Existing nonresident shareholders are allowed to apply for issue of additional shares/ fully, compulsorily and 

mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference 

shares over and above their rights share entitlements.  The investee company can allot the 

additional rights share out of unsubscribed portion, subject to the condition that the overall issue 

of shares to non-residents in the total paid-up capital of the company does not exceed the   

sectoral cap.

3.5.4 Acquisition of shares under Scheme of Merger/Demerger/Amalgamation –

Mergers/demergers/ amalgamations of companies in India are usually governed by an order 

issued by a competent Court on the basis of the Scheme submitted by the companies undergoing 

merger/demerger/amalgamation.  Once the scheme of merger or demerger or amalgamation of 

two or more Indian companies has been approved by a Court in India, the transferee company or 

new company is allowed to issue shares to the shareholders of the transferor company resident 

outside India, subject to the conditions that:

(i) the percentage of shareholding of persons resident outside India in the transferee or new 

company does not exceed the sectoral cap, and

(ii) the transferor company or the transferee or the new company is not engaged in activities 

which are prohibited under the FDI policy .29

3.5.5 Issue of shares under Employees Stock Option Scheme (ESOPs) –

(i) Listed Indian companies are allowed to issue shares under the Employees Stock Option 

Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned 

subsidiary abroad, who are resident outside India, other than to the citizens of Pakistan. 

ESOPs can be issued to citizens of Bangladesh with the prior approval of FIPB.  Shares 

under ESOPs can be issued directly or through a Trust subject to the condition that:

(a) The scheme has been drawn in terms of relevant regulations issued by the SEBI, and

(b) The face value of the shares to be allotted under the scheme to the non-resident

employees does not exceed 5 per cent of the paid-up capital of the issuing company.

(ii) Unlisted companies have to follow the provisions of the Companies Act, 1956.  The 

Indian company can issue ESOPs to employees who are resident outside India, other than 

to the citizens of Pakistan.  ESOPs can be issued to the citizens of Bangladesh with the 

prior approval of the FIPB.

(iii)The issuing company is required to report (plain paper reporting) the details of granting 

of stock options under the scheme to non-resident employees to the Regional Office 

concerned of the Reserve Bank and thereafter the details of issue of shares subsequent  to 

the exercise of such stock options within 30 days from the date of issue of shares in Form 

FC-GPR.

3.5.6 Share Swap: In cases of investment by way of swap of shares, irrespective of the 

amount, valuation of the shares will have to be made by a Category I Merchant Banker registered 

with SEBI or an Investment Banker outside India registered with the appropriate regulatory 

authority in the host country. Approval of the Foreign Investment Promotion Board (FIPB) will 

also be a prerequisite for investment by swap of shares. 

3.5.7  Pledge of Shares:

(A) A person being a promoter of a company registered in India (borrowing company), which 

has raised external commercial borrowings, may pledge the shares of the borrowing company or 

that of its associate resident companies for the purpose of securing the ECB raised by the 

borrowing company, provided that a no objection for the same is obtained from a bank which is 

an authorised dealer. The authorized dealer, shall issue the no objection for such a pledge after 

having satisfied itself that the external commercial borrowing is in line with the extant FEMA 

regulations for ECBs and that : 30

i). the loan agreement has been signed by both the lender and the borrower,

ii) there exists a security clause in the Loan Agreement requiring the borrower to create 

charge on financial securities, and 

iii) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank:

and the said pledge would be subject to the following conditions : 

a). the period of such pledge shall be co-terminus with the maturity of the underlying ECB;

b). in case of invocation of pledge, transfer shall be in accordance with the extant FDI Policy 

and directions issued by the Reserve Bank; 

c). the Statutory Auditor has certified that the borrowing company will utilized / has 

utilized  the proceeds of the ECB for the permitted end use/s only.

(B) Non-resident holding shares of an Indian company, can pledge these shares in favour of the 

AD bank in India to secure credit facilities being extended to the resident investee company for 

bonafide business purpose, subject to the following conditions: 

(i) in case of invocation of pledge, transfer of shares should be in accordance with the FDI 

policy in vogue at the time of creation of pledge; 

(ii) submission of a declaration/ annual certificate from the statutory auditor of the investee 

company that the loan proceeds will be / have been utilized for the declared purpose;

(iii) the Indian company has to follow the relevant SEBI disclosure norms; and 

(iv) pledge of shares in favour of the lender (bank) would be subject to Section 19 of the 

Banking Regulation Act, 1949.

(C)  Non-resident holding shares of an Indian company, can pledge these shares in favour of an 

overseas bank to secure the credit facilities being extended to the non-resident investor / nonresident promoter of the Indian company or its overseas group company, subject to the 

following: 

(i) loan is availed of only from an overseas bank;

(ii) loan is utilized for genuine business purposes overseas and not for any investments either 

directly or indirectly in India; 

(iii)overseas investment should not result in any capital inflow into India; 

(iv)in case of invocation of pledge, transfer should be in accordance with the FDI policy in 

vogue at the time of creation of pledge; and 31

(v) submission of a declaration/ annual certificate from a Chartered Accountant/ Certified 

Public Accountant of the non-resident borrower that the loan proceeds will be / have 

been utilized for the declared purpose.

3.6 ENTRY ROUTES FOR INVESTMENT:

3.6.1 Investments can be made by non-residents in the equity shares/fully, compulsorily and 

mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference 

shares of an Indian company, through the Automatic Route or the Government Route.  Under the 

Automatic Route, the non-resident investor or the Indian company does not require any approval 

from Government of India for the investment.  Under the Government Route, prior approval of 

the Government of India is required. Proposals for foreign investment under Government route, 

are considered by FIPB.  

3.6.2 Guidelines for establishment of Indian companies/ transfer of ownership or control 

of Indian companies, from resident Indian citizens to non-resident entities, in sectors with 

caps: 

In sectors/activities with caps, including  inter-alia  defence production, air transport services, 

ground handling services, asset reconstruction companies, private sector banking, broadcasting, 

commodity exchanges, credit information companies, insurance, print media, 

telecommunications and satellites, Government approval/FIPB approval would be required in all 

cases where: 

(i) An Indian company is being established with foreign investment and is owned by a nonresident entity or 

(ii) An Indian company is being established with foreign investment and is controlled by a nonresident entity or 

(iii) The control of an existing Indian company, currently owned or controlled by resident Indian 

citizens and Indian companies, which are owned or controlled by resident Indian citizens, will 

be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares 

and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, 

acquisition etc. or 32

(iv) The ownership of an existing Indian company, currently owned or controlled by resident 

Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, 

will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of 

shares and/or fresh issue of shares to non-resident entities through amalgamation, 

merger/demerger, acquisition etc. 

(v) It is clarified that these guidelines will not apply  to sectors/activities where there are no 

foreign investment caps, that is, 100% foreign investment is permitted under the automatic route. 

(vi) It is also clarified that Foreign investment shall include all types of foreign investments i.e. 

FDI, investment by FIIs, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and 

fully, mandatorily & compulsorily convertible preference shares/debentures, regardless of 

whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer 

or Issue of Security by Persons Resident Outside India) Regulations.

3.7 CAPS ON INVESTMENTS

3.7.1 Investments can be made by non-residents in the capital of a resident entity only to the 

extent of the percentage of the total capital as specified in the FDI policy. The caps in various 

sector(s) are detailed in Chapter 6 of this circular. 

3.8 ENTRY CONDITIONS ON INVESTMENT

3.8.1 Investments by non-residents can be permitted in the capital of a resident entity in certain 

sectors/activity with entry conditions. Such conditions may include norms for minimum 

capitalization, lock-in period, etc. The entry conditions in various sectors/activities are detailed 

in Chapter 6 of this circular. 

3.9 OTHER CONDITIONS ON INVESTMENT BESIDES ENTRY CONDITIONS

3.9.1 Besides the entry conditions on foreign investment, the investment/investors are required 

to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/ local 

laws/ regulations.33

3.10    FOREIGN INVESTMENT INTO/  DOWNSTREAM INVESTMENT BY INDIAN 

COMPANIES

3.10.1 The Guidelines for calculation of total foreign investment, both direct and indirect in an 

Indian company, at every stage of investment, including downstream investment, have been 

detailed in Paragraph 4.1.

3.10.2 For the purpose of this chapter,

(i) ‗Downstream investment‘ means indirect foreign investment, by one Indian company, 

into another Indian company, by way of subscription or acquisition,  in terms of 

Paragraph 4.1. Paragraph 4.1.3 provides the guidelines for calculation of indirect foreign 

investment, with conditions specified in paragraph 4.1.3 (v). 

(ii) ‗Foreign Investment‘ would have the same meaning as in Paragraph 4.1

3.10.3 Foreign investment into an Indian company engaged only in the activity of investing 

in the capital of other Indian company/ies (regardless of its ownership or control):

3.10.3.1  Foreign investment into an Indian company, engaged only in the activity of investing in 

the capital of other Indian company/ies, will require prior Government/FIPB approval, regardless 

of the amount or extent of foreign investment.  Foreign investment into Non-Banking Finance 

Companies (NBFCs), carrying on activities approved for FDI, will be subject to the conditions 

specified in paragraph 6.2.24 of this Circular.  

3.10.3.2  Those companies, which are Core Investment Companies (CICs), will have to 

additionally follow RBI‘s Regulatory Framework for CICs.

3.10.3.3  For infusion of foreign investment into an Indian company which does not have any 

operations and also does not have any downstream investments, Government/FIPB approval 

would be required, regardless of the amount or extent of foreign investment. Further, as and 

when such a company commences business(s) or makes downstream investment, it will have to 

comply with the relevant sectoral conditions on entry route, conditionalities and caps.

Note: Foreign investment into other Indian companies would be in accordance/ compliance with

the relevant sectoral conditions on entry route, conditionalities and caps. 34

3.10.4 Downstream investment by an Indian company which is owned and/or controlled by 

non resident entity/ies: 

3.10.4.1  Downstream investment by an Indian company, which is owned and/ or controlled by 

non-resident entity/ies, into another Indian company, would be in accordance/compliance with the 

relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in 

which the latter Indian company is operating.

3.10.4.2  Downstream investments by Indian companies will be subject to the following 

conditions: 

(i) Such a company is to notify SIA, DIPP and FIPB of its downstream investment in the form 

available at   http://www.fipbindia.com within 30 days of such investment, even if capital 

instruments have not been allotted along with the modality of investment in new/existing ventures 

(with/without expansion programme);  

(ii) downstream investment by way of induction of foreign equity in an existing Indian Company 

to be duly supported by a resolution of the Board of Directors as also a shareholders Agreement, if 

any; 

(iii) issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI 

guidelines; 

(iv) For the purpose of downstream investment, the Indian companies making the downstream 

investments would have to bring in requisite funds from abroad and not leverage funds from the 

domestic market. This would, however, not preclude downstream companies, with operations, 

from raising debt in the domestic market. Downstream investments through internal accruals are 

permissible, subject to the provisions of paragraphs 3.10.3 and 3.10.4.1.35

CHAPTER 4: CALCULATION OF FOREIGN INVESTMENT

4.1 TOTAL FOREIGN INVESTMENT  i.e. DIRECT  AND INDIRECT FOREIGN 

INVESTMENT IN INDIAN COMPANIES. 

4.1.1 Investment in Indian companies can be made both by non-resident as well as resident 

Indian entities. Any non-resident investment in an Indian company is direct foreign investment. 

Investment by resident Indian entities could again comprise of both resident and non-resident 

investment. Thus, such an Indian company would have indirect foreign investment if the Indian 

investing company has foreign investment in it. The indirect investment can also be a cascading 

investment i.e. through multi-layered structure. 

4.1.2 For the purpose of computation of indirect Foreign investment, Foreign Investment in 

Indian company shall include all types of foreign investments i.e. FDI; investment by 

FIIs(holding as on March 31); NRIs; ADRs; GDRs; Foreign Currency Convertible Bonds 

(FCCB); fully, compulsorily and mandatorily convertible preference shares and 

fully,compulsorily and mandatorily convertible Debentures regardless of whether the said 

investments have been made under Schedule 1, 2, 3 and 6 of FEM (Transfer or Issue of Security 

by Persons Resident Outside India) Regulations, 2000. 

4.1.3 Guidelines for calculation of total foreign investment i.e. direct and indirect foreign 

investment in an Indian company. 

(i) Counting the Direct Foreign Investment:  All investment directly by a non-resident 

entity into the Indian company would be counted towards foreign investment. 

(ii) Counting of indirect foreign Investment: 

(a) The foreign investment through the investing Indian company would not be 

considered for calculation of the indirect foreign investment in case of Indian 

companies which are ‗owned  and  controlled‘ by resident Indian citizens and/or 

Indian Companies which are owned and controlled by resident Indian citizens . 

(b)For cases where condition (a) above is not satisfied or if the investing company is 

owned or controlled by ‗non resident entities‘, the entire investment by the investing 36

company into the subject Indian Company would be considered as indirect foreign 

investment, 

provided that, as an exception, the indirect foreign investment in only the 100% 

owned subsidiaries of operating-cum-investing/investing companies, will be limited 

to the foreign investment in the operating-cum-investing/ investing company. This 

exception is made since the downstream investment of a 100% owned subsidiary of 

the holding company is akin to investment made by the holding company and the 

downstream investment should be a mirror image of the holding company.  This 

exception, however, is strictly for those cases where the entire capital of the 

downstream subsidiary is owned by the holding company.

Illustration

To illustrate, if the indirect foreign investment is being calculated for Company X which 

has investment through an investing Company Y having foreign investment, the 

following would be the method of calculation: 

(A) where Company Y has foreign investment less than 50%- Company X would not be 

taken as having any indirect foreign investment through Company Y. 

(B) where Company Y has foreign investment of say 75% and: 

(I) invests 26% in Company X, the entire 26% investment by Company Y would be 

treated as indirect foreign investment in Company X; 

(II) Invests 80% in Company X, the indirect foreign investment in Company X would 

be taken as 80% 

(III) where Company X is a wholly owned subsidiary of Company Y (i.e. Company Y 

owns 100% shares of Company X), then only 75% would be treated as indirect 

foreign equity and the balance 25% would be treated as resident held equity. The 

indirect foreign equity in Company X would be computed in the ratio of 75: 25 in 

the total investment of Company Y in Company X. 

(iii)The total foreign investment would be the sum total of direct and indirect foreign 

investment. 

(iv) The above methodology of calculation would apply at every stage of investment in 

Indian companies and thus to each and every Indian company. 37

(v) Additional conditions: 

(a) The full details about the foreign investment including ownership details etc.  in Indian 

company(s) and information about the control of the company(s) would be furnished by 

the Company(s) to the Government of India at the time of seeking approval. 

(b) In any sector/activity, where Government approval is required for foreign investment and 

in cases where there are any inter-se agreements between/amongst share-holders which 

have an effect on the appointment of the Board of Directors or on the exercise of voting 

rights or of creating voting rights disproportionate to shareholding or any incidental 

matter thereof, such agreements will have to be informed to the approving authority. The 

approving authority will consider such  inter-se  agreements for determining ownership 

and control when considering the case for approval of foreign investment. 

(c) In all sectors attracting sectoral caps, the balance equity i.e. beyond the sectoral foreign 

investment cap, would specifically be beneficially owned by/held with/in the hands of 

resident Indian citizens and Indian companies, owned and controlled by resident Indian 

citizens. 

(d) In the I& B and Defence sectors where the sectoral cap is less than 49%, the company 

would need to be ‗owned  and  controlled‘ by resident Indian citizens and Indian 

companies, which are owned and controlled by resident Indian citizens. 

(A) For this purpose, the equity held by the largest Indian shareholder would have to be 

at least 51% of the total equity, excluding the equity held by Public Sector Banks and 

Public Financial Institutions, as defined in Section 4A of the Companies Act, 1956. 

The term ‗largest Indian shareholder‘, used in this clause, will include any or a 

combination of the following: 

(I) In the case of an individual shareholder, 

(aa) The individual shareholder, 

(bb) A relative of the shareholder within the meaning of Section 6 of the 

Companies Act, 1956. 

(cc) A company/ group of companies in which the individual shareholder/HUF to 

which he belongs has management and controlling interest. 

(II) In the case of an Indian company, 

(aa) The Indian company  38

(bb) A group of Indian companies under the same management and ownership 

control. 

(B) For the purpose of this Clause, ―Indian company‖ shall be a company which must 

have a resident Indian or a relative as defined under Section 6 of the Companies Act, 

1956/ HUF, either singly or in combination holding at least 51% of the shares. 

(C) Provided that, in case of a combination of all or any of the entities mentioned in SubClauses (I) and (II) of clause  4.1.3(v)(d)(A)  above, each of the parties shall have 

entered into a legally binding agreement to act as a single unit in managing the 

matters of the applicant company. 

(e) If a declaration is made by persons as per section 187C of the Indian Companies Act 

about a beneficial interest being held by a non resident  entity, then even though the 

investment may be made by a resident Indian citizen, the same shall be counted as 

foreign investment. 

4.1.4 The above mentioned policy and methodology would be applicable for determining the 

total foreign investment in all sectors, except in sectors where it is specified in a statute or rule 

there under. The above methodology of determining direct and indirect foreign investment 

therefore does not apply to the Insurance Sector which will continue to be governed by the 

relevant Regulation. 

4.1.5 Any foreign investment already made in accordance with the guidelines in existence prior 

to February 13, 2009 (date of issue of Press Note 2 of 2009) would not require any modification 

to conform to these guidelines. All other investments, past and future, would come under the 

ambit of these new guidelines. 39

CHAPTER 5: FOREIGN INVESTMENT PROMOTION BOARD

                         (FIPB)

5.1 CONSTITUTION OF FIPB:

5.1.1 FIPB comprises of the following Secretaries to the Government of India:

(i) Secretary to Government, Department of Economic Affairs, Ministry of Finance 

– Chairperson

(ii) Secretary to Government, Department of Industrial Policy & Promotion, Ministry 

of Commerce &  Industry

(iii)Secretary to Government, Department of Commerce, Ministry of Commerce & 

Industry

(iv)Secretary to Government, Economic Relations, Ministry of External Affairs 

(v) Secretary to Government, Ministry of Overseas Indian Affairs.

5.1.2 The Board would be able to co-opt other Secretaries to the Central Government 

and top officials of financial institutions, banks and professional experts of Industry and 

Commerce, as and when necessary.

5.2 LEVELS OF APPROVALS  FOR CASES UNDER GOVERNMENT ROUTE

5.2.1 The Minister of Finance who is in-charge of FIPB would consider the recommendations 

of FIPB on proposals with total foreign equity inflow of and below Rs.1200 crore.

5.2.2 The recommendations of FIPB on proposals with total foreign equity inflow of more than 

Rs. 1200 crore would be placed for consideration of CCEA.  

5.2.3 The CCEA would also consider the proposals which may be referred to it by the FIPB/ 

the Minister of Finance (in-charge of FIPB).

5.3 CASES WHICH DO NOT REQUIRE FRESH APPROVAL  

5.3.1 Companies may not require fresh prior approval of the Government i.e. Minister incharge of FIPB/CCEA for bringing in additional foreign investment into the same entity, in the 

following cases: 40

(i) Entities the activities of which had earlier required prior approval of FIPB/CCFI/CCEA 

and which had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial 

foreign investment but subsequently such activities/sectors have been placed under automatic 

route; 

(ii) Entities  the activities of which had sectoral caps earlier and which  had, accordingly, 

earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but 

subsequently such caps were removed/increased and the activities placed under the automatic 

route; provided that such additional investment alongwith the initial/original investment does not 

exceed the sectoral caps; and

(iii) Additional foreign investment into the same entity where prior approval of 

FIPB/CCFI/CCEA had been obtained earlier for the initial/original foreign investment due to 

requirements of Press Note 18/1998 or  Press Note 1 of 2005  and prior approval of the 

Government under the FDI policy is not required for any other reason/purpose. 

5.4 ONLINE FILING OF APPLICATIONS FOR FIPB /GOVERNMENT’S 

APPROVAL

5.4.1 Guidelines for e-filing of applications, filing of amendment applications and instructions 

to applicants are available at FIPB‘s website (http://finmin.nic.in/) and 

(http://www.fipbindia.com).41

CHAPTER 6:  SECTOR SPECIFIC CONDITIONS ON FDI

6.1 PROHIBITED SECTORS.

FDI is prohibited in:

(a) Retail Trading (except single brand product retailing)

(b) Lottery Business including Government /private lottery, online lotteries, etc. 

(c) Gambling and Betting including casinos etc.

(d) Chit funds

(e) Nidhi company

(f) Trading in Transferable Development Rights (TDRs)

(g) Real Estate Business or Construction of Farm Houses 

(h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco 

substitutes

(i) Activities / sectors not open to private sector investment  e.g. Atomic Energy and 

Railway Transport (other than Mass Rapid Transport Systems).

Foreign technology collaboration in any form including licensing for franchise, 

trademark, brand name, management contract is also prohibited for Lottery Business and 

Gambling and Betting activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

6.2 PERMITTED SECTORS

In the following sectors/activities, FDI up to the limit indicated against each sector/activity is 

allowed, subject to  applicable laws/ regulations; security and other conditionalities.   In 

sectors/activities not listed below, FDI is permitted upto 100% on the automatic route, subject to 

applicable laws/ regulations; security and other conditionalities.

Wherever there is a requirement of minimum capitalization, it shall  include share premium 

received along with the face value of the share, only when it is received by the company upon 

issue of the shares to the non-resident investor.   Amount paid by the transferee during post-issue 

transfer of  shares beyond the issue price of the share, cannot be taken into account while 

calculating minimum capitalization requirement;  42

Sl.No. Sector/Activity % of FDI 

Cap/Equity

Entry Route

AGRICULTURE

6.2.1 Agriculture & Animal Husbandry

a) Floriculture, Horticulture,

Apiculture  and Cultivation of 

Vegetables & Mushrooms under 

controlled conditions;

b) Development and production of 

Seeds and planting material;

c) Animal Husbandry (including  

breeding of dogs), Pisciculture, 

Aquaculture, under controlled 

conditions; and

d) services related to agro and allied 

sectors

Note: Besides the above, FDI is not 

allowed in any other agricultural 

sector/activity

100% Automatic

6.2.1.1 Other conditions:

I.     For companies dealing with development of transgenic seeds/vegetables, 

the following conditions apply:

(i) When dealing with genetically modified seeds or planting material the 

company shall comply with safety requirements in accordance with laws 

enacted under the Environment (Protection) Act on the genetically modified 

organisms.

(ii) Any import of genetically modified materials if required shall be 

subject to the conditions laid down vide Notifications issued under Foreign 

Trade (Development and Regulation) Act, 1992.

(iii) The company shall comply with any other Law, Regulation or Policy 

governing genetically modified material in force from time to time.

(iv) Undertaking of business activities involving the use of genetically 

engineered cells and material shall be subject to the receipt of approvals from 43

Sl.No. Sector/Activity % of FDI 

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Entry Route

Genetic Engineering Approval Committee (GEAC) and Review Committee 

on Genetic Manipulation (RCGM).

(v) Import of materials shall be in accordance with National Seeds Policy.  

II.     The term ―under controlled conditions‖ covers the following:

 ‗Cultivation under controlled conditions‘ for the categories of 

Floriculture, Horticulture, Cultivation of vegetables and 

Mushrooms is the practice of cultivation wherein rainfall, 

temperature, solar radiation, air humidity and culture medium are 

controlled artificially.  Control in these parameters may be effected

through protected cultivation under green houses, net houses, poly 

houses or any other improved infrastructure facilities where microclimatic conditions are regulated anthropogenically. 

 In case of Animal Husbandry, scope of the term ‗under controlled 

conditions‘  covers –

o Rearing of animals under intensive farming systems with stallfeeding.  Intensive farming system will require climate systems 

(ventilation, temperature/humidity management), health care 

and nutrition, herd registering/pedigree recording, use of 

machinery, waste management systems.

o Poultry breeding farms and hatcheries where micro-climate is 

controlled through advanced technologies like incubators, 

ventilation systems etc.

 In the case of pisciculture and aquaculture,  scope of the term 

‗under controlled conditions‘ covers –

o Aquariums

o Hatcheries where eggs are artificially fertilized and fry are 

hatched and incubated in an enclosed environment with 

artificial climate control.

 In the case of apiculture, scope of the term  ‗under controlled 44

Sl.No. Sector/Activity % of FDI 

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Entry Route

conditions‘ covers –

o Prodution of honey by bee-keeping, except in forest/wild, in 

designated spaces with control of temperatures and climatic 

factors like humidity and artificial feeding during lean seasons.

6.2.2 Tea Plantation

6.2.2.1 Tea sector including tea plantations

Note:  Besides the above, FDI is not 

allowed in any other plantation 

sector/activity

100% Government

6.2.2.2 Other conditions:

(i) Compulsory divestment of 26% equity of the company in favour of an 

Indian partner/Indian public within a period of 5 years

(ii) Prior approval of the State Government concerned in case of any 

future land use change.

6.2.3 MINING

6.2.3.1 Mining and Exploration of metal 

and non-metal ores including 

diamond, gold, silver and precious 

ores but excluding titanium bearing 

minerals  and its ores; subject to the 

Mines and Minerals (Development & 

Regulation) Act, 1957.

100% Automatic

6.2.3.2 Coal and Lignite

(1) Coal & Lignite mining for captive 

consumption by power projects, iron 

& steel and cement units and  other 

eligible activities permitted under 

and subject to the provisions of Coal 

Mines (Nationalization) Act, 1973

100% Automatic

(2) Setting up coal processing plants 

like washeries  subject to the 

100% Automatic45

Sl.No. Sector/Activity % of FDI 

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Entry Route

condition that the company shall not 

do coal mining and shall not sell 

washed coal or sized coal from its 

coal processing plants in the open 

market and shall supply the washed 

or sized coal to those parties who are 

supplying raw coal to coal processing 

plants for washing or sizing.

6.2.3.3 Mining and mineral separation of titanium bearing minerals and ores, its 

value addition and integrated activities

6.2.3.3.1 Mining and mineral separation of 

titanium bearing minerals & ores, its 

value addition and integrated 

activities  subject to  sectoral 

regulations and the Mines and 

Minerals (Development and 

Regulation Act 1957)

100% Government

6.2.3.3.2 Other conditions:

India has large reserves of beach sand minerals in the coastal stretches 

around the country.  Titanium bearing minerals viz. Ilmenite, rutile and 

leucoxene, and Zirconium bearing minerals including zircon are some of the 

beach sand minerals which have been classified as ―prescribed substances‖ 

under the Atomic Energy Act, 1962.  

          Under the Industrial Policy Statement 1991, mining and production of 

minerals classified as ―prescribed substances‖ and specified in the Schedule to 

the Atomic Energy (Control of Production and Use) Order, 1953 were 

included in the list of industries reserved for the public sector. Vide 

Resolution No. 8/1(1)/97-PSU/1422 dated 6

th

October 1998 issued by the 

Department of Atomic Energy laying down the policy for exploitation of 46

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Entry Route

beach sand minerals, private participation including Foreign Direct 

Investment (FDI), was permitted in mining and production of Titanium ores 

(Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon).  

         Vide Notification No. S.O.61(E) dated 18.1.2006, the Department of 

Atomic Energy re-notified the list of ―prescribed substances‖ under the 

Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, 

Rutile and Leucoxene) and Zirconium, its alloys and compounds and 

minerals/concentrates including Zircon, were removed from the list of 

―prescribed substances‖. 

(i) FDI for separation of titanium bearing minerals & ores will be subject to 

the following additional conditions viz.:

(A) value addition facilities are set up within India along with  transfer of 

technology;

(B) disposal of tailings during the mineral separation shall be carried out 

in accordance with regulations framed by the Atomic Energy Regulatory 

Board such as Atomic Energy (Radiation Protection) Rules, 2004 and the 

Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987.

(ii) FDI will not be allowed in mining of ―prescribed substances‖ listed in 

the Notification No. S.O. 61(E) dated 18.1.2006 issued by the Department of 

Atomic Energy.

Clarification: (1) For titanium bearing ores such as Ilmenite, Leucoxene and 

Rutile, manufacture of titanium dioxide pigment and titanium sponge 

constitutes value addition. Ilmenite can be processed to produce 'Synthetic 

Rutile or Titanium Slag as an intermediate value added product.

(2) The objective is to ensure that the raw material available in the country is 

utilized for setting up downstream industries and the technology available 

internationally is also made available for setting up such industries within the 

country. Thus, if with the technology transfer, the objective of the FDI Policy 47

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can be achieved, the conditions prescribed at (i) (A) above shall be deemed to 

be fulfilled.

6.2.4 Petroleum & Natural Gas

6.2.4.1 Exploration activities of oil and 

natural gas fields, infrastructure 

related to marketing of petroleum 

products and natural gas, marketing 

of natural gas and petroleum 

products, petroleum  product 

pipelines, natural gas/pipelines, LNG 

Regasification infrastructure,  market 

study and formulation and Petroleum 

refining in the private sector, subject 

to the existing sectoral policy and 

regulatory framework in the oil 

marketing sector and the policy of 

the Government on private 

participation in exploration of oil and 

the discovered fields of national oil 

companies

100% Automatic

6.2.4.2 Petroleum refining by the Public 

Sector Undertakings (PSU), without 

any disinvestment or dilution of 

domestic equity in the existing PSUs.

49% Government

MANUFACTURING

6.2.5 Manufacture of items reserved for production in Micro and Small 

Enterprises (MSEs)

6.2.5.1 FDI in MSEs  (as defined under  Micro, Small And Meduim Enterprises 

Development Act, 2006 (MSMED, Act 2006)) will be subject to the sectoral 

caps, entry routes and other relevant sectoral regulations.   Any industrial 48

Sl.No. Sector/Activity % of FDI 

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Entry Route

undertaking which is not a Micro or Small Scale Enterprise, but manufactures 

items reserved for the MSE sector would require Government  route where 

foreign investment is more than 24% in the capital. Such an undertaking 

would also require an Industrial License under the Industries (Development & 

Regulation) Act 1951, for such manufacture. The issue of Industrial License is 

subject to a few general conditions and the specific condition that the 

Industrial Undertaking shall undertake to export a minimum of 50% of the 

new or additional annual production of the MSE reserved items to be achieved 

within a maximum period of three years. The export obligation would be 

applicable from the date of commencement of commercial production and in 

accordance with the provisions of section 11 of the Industries (Development 

& Regulation) Act 1951.

6.2.6 DEFENCE 

6.2.6.1 Defence Industry subject to Industrial 

license under the Industries 

(Development & Regulation) Act 

1951

26% Government

6.2.6.2 Other conditions:

(i) Licence applications will be considered and licences given by the 

Department of Industrial Policy & Promotion, Ministry of Commerce 

& Industry, in consultation with Ministry of Defence.

      (ii) The applicant should be an Indian company / partnership firm.

(iii)The management of the applicant company / partnership should be in 

Indian hands with majority representation on the Board as well as the 

Chief Executives of the company / partnership firm being resident 

Indians.

(iv) Full particulars of the Directors and the Chief Executives should be 

furnished along with the applications.

(v) The Government reserves the right to verify the antecedents of the 49

Sl.No. Sector/Activity % of FDI 

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foreign collaborators and domestic promoters including their financial 

standing and credentials in the world market.  Preference would be 

given to original equipment manufacturers or design establishments, 

and companies having a good track record of past supplies to Armed 

Forces, Space and Atomic energy sections and having an established R 

& D base. 

(vi) There would be no minimum capitalization for the FDI.  A proper 

assessment, however, needs to be done by the management of the 

applicant company depending upon the product and the technology.  

The licensing authority would satisfy itself about the adequacy of the 

net worth of the non-resident investor taking into account the category 

of weapons and equipment that are proposed to be manufactured.

(vii) There would be a three-year lock-in period for transfer of equity from 

one non-resident investor to another non-resident investor (including 

NRIs & erstwhile OCBs with 60% or more NRI stake) and such 

transfer would be subject to prior approval of the Government.

(viii) The Ministry of Defence is not in a position to give purchase 

guarantee for products to be manufactured.  However, the planned 

acquisition programme for such equipment and overall requirements 

would be made available to the extent possible. 

(ix)The capacity norms for production will be provided in the licence 

based on the application as well as the recommendations of the 

Ministry of Defence, which will look into existing capacities of similar 

and allied products.

(x) Import of equipment for pre-production activity including development 

of prototype by the applicant company would be permitted.

(xi) Adequate safety and security procedures would need to be put in place 

by the licensee once the licence is granted and production commences.  

These would be subject to verification by authorized Government 50

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Entry Route

agencies.

(xii) The standards and testing procedures for equipment to be produced 

under licence from foreign collaborators or from indigenous R & D 

will have to be provided by the licensee to the Government nominated 

quality assurance agency under appropriate confidentiality clause. The 

nominated quality assurance agency would inspect the finished 

product and would conduct surveillance and audit of the Quality 

Assurance Procedures of the licensee.  Self-certification would be 

permitted by the Ministry of Defence on case to case basis, which may 

involve either individual items, or group of items manufactured by the 

licensee.  Such permission would be for a fixed period and subject to 

renewals.

(xiii) Purchase preference and price preference may be given to the Public 

Sector organizations as per guidelines of the Department of Public 

Enterprises.

(xiv) Arms and ammunition produced by the private manufacturers will be 

primarily sold to the Ministry of Defence.  These items may also be 

sold to other Government entities under the control of the Ministry of 

Home Affairs and State Governments with the prior approval of the 

Ministry of Defence.  No such item should be sold within the country 

to any other person or entity.  The export of manufactured items would 

be subject to policy and guidelines as applicable to Ordnance Factories 

and Defence Public Sector Undertakings.  Non-lethal items would be 

permitted for sale to persons / entities other than the Central of State 

Governments with the prior approval of the Ministry of Defence.  

Licensee would also need to institute a verifiable system of removal of 

all goods out of their factories.  Violation of these provisions may lead 

to cancellation of the licence.  51

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(xv) Government decision on applications to FIPB for FDI in defence 

industry sector will be normally communicated within a time frame of 

10 weeks from the date of acknowledgement.

SERVICES SECTOR

INFORMATION SERVICES

6.2.7 Broadcasting

6.2.7.1 Terrestrial Broadcasting FM (FM 

Radio)  subject to such terms and 

conditions as specified from time to 

time by Ministry of Information and 

Broadcasting for grant of permission 

for setting up of FM Radio Stations

26% (FDI, NRI & 

PIO investments and 

portfolio 

investment)

Government

6.2.7.2 Cable Network, subject to Cable 

Television Network Rules, 1994 and 

other conditions as specified from 

time to time by Ministry of 

Information and Broadcasting

49%  (FDI, NRI & 

PIO investments and 

portfolio 

investment)

Government

6.2.7.3 Direct–to-Home subject to  such 

guidelines/terms and conditions as 

specified from time to time by 

Ministry of Information and 

Broadcasting

49%  (FDI, NRI & 

PIO investments and 

portfolio 

investment) 

Within this  limit, 

FDI component not 

to exceed 

20% 

Government

6.2.7.4 Headend-In-The-Sky (HITS) Broadcasting Service  refers to the 

multichannel downlinking and distribution of television programme in CBand or Ku Band wherein all the pay channels are downlinked at a central 

facility (Hub/teleport) and again uplinked  to a satellite after encryption of 

channel. At the cable headend these encrypted pay channels are downlinked 

using a single satellite antenna, transmodulated and sent to the subscribers by 

using a land based transmission system comprising of infrastructure of 

cable/optical fibres network.

6.2.7.4.1 FDI limit in (HITS) Broadcasting 

Service is subject to such 

guidelines/terms and conditions as 

specified from time to time by 

Ministry of Information and 

74% (total direct and

indirect foreign 

investment including 

portfolio and FDI)

Automatic up 

to 49%

Government 

route beyond 52

Sl.No. Sector/Activity % of FDI 

Cap/Equity

Entry Route

Broadcasting. 49% and up to 

74%

6.2.7.5 Setting up hardware facilities such 

as up-linking, HUB etc.

(1) Setting up of Up-linking HUB/ 

Teleports

49% (FDI & FII) Government

(2) Up-linking a Non-News & 

Current Affairs TV Channel

100% Government

(3) Up-linking a News & Current 

Affairs TV Channel  subject to the 

condition that the portfolio 

investment from FII/ NRI shall not 

be ―persons acting in concert‖ with 

FDI investors, as defined in the 

SEBI(Substantial Acquisition of 

Shares and Takeovers) Regulations, 

1997

26% (FDI & FII) Government

6.2.7.5.1 Other conditions:

(i) All the activities at (1), (2) and (3) above  will be further subject to the 

condition that the Company permitted to uplink the channel shall 

certify the continued compliance of this requirement through the 

Company Secretary at the end of each financial year.

(ii) FDI for Up-linking TV Channels will be subject to compliance with 

the Up-linking Policy notified by the Ministry of Information & 

Broadcasting from time to time.

6.2.8 Print Media

6.2.8.1 Publishing of Newspaper and 

periodicals dealing with news and 

current affairs

26% (FDI and 

investment by 

NRIs/PIOs/FII)

Government

6.2.8.2 Publication  of Indian editions of 

foreign magazines dealing with news 

and current affairs

26% (FDI and 

investment by 

NRIs/PIOs/FII)

Government

6.2.8.2.1 Other Conditions:

(i) ‗Magazine‘, for the purpose of these guidelines, will be defined as a 

periodical publication, brought out on non-daily basis, containing 

public news or comments on public news. 

(ii) Foreign investment would also be subject to the Guidelines for 

Publication of Indian editions of foreign magazines dealing with news 53

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Entry Route

and current affairs issued by  the Ministry of Information & 

Broadcasting on 4.12.2008. 

6.2.8.3 Publishing/printing of Scientific and 

Technical Magazines/specialty 

journals/ periodicals,  subject to

compliance with the legal framework 

as applicable and guidelines issued in 

this regard from time to time by 

Ministry of Information and 

Broadcasting.

100% Government

6.2.8.4 Publication of facsimile edition of 

foreign newspapers

100% Government

6.2.8.4.1 Other Conditions:

(i) FDI should be made by the owner of the original foreign newspapers 

whose facsimile edition is proposed to be brought out in India. 

(ii) Publication of facsimile edition of foreign newspapers can be 

undertaken only by an entity incorporated or registered in India under 

the provisions of the Companies Act, 1956. 

(iii) Publication of facsimile edition of foreign newspaper would also be 

subject to the Guidelines for publication of newspapers and periodicals 

dealing with news and current affairs and publication of facsimile 

edition of foreign newspapers issued by Ministry of Information & 

Broadcasting on 31.3.2006, as amended from time to time. 

6.2.9 Civil Aviation 

6.2.9.1

The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled 

domestic passenger airlines, Helicopter services / Seaplane services, Ground 

Handling Services, Maintenance and Repair organizations; Flying training 

institutes; and Technical training institutions.  

For the purposes of the Civil Aviation sector:

(i) ―Airport‖ means a landing and taking off area for aircrafts, usually with 54

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runways and aircraft maintenance and passenger facilities and includes 

aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934; 

(ii) "Aerodrome" means any definite or limited ground or water area 

intended to be used, either wholly or in part, for the landing or departure 

of aircraft, and includes all buildings, sheds, vessels, piers and other 

structures thereon or pertaining thereto;

(iii)"Air transport service" means a service for the transport by air of 

persons, mails or any other thing, animate or inanimate, for any kind of 

remuneration whatsoever, whether such service consists of a single 

flight or series of flights;

(iv)"Air Transport Undertaking" means an undertaking whose business 

includes the carriage by air of passengers or cargo for hire or reward;

(v) "Aircraft component" means any part, the soundness and correct 

functioning of which, when fitted to an aircraft, is essential to the 

continued airworthiness or safety of the aircraft and includes any item of 

equipment;

(vi)"Helicopter" means a heavier-than -air aircraft supported in flight by the 

reactions of the air on one or more power driven rotors on substantially 

vertical axis;

(vii) "Scheduled air transport service" means an air transport service 

undertaken between the same two or more places and operated 

according to a published time table or with flights so regular or frequent 

that they constitute a recognizably systematic series, each flight being 

open to use by members of the public;

(viii) ―Non-Scheduled Air Transport service‖ means any service which is 

not a scheduled air transport service and will include Cargo airlines;

(ix)―Cargo airlines‖ would mean such airlines which meet the conditions as 

given in the Civil Aviation Requirements issued by the Ministry of Civil 

Aviation;  55

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(x) "Seaplane" means an aeroplane capable normally of taking off from and 

alighting solely on water; 

(xi)―Ground Handling‖ means (i) ramp handling , (ii) traffic handling  both 

of which shall include the activities as specified by the Ministry of Civil 

Aviation through the Aeronautical Information Circulars from time to 

time,  and (iii) any other activity specified by the Central Government to 

be a part of either ramp handling or traffic handling.

6.2.9.2 Airports

(a) Greenfield projects 100% Automatic

(b) Existing projects 100% Automatic up 

to 74%

Government 

route beyond 

74%

6.2.9.3 Air Transport Services

(a) Air Transport Services would include Domestic Scheduled Passenger 

Airlines; Non-Scheduled Air Transport Services, helicopter and 

seaplane services. 

(b) No foreign airlines would be allowed to participate directly or indirectly 

in the equity of an Air Transport Undertaking engaged in operating 

Scheduled and Non-Scheduled Air Transport Services except Cargo 

airlines. 

(c) Foreign airlines are allowed to participate in the equity of companies 

operating Cargo airlines, helicopter and seaplane services.

(1) Scheduled Air Transport Service/ 

Domestic Scheduled Passenger 

Airline

49% FDI 

(100% for NRIs)

Automatic

(2) Non-Scheduled Air Transport 

Service

74% FDI 

(100% for NRIs)

Automatic up 

to 49%

Government 

route beyond 

49% and up to 56

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74%

(3) Helicopter services/seaplane 

services requiring DGCA approval

100% Automatic

6.2.9.4 Other services under Civil Aviation sector

(1)  Ground Handling Services 

subject to sectoral regulations and 

security clearance

74% FDI 

(100% for NRIs)

Automatic up 

to 49%

Government 

route beyond 

49% and up to 

74%

(2) Maintenance and Repair 

organizations; flying training 

institutes; and technical training 

institutions

100% Automatic

6.2.10 Courier services  for carrying 

packages, parcels and other items 

which do not come within the 

ambit of the Indian Post Office 

Act, 1898 and excluding the 

activity relating to the distribution 

of letters.

100% Government

6.2.11 Construction Development: Townships, Housing, Built-up infrastructure 

6.2.11.1 Townships, housing, built-up 

infrastructure and constructiondevelopment projects (which would 

include, but not be restricted to, 

housing, commercial premises, 

hotels, resorts, hospitals, educational 

institutions, recreational facilities, 

city and regional level infrastructure)

100% Automatic

6.2.11.2 Investment will be subject to the following conditions:

(1) Minimum area to be developed under each project would be as under:

(i) In case of development of serviced housing plots, a minimum land 

area of 10 hectares 

(ii) In case of construction-development projects, a minimum built-up area 

of 50,000 sq.mts 57

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Entry Route

(iii)In case of a combination project, any one of the above two conditions 

would suffice

(2) Minimum capitalization of US$10 million for wholly owned subsidiaries 

and US$ 5 million for joint ventures with Indian partners. The funds would 

have to be brought in within six months of commencement of business of the 

Company.

(3) Original investment cannot be repatriated before a period of  three years 

from completion of minimum capitalization. Original investment means the 

entire amount brought in as FDI. The lock-in period of three years will be 

applied from the date of receipt of each installment/tranche of FDI or from the 

date of completion of minimum capitalization, whichever is later.  However, 

the investor may be permitted to exit earlier with prior approval of the 

Government through the FIPB.

(4) At least 50% of  each such project must be developed within a period of 

five years from the date of obtaining all statutory clearances. The 

investor/investee company would not be permitted to sell undeveloped plots. 

For the purpose of these guidelines, ―undeveloped plots‖ will mean where 

roads, water supply, street lighting, drainage, sewerage,  and other 

conveniences, as applicable under prescribed regulations, have not been made 

available.  It will be necessary that the investor provides this infrastructure 

and obtains the completion certificate from the concerned local body/service 

agency before he would be allowed to dispose of serviced housing plots. 

(5) The project shall conform to the norms and standards, including land use 

requirements and provision of community amenities and common facilities, as 

laid down in the applicable building control regulations, bye-laws, rules, and 

other regulations of the State Government/Municipal/Local Body concerned.

(6) The investor/investee company shall be responsible for obtaining all 

necessary approvals, including those of the building/layout plans, developing 58

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internal and peripheral areas and other infrastructure facilities, payment of 

development, external development and other charges and complying with all 

other requirements as prescribed under applicable rules/bye-laws/regulations 

of the State Government/ Municipal/Local Body concerned.

(7) The State Government/ Municipal/ Local Body concerned, which approves 

the building / development plans, would monitor compliance of the above 

conditions by the developer.

Note:

(i) The conditions at (1) to (4) above would not apply to Hotels & Tourism, 

Hospitals, Special Economic Zones (SEZs), Education Sector, Old age 

Homes and investment by NRIs.

(ii) FDI is not allowed in Real Estate Business.

6.2.12 Industrial Parks – new and existing

100% Automatic

6.2.12.1 (i) ―Industrial Park‖ is a project in which quality infrastructure in the 

form of plots of developed land or built up space or a combination 

with common facilities, is developed and made available to all the 

allottee units for the purposes of industrial activity.

(ii) ―Infrastructure‖ refers to facilities required for functioning of units 

located in the Industrial Park and includes roads (including approach 

roads), water supply and sewerage, common effluent treatment 

facility, telecom network, generation and distribution of power, air 

conditioning.

(iii)―Common Facilities‖ refer to the facilities available for all the units 

located in the industrial park, and include facilities of power, roads 

(including approach roads), water supply and sewerage, common 

effluent treatment, common testing, telecom services, air conditioning, 

common facility buildings, industrial canteens, convention/conference 

halls, parking, travel desks, security service, first aid center, 59

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ambulance and other safety services, training facilities and such other 

facilities meant for common use of the units located in the Industrial 

Park.

(iv)―Allocable area‖ in the Industrial Park means-  

(a) in the case of plots of developed land- the net site area available for 

allocation to the units, excluding the area for common facilities.

(b) in the case of built up space- the floor area and built up space 

utilized for providing common facilities. 

(c) in the case of a combination of developed land and built-up spacethe net site and floor area  available for allocation to the units 

excluding the site area and built up space utilized for providing 

common facilities.

(v) ―Industrial Activity‖ means manufacturing; electricity; gas and water 

supply; post and telecommunications; software publishing, 

consultancy and supply; data processing, database activities and 

distribution of electronic content;  other computer related activities; 

basic and applied R&D on bio-technology, pharmaceutical 

sciences/life sciences, natural sciences and engineering; business and 

management consultancy activities; and architectural, engineering and 

other technical activities. 

6.2.12.2 FDI in Industrial Parks would not be subject to the conditionalities applicable 

for construction development projects etc. spelt out in para 6.2.11 above, 

provided the Industrial Parks meet with the under-mentioned conditions:

(i) it would comprise of a minimum of 10 units and no single unit shall 

occupy more than 50% of the allocable area;60

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(ii) the minimum percentage of the area to be allocated for industrial 

activity shall not be less than 66% of the total allocable area.

6.2.13 Satellites – Establishment and operation

6.2.13.1 Satellites  – Establishment and 

operation,  subject to the sectoral 

guidelines of Department of 

Space/ISRO

74% Government

6.2.14 Private Security Agencies 49 % Government

6.2.15 Telecom Services

Investment caps and other conditions for specified services are given below. 

However, licensing and security requirements notified by the Department of 

Telecommunications will need to be complied with for all services.

6.2.15.1 (i) Telecom services 74% Automatic up 

to 49%

Government 

route beyond 

49% and up to 

74%

6.2.15.1.1 Other conditions:

(1) General Conditions:

(i)  This is applicable in case of Basic, Cellular, Unified Access Services, 

National/ International Long Distance, V-Sat, Public Mobile Radio 

Trunked Services (PMRTS), Global Mobile Personal Communications 

Services (GMPCS) and other value added Services.

(ii) Both direct and indirect foreign investment in the licensee company 

shall be counted for the purpose of FDI ceiling.  Foreign Investment 

shall include investment by Foreign Institutional Investors (FIIs), Nonresident Indians (NRIs), Foreign Currency Convertible Bonds 

(FCCBs), American Depository Receipts (ADRs), Global Depository 

Receipts (GDRs) and convertible preference shares held by foreign 61

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entity. In any case, the `Indian‘ shareholding will not be less than 26 

percent. 

(iii) FDI in the licensee company/Indian promoters/investment companies 

including their holding companies shall require approval of the 

Foreign Investment Promotion Board (FIPB) if it has a bearing on the 

overall ceiling of 74 percent. While approving the investment 

proposals, FIPB shall take note that investment is not coming from 

countries of concern and/or unfriendly entities. 

(iv) The investment approval by FIPB shall envisage the conditionality 

that Company would adhere to licence Agreement. 

(v) FDI shall be subject to laws of India and not the laws of the foreign 

country/countries. 

(2)  Security Conditions:

(i) The Chief Officer In-charge of technical network operations and the 

Chief Security Officer should be a resident Indian citizen.

(ii) Details of infrastructure/network diagram (technical details of the 

network) could be provided on a need basis only to telecom equipment 

suppliers/manufacturers and the affiliate/parents of the licensee 

company.  Clearance from the licensor (Department of 

Telecommunications) would be required if such information is to be 

provided to anybody else.

(iii)For security reasons, domestic traffic of such entities as may be 

identified /specified by the licensor shall not be hauled/routed to any 

place outside India.

(iv)The licensee company shall take adequate and timely measures to 

ensure that the information transacted through a network by the 

subscribers is secure and protected.62

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(v) The officers/officials of the licensee companies dealing with the lawful 

interception of messages will be resident Indian citizens.

(vi)The majority Directors on the Board of the company shall be Indian 

citizens.

(vii) The positions of the Chairman, Managing Director, Chief Executive 

Officer (CEO) and/or Chief Financial Officer (CFO), if held by 

foreign nationals, would require to be security vetted by Ministry of 

Home Affairs (MHA).  Security vetting shall be required periodically 

on yearly basis. In case something adverse is found during the 

security vetting, the direction of MHA shall be binding on the 

licensee. 

(viii) The Company shall not transfer the following to any person/place 

outside India:-

(a) Any accounting information relating to subscriber (except for 

international roaming/billing) (Note: it does not restrict a 

statutorily required disclosure of financial nature) ; and

(b) User information (except pertaining to foreign subscribers 

using Indian Operator‘s network while roaming).

(ix)The Company must provide traceable identity of their subscribers. 

However, in case of providing service to roaming subscriber of foreign 

Companies, the Indian Company shall endeavour to obtain traceable 

identity of roaming subscribers from the foreign company as a part of 

its roaming agreement. 

(x) On request of the licensor or any other agency authorised by the 

licensor, the telecom service provider should be able to provide the 

geographical location of any subscriber (BTS location) at a given point 

of time.63

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(xi)The Remote Access (RA) to Network would be provided only to 

approved location(s) abroad through approved location(s) in India.  

The approval for location(s) would be given by the Licensor (DOT) 

in consultation with the Ministry of Home Affairs.

(xii) Under no circumstances, should any RA to the 

suppliers/manufacturers and affiliate(s) be enabled to access Lawful 

Interception System(LIS), Lawful Interception Monitoring(LIM), 

Call contents of the traffic and any such sensitive sector/data, which 

the licensor may notify from time to time. 

(xiii) The licensee company is not allowed to use remote access facility for 

monitoring of content.

(xiv) Suitable technical device should be made available at Indian end to 

the designated security agency /licensor in which a mirror image of 

the remote access information is available on line for monitoring 

purposes.

(xv) Complete audit trail of the remote access activities pertaining to the 

network operated in India should be maintained for a period of six 

months and provided on request to the licensor or any other agency 

authorised by the licensor.

(xvi) The telecom service providers should ensure that necessary 

provision (hardware/software) is available in their equipment for 

doing the Lawful interception and monitoring from a centralized 

location. 

(xvii)The telecom service providers should familiarize/train Vigilance 

Technical Monitoring (VTM)/security agency officers/officials in 

respect of relevant operations/features of their systems.

(xviii) It shall be open to the licensor to restrict the Licensee Company 64

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from operating in any sensitive area from the National Security angle. 

(xix) In order to maintain the privacy of voice and data, monitoring shall 

only be upon authorisation by the Union Home Secretary or Home 

Secretaries of the States/Union Territories. 

(xx) For monitoring traffic, the licensee company shall provide access of 

their network and other facilities as well as to books of accounts to 

the security agencies. 

(xxi) The aforesaid Security Conditions shall be applicable to all the 

licensee companies operating telecom services covered under this 

circular irrespective of the level of FDI.  

(xxii)Other Service Providers (OSPs), providing services like Call 

Centres, Business Process Outsourcing (BPO), tele-marketing, teleeducation, etc, and are registered with DoT as OSP. Such OSPs 

operate the service using the telecom infrastructure provided by 

licensed telecom service providers and 100% FDI is permitted for 

OSPs.  As the security conditions are applicable to all licensed 

telecom service providers, the security conditions mentioned above 

shall not be separately enforced on OSPs.

(3)   The above General Conditions and Security Conditions shall also be 

applicable to the companies operating telecom service(s) with the FDI cap of 

49%.

(4) All the telecom service providers shall submit a compliance report on 

the aforesaid conditions to the licensor on 1

st

day of July and January on six 

monthly basis.

6.2.15.2 (a) ISP with gateways

(b) ISP‘s not providing gateways i.e.

without gate-ways (both for satellite 

74% Automatic up 

to 49%

Government 

route beyond 

49% and up to 65

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and marine cables)

Note: The new guidelines of 

August 24, 2007 Department of 

Telecommunications provide for 

new ISP licenses with  FDI up to 

74%.  

(c) Radio paging

(d) End-to-End bandwidth

74%

6.2.15.3 (a) Infrastructure provider 

providing dark fibre, right of way, 

duct space, tower (IP Category I)

(b)Electronic Mail

(c) Voice Mail

Note:  Investment in all the above 

activities is subject to the conditions 

that such companies will divest 26% 

of their equity in favour of Indian 

public in 5 years, if these companies 

are listed in other parts of the world.

100% Automatic up 

to 49%

Government 

route beyond 

49%

6.2.16 TRADING

6.2.16.1 (i) Cash & Carry Wholesale 

Trading/ Wholesale Trading

(including sourcing from MSEs)

100% Automatic

6.2.16.1.1 Definition: Cash & Carry Wholesale trading/Wholesale trading, would mean 

sale of goods/merchandise to retailers, industrial, commercial, institutional or 

other professional business users or to other  wholesalers and related 

subordinated service providers.   Wholesale trading would, accordingly, be 

sales for the purpose of trade, business and profession, as opposed to sales for 

the purpose of personal consumption. The yardstick to determine whether the 

sale is wholesale or not would be the type of customers to whom the sale is 

made and not the size and volume of sales. Wholesale trading would include 66

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resale, processing and thereafter sale, bulk imports with ex-port/ex-bonded 

warehouse business sales and B2B e-Commerce.

6.2.16.1.2 Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading 

(WT): 

(a) For undertaking WT, requisite licenses/registration/ permits, as 

specified under the relevant Acts/Regulations/Rules/Orders of the 

State Government/Government Body/Government Authority/Local 

Self-Government Body under that State Government should be 

obtained. 

(b) Except in case of sales to Government, sales made by the wholesaler 

would be considered as ‗cash & carry wholesale trading/wholesale 

trading‘ with valid business customers,  only when WT are made to 

the following entities: 

(I)  Entities holding sales tax/ VAT registration/service 

tax/excise duty registration; or

(II)     Entities holding trade licenses i.e. a license/registration 

certificate/membership certificate/registration under Shops and 

Establishment Act, issued by a Government Authority/ Government 

Body/ Local Self-Government Authority, reflecting that the 

entity/person holding the license/ registration certificate/ membership 

certificate, as the case may be, is itself/ himself/herself engaged in a 

business involving commercial activity; or

(III)   Entities holding permits/license etc.  for undertaking retail 

trade (like tehbazari and similar license for hawkers) from 

Government Authorities/Local Self Government Bodies; or

(IV)  Institutions having certificate of incorporation or 

registration as a society or registration as public trust for their self 

consumption.

Note:  An Entity, to whom WT is made, may fulfill any one of 67

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the 4 conditions.  

( c) Full records indicating all the details of such sales like name of entity, 

kind of entity, registration/license/permit etc. number, amount of sale 

etc. should be maintained on a day to day basis.

(d) WT of goods would be permitted among companies of the same group.  

However, such WT to group companies taken together should not 

exceed 25% of the total turnover of the wholesale venture

(e) WT can be undertaken as per normal business practice, including 

extending credit facilities subject to applicable regulations.  

(f) A Wholesale/Cash & carry trader cannot open retail shops to sell to the 

consumer directly.

6.2.16.2 E-commerce activities 100% Automatic

6.2.16.2.1

E-commerce activities refer to the activity of buying and selling by a company 

through  the e-commerce platform. Such companies would engage only in 

Business to Business (B2B) e-commerce and not in retail trading, inter-alia 

implying that existing restrictions on FDI in domestic trading would be 

applicable to e-commerce as well.

6.2.16.3 Test marketing of such items for 

which a company has approval for 

manufacture, provided such test 

marketing facility will be for a period 

of two years, and investment in 

setting up manufacturing facility 

commences simultaneously with test 

marketing.

100% Government

6.2.16.4 Single Brand product  retail 

trading

100% Government

(1) Foreign Investment in Single Brand product retail trading is aimed at 68

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attracting investments in production and marketing, improving the availability 

of such goods for the consumer, encouraging increased sourcing of goods 

from India, and enhancing competitiveness of Indian enterprises through 

access to global designs, technologies and management practices.

(2)  FDI in Single Brand product retail trading would be subject to the 

following conditions:

(a) Products to be sold should be of a ‗Single Brand‘ only. 

(b) Products should be sold under the same brand internationally i.e. 

products should be sold under the same brand in one or more countries 

other than India.

(c) ‗Single Brand‘ product-retail trading would cover only products which 

are branded during manufacturing. 

(d) The foreign investor should be the owner of the brand.

(e) In respect of proposals involving FDI beyond 51%, mandatory 

sourcing of at least 30% of the value of products sold would have to be 

done from Indian ‗small industries/ village and cottage industries, 

artisans and craftsmen‘. 'Small industries' would be defined as industries 

which have a total investment in plant & machinery not exceeding US $ 

1.00 million. This valuation refers to the value at the time of installation, 

without providing for depreciation. Further, if at any point in time, this 

valuation is exceeded, the industry shall not qualify as a 'small industry' 

for this purpose.  The compliance of this condition will be ensured 

through self-certification by the company, to be subsequently checked, 

by statutory auditors, from the duly certified accounts, which the 

company will be required to maintain.

(3) Application seeking permission of the Government for FDI in retail trade 

of ‗Single Brand‘ products would be made to the Secretariat for Industrial 

Assistance (SIA) in the Department of Industrial Policy & Promotion.  The 

application would specifically indicate the product/ product categories which 69

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are proposed to be sold under a ‗Single Brand‘. Any addition to the product/ 

product categories to be sold under ‗Single Brand‘ would require a fresh 

approval of the Government. 

(4) Applications would be processed in the Department of Industrial Policy & 

Promotion, to determine whether the products proposed to be sold satisfy the 

notified guidelines, before being considered by the FIPB for Government 

approval.

FINANCIAL SERVICES

Foreign investment in  other financial services , other than those indicated 

below, would require prior approval of the Government:

6.2.17 Asset Reconstruction Companies

6.2.17.1 ‗Asset Reconstruction Company‘ 

(ARC) means a company registered 

with the Reserve Bank of India under 

Section 3 of the Securitisation and 

Reconstruction of Financial Assets 

and Enforcement of Security Interest 

Act, 2002 (SARFAESI Act).

49% of paid-up 

capital of ARC

Government 

6.2.17.2 Other conditions:

(i) Persons resident outside India, other than Foreign Institutional Investors 

(FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) 

registered with Reserve Bank only under the Government Route.  Such 

investments have to be strictly in the nature of FDI.  Investments by FIIs are 

not permitted in the equity capital of ARCs.

(ii) However, FIIs registered with SEBI can invest in the Security Receipts 

(SRs) issued by ARCs registered with Reserve Bank.  FIIs can invest up to 49 

per cent of each tranche of scheme of SRs, subject to the condition that 

investment by a single FII in each tranche of SRs shall not exceed 10 per cent 70

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of the issue.

(iii)Any individual investment of more than 10% would be subject to 

provisions of section 3(3) (f) of Securitization and Reconstruction of Financial 

Assets and Enforcement of Security Interest Act, 2002.

6.2.18 Banking –Private sector

6.2.18.1 Banking –Private sector 74% including 

investment by FIIs

Automatic up 

to 49%

Government 

route beyond 

49% and up to 

74%

6.2.18.2 Other conditions:

(1) This 74% limit will include investment under the Portfolio Investment 

Scheme (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 

by erstwhile OCBs, and continue to include IPOs, Private placements, 

GDR/ADRs and acquisition of shares from existing shareholders. 

(2) The aggregate foreign investment in a private bank from  all sources will 

be allowed up to a maximum of 74 per cent of the paid up capital of the Bank.  

At all times, at least 26 per cent of the paid up capital will have to be held by 

residents, except in regard to a wholly-owned subsidiary of a foreign bank.

(3) The stipulations as above will be applicable to all investments in existing 

private sector banks also.

(4) The permissible limits under portfolio investment schemes through stock 

exchanges for FIIs and NRIs will be as follows:

(i) In the case of FIIs, as hitherto, individual FII holding is restricted to 10 

per cent of the total paid-up capital, aggregate limit for all FIIs cannot 

exceed 24 per cent of the total paid-up capital, which can be raised to 

49 per cent of the total paid-up capital by the bank concerned through 

a resolution by its Board of Directors followed by a special resolution 

to that effect by its General Body. 71

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(a) Thus, the FII investment limit will continue to be within 49 per 

cent of the total paid-up capital.

(b) In the case of NRIs, as hitherto, individual holding is restricted to 5 

per cent of the total paid-up capital both on repatriation and nonrepatriation basis and aggregate limit cannot exceed 10 per cent of 

the total paid-up capital both on repatriation and non-repatriation 

basis.  However, NRI holding can be allowed up to 24 per cent of 

the total paid-up capital both on repatriation and non-repatriation 

basis provided the banking company passes a special resolution to 

that effect in the General Body.

(c) Applications for foreign direct investment in private banks having 

joint venture/subsidiary in insurance sector may be addressed to 

the Reserve Bank of India (RBI) for consideration in consultation 

with the Insurance Regulatory and Development Authority (IRDA) 

in order to ensure that the 26 per cent limit of foreign shareholding 

applicable for the insurance sector is not being breached.

(d) Transfer of shares under FDI from residents to non-residents will 

continue to require approval of RBI and Government as per para 

3.6.2 above as applicable.

(e) The policies and procedures prescribed from time to time by RBI 

and other institutions such as SEBI, D/o Company Affairs and 

IRDA on these matters will continue to apply.

(f) RBI guidelines relating to acquisition by purchase or otherwise of 

shares of a private bank, if such acquisition results in any person 

owning or controlling 5 per cent or more of the paid up capital of 

the private bank will apply to non-resident investors as well.

(ii) Setting up of a subsidiary by foreign banks

(a) Foreign  banks will be permitted to either have branches or 72

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subsidiaries but not both.

(b) Foreign banks regulated by banking supervisory authority in the 

home country and meeting Reserve Bank‘s licensing criteria will 

be allowed to hold 100 per cent paid up capital to enable them to 

set up a wholly-owned subsidiary in India.

(c) A foreign bank may operate in India through only one of the three 

channels viz., (i) branches (ii) a wholly-owned subsidiary and (iii) 

a subsidiary with aggregate foreign investment up to a maximum 

of 74 per cent in a private bank.

(d) A foreign bank will be permitted to establish a wholly-owned 

subsidiary either through conversion of existing branches into a 

subsidiary or through a fresh banking license.  A foreign bank will 

be permitted to establish a subsidiary through acquisition of shares 

of an existing private sector bank provided at least 26 per cent of 

the paid capital of the private sector bank is held by residents at all 

times consistent with para (i) (b) above.

(e) A subsidiary of  a foreign bank will be subject to the licensing 

requirements and conditions broadly consistent with those for new 

private sector banks.

(f) Guidelines for setting up a wholly-owned subsidiary of a foreign 

bank will be issued separately by RBI

(g) All applications by a foreign bank for setting up a subsidiary or for 

conversion of their existing branches to subsidiary in India will 

have to be made to the RBI.

(iii) At present there is a limit of ten per cent on voting rights in respect of 

banking companies, and this should be noted by potential investor.  

Any change in the ceiling can be brought about only after final policy 

decisions and appropriate Parliamentary approvals.

6.2.19 Banking- Public Sector

6.2.19.1 Banking- Public Sector  subject to 20% (FDI and  Government73

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Banking Companies (Acquisition & 

Transfer of Undertakings) Acts 

1970/80.  This ceiling (20%) is also 

applicable to the State Bank of India 

and its associate Banks.

Portfolio 

Investment)

6.2.20 Commodity Exchanges

6.2.20.1 1    Futures trading in commodities are regulated under the Forward Contracts 

(Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are 

infrastructure companies in the commodity futures market.  With a view to 

infuse globally acceptable best practices, modern management skills and latest 

technology, it was decided to allow foreign investment in Commodity 

Exchanges. 

2 For the purposes of this chapter,

(i) ―Commodity Exchange‖ is a recognized association under the 

provisions of the Forward Contracts (Regulation)  Act, 1952, as 

amended from time to time, to provide exchange platform for trading 

in forward contracts in commodities. 

(ii) ―recognized association‖ means an association to which recognition 

for the time being has been granted by the Central Government under 

Section 6 of the Forward Contracts (Regulation) Act, 1952 

(iii) ―Association‖ means any body of individuals, whether incorporated or 

not, constituted for the purposes of regulating and controlling the 

business of the sale or purchase of any goods and  commodity 

derivative.

(iv)―Forward contract‖ means a contract for the delivery of goods and 

which is not a ready delivery contract.

(v) ―Commodity derivative‖ means-

 a contract for delivery of goods, which is not a ready delivery contract; 

or74

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 a contract for differences which derives its value from prices or indices 

of prices of such underlying goods or activities, services, rights, 

interests and events, as may be notified in consultation with the 

Forward Markets Commission by the Central Government, but does 

not include securities.

6.2.20.2 Policy for FDI in Commodity 

Exchange

49% (FDI & FII)  

[Investment by 

Registered FII under 

Portfolio Investment 

Scheme (PIS) will 

be limited to 23% 

and Investment 

under FDI Scheme 

limited to 26% ]

Government

(For FDI)

6.2.20.3 Other conditions:

(i) FII purchases shall be restricted to secondary market only and

(ii) No non-resident investor/ entity, including persons acting in 

concert, will hold more than 5% of the equity in these 

companies.

6.2.21 Credit Information Companies (CIC)

6.2.21.1 Credit Information Companies 49% (FDI & FII)   Government

6.2.21.2 Other Conditions:

(1)  Foreign investment in Credit Information Companies is subject to the 

Credit Information Companies (Regulation) Act, 2005.

(2)  Foreign investment is permitted under the Government route, subject to 

regulatory clearance from RBI. 

(3)  Investment by a registered FII under the Portfolio Investment Scheme 

would be permitted up to 24% only in the CICs listed at the Stock Exchanges, 

within the overall limit of 49% for foreign investment.

(4)  Such FII investment would be permitted subject to the conditions that:

(a)   No single entity should directly or indirectly hold more than 10% 

equity.75

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Cap/Equity

Entry Route

(b) Any acquisition in excess of 1% will have to be reported to RBI as a 

mandatory requirement; and 

(c)  FIIs investing in CICs shall not seek a representation on the Board 

of Directors based upon their shareholding.

6.2.22 Infrastructure Company in the Securities Market

6.2.22.1 Infrastructure companies in 

Securities Markets, namely, stock 

exchanges, depositories and clearing 

corporations, in compliance with 

SEBI Regulations

49% (FDI & FII)  

[FDI limit of 26 per 

cent and an FII limit 

of 23 per cent of the 

paid-up capital ]

Government

(For FDI)

6.2.22.2 Other Conditions:

6.2.22.2.1 FII can invest only through purchases in the secondary market 

6.2.23 Insurance

6.2.23.1 Insurance 26%  Automatic

6.2.23.2 Other Conditions:

(1) FDI in the Insurance sector, as prescribed in the Insurance Act, 1938, is 

allowed under the automatic route.

(2) This will be subject to the condition that Companies bringing in FDI shall 

obtain necessary license from the Insurance Regulatory & Development 

Authority for undertaking insurance activities.

6.2.24 Non-Banking Finance Companies (NBFC)

6.2.24.1 Foreign investment in NBFC is 

allowed under the automatic route in 

only the following activities:

(i) Merchant Banking

(ii) Under Writing

(iii) Portfolio Management 

Services

(iv)Investment Advisory Services

(v) Financial Consultancy

100% Automatic76

Sl.No. Sector/Activity % of FDI 

Cap/Equity

Entry Route

(vi)Stock Broking

(vii) Asset Management

(viii) Venture Capital

(ix) Custodian Services

(x) Factoring

(xi) Credit Rating Agencies

(xii) Leasing & Finance

(xiii) Housing Finance

(xiv) Forex Broking

(xv) Credit Card Business

(xvi) Money Changing Business

(xvii) Micro Credit

(xviii) Rural Credit

6.2.24.2 Other Conditions:

(1) Investment would be subject to the following minimum capitalisation 

norms:

(i) US $0.5 million for foreign capital up to 51% to be brought upfront

(ii) US $ 5 million for foreign capital more than 51% and up to 75% to be 

brought upfront

(iii)US $ 50 million for foreign capital more than 75% out of which US$ 

7.5 million to be brought upfront and the balance in 24 months.

(iv)100% foreign owned NBFCs with a minimum capitalisation of US$ 50 

million can set up step down subsidiaries for specific NBFC activities, 

without any restriction on the number of operating subsidiaries and 

without bringing in additional capital. The minimum capitalization 

condition as mandated by para 3.10.4.1, therefore, shall not apply 77

Sl.No. Sector/Activity % of FDI 

Cap/Equity

Entry Route

to downstream subsidiaries.

(v) Joint Venture operating NBFCs that have 75%  or less than 75% 

foreign investment can also set up subsidiaries for undertaking other 

NBFC activities, subject to the subsidiaries also complying with the 

applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) 

above and (vi) below.

(vi)Non- Fund based activities : US $0.5 million to be brought upfront for 

all permitted non-fund based NBFCs  irrespective of the level of 

foreign investment subject to the following condition:

It would not be permissible for such a company to set up any 

subsidiary for any other activity, nor it can participate in any equity 

of an NBFC holding/operating company.

Note: The following activities would be classified as Non-Fund Based 

activities:

(a) Investment Advisory Services

(b) Financial Consultancy

(c) Forex Broking

(d) Money Changing Business

(e) Credit Rating Agencies

(vii) This will be subject to compliance with the guidelines of RBI.

Note: (i) Credit Card business includes issuance, sales, marketing & design of 

various payment products such as credit cards, charge cards, debit cards, 

stored value cards, smart card, value added cards etc.

(ii) Leasing & Finance covers only financial leases and not operating leases.  78

Sl.No. Sector/Activity % of FDI 

Cap/Equity

Entry Route

(2) The NBFC will have to comply with the guidelines of the relevant 

regulator/ s, as applicable

6.2.25 Pharmaceuticals

6.2.25.1 Greenfield 100%  Automatic

6.2.25.2 Existing Companies 100% Government79

CHAPTER 7: REMITTANCE, REPORTING AND VIOLATION

7.1 REMITTANCE AND REPATRIATION

7.1.1 Remittance of sale proceeds/Remittance on winding up/Liquidation of Companies: 

(i) Sale proceeds of shares and securities and their remittance is ‗remittance of asset‘ 

governed by The Foreign Exchange Management (Remittance of Assets) Regulations 

2000 under FEMA.   

(ii) AD Category-I bank can allow the remittance of sale proceeds of a security (net of 

applicable taxes) to the seller of shares resident outside India, provided the security has 

been held on repatriation basis, the sale of security has been made in accordance with the 

prescribed guidelines and NOC / tax clearance certificate from the Income Tax 

Department has been produced.                        

(iii) Remittance on winding up/liquidation of Companies

AD Category-I banks have been allowed to remit winding up proceeds of companies in 

India, which are under liquidation, subject to payment of applicable taxes. Liquidation

may be  subject  to  any  order  issued  by  the  court  winding  up  the  company  or  the  

official liquidator in case of voluntary winding up under the provisions of the

Companies Act, 1956. AD Category-I  banks shall allow the remittance provided the 

applicant submits:

a. No  objection  or  Tax  clearance  certificate  from  Income  Tax  Department  for 

the remittance.

b. Auditor's certificate confirming that all liabilities in India have been either fully

paid or adequately provided for.

c. Auditor's certificate to the effect that the winding up is in accordance with

the provisions of the Companies Act, 1956.

d. In case of winding up otherwise than by a court, an auditor's certificate to the

effect that there are no legal proceedings pending in any court in India against the

applicant or the company under liquidation and there is no legal impediment in

permitting the remittance.80

7.1.2 Repatriation of Dividend: Dividends are freely repatriable without any restrictions (net 

after Tax deduction at source or Dividend Distribution Tax, if any, as the case may be). The 

repatriation is governed by the provisions of the Foreign Exchange Management (Current 

Account Transactions) Rules, 2000, as amended from time to time.                               

7.1.3 Repatriation of Interest: Interest on fully, mandatorily & compulsorily convertible 

debentures is also freely repatriable without any restrictions (net of applicable taxes). The 

repatriation is governed by the provisions of the Foreign Exchange Management (Current 

Account Transactions) Rules, 2000, as amended from time to time.                              

7.2. REPORTING OF FDI

7.2.1 Reporting of Inflow   

(i) An Indian company receiving investment from outside India for issuing shares / 

convertible debentures / preference shares under the FDI Scheme, should report the 

details of the amount of consideration to the Regional Office concerned of the Reserve 

Bank not later than 30 days from the date of receipt in the Advance Reporting Form 

enclosed as Annex-5. 

(ii) Indian companies are required to report the details of the receipt of the amount of 

consideration for issue of shares / convertible debentures, through an AD Category-I 

bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance 

along with the KYC report (enclosed as Annex-6) on the non-resident investor from the 

overseas bank remitting the amount. The report would be acknowledged by the Regional 

Office concerned, which will allot a Unique Identification Number (UIN) for the amount 

reported.

7.2.2 Reporting of issue of shares  

(i)  After issue of shares (including bonus and shares issued on rights basis and shares issued 

under ESOP)/fully, mandatorily & compulsorily convertible debentures / fully, 

mandatorily & compulsorily convertible preference shares, the Indian company has to file 

Form FC-GPR, enclosed in  Annex-1, not later than 30 days from the date of issue of 

shares. 

(ii) Form FC-GPR has to be duly filled  up and signed by Managing 

Director/Director/Secretary of the Company and submitted to the Authorized Dealer of 81

the company, who will forward it to the Reserve Bank. The following documents have to 

be submitted along with the form:

(a)  A certificate from the Company Secretary of the company certifying that:

(A) all the requirements of the Companies Act, 1956 have been complied with;

(B) terms and conditions of the Government‘s approval, if any, have been complied 

with;

(C) the company is eligible to issue shares under these Regulations; and

(D) the company has all original certificates issued by authorized dealers in India 

evidencing receipt of amount of consideration.

Note: For companies with paid up capital with less than Rs.5 crore, the above 

mentioned certificate can be given by a practicing company secretary.

(b) A certificate from Statutory Auditor or Chartered Accountant indicating the manner 

of arriving at the price of the shares issued to the persons resident outside India.

(c) The report of receipt of consideration as well as Form FC-GPR have to be submitted 

by the AD Category-I bank to the Regional Office concerned of the Reserve Bank 

under whose jurisdiction the registered office of the company is situated.

(d) Annual return on Foreign Liabilities and Assets (Annex 7) should be filed on an 

annual basis by the Indian company, directly with the Reserve Bank. This is an 

annual return to be submitted by 31st of July every year, pertaining to all investments 

by way of direct/portfolio investments/reinvested earnings/other capital in the Indian 

company made during the previous years (i.e. the information submitted by 31st July 

will pertain to all the investments made in the previous years up to March 31). The 

details of the investments to be reported would include all foreign investments made 

into the company which is outstanding as on the balance sheet date. The details of 

overseas investments in the company both under direct / portfolio investment may be 

separately indicated.

(e) Issue of bonus/rights shares or stock options to persons resident outside India directly 

or on amalgamation / merger/demerger with an existing Indian company, as well as 

issue of shares on conversion of ECB / royalty / lumpsum technical know-how fee / 

import of capital goods by units in SEZs, has to be reported in Form FC-GPR.82

7.2.3 Reporting of transfer of shares     

Reporting of transfer of shares between residents and non-residents and vice- versa is to 

be done in Form FC-TRS (Annex 8). The Form FC-TRS should be submitted to the AD 

Category-I bank, within 60 days from the date of receipt of the amount of consideration. The 

onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / 

transferee, resident in India. The AD Category-I bank, would forward the same to its link office. 

The link office would consolidate the Form FC-TRS and submit a monthly report to the Reserve 

Bank.

7.2.4 Reporting of Non-Cash            

Details of issue of shares against conversion of ECB have to be reported to the Regional 

Office concerned of the RBI, as indicated below:

(i)  In case of full conversion of ECB into equity, the company shall report the conversion in 

Form FC-GPR to the Regional Office concerned of the Reserve Bank as well as in Form 

ECB-2 to the Department of Statistics and Information Management (DSIM), Reserve 

Bank of India, Bandra-Kurla Complex, Mumbai – 400 051, within seven working days 

from the close of month to which it relates. The words "ECB wholly converted to equity" 

shall be clearly indicated on top of the Form ECB-2. Once reported, filing of Form ECB-

2 in the subsequent months is not necessary.

(ii) In case of partial conversion of ECB, the company shall report the converted portion in 

Form FC-GPR to the Regional Office concerned as well as in Form ECB-2 clearly 

differentiating the converted portion from the non-converted portion. The words "ECB 

partially converted to equity" shall be indicated on top of the Form ECB-2. In the 

subsequent months, the outstanding balance of ECB shall be reported in Form ECB-2 to 

DSIM.

7.2.5 Reporting of FCCB/ADR/GDR Issues

The Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full 

details of such issue in the Form enclosed as Annex 9, within 30 days from the date of closing of 

the issue. The company should also furnish a quarterly return in the Form enclosed as Annex 10, 

to the Reserve Bank within 15 days of the close of the calendar quarter. The quarterly return has 

to be submitted till the entire amount raised through ADR/GDR mechanism is either repatriated 

to India or utilized abroad as per the extant Reserve Bank guidelines.83

7.3 ADHERENCE TO GUIDELINES/ORDERS AND CONSEQUENCES OF 

VIOLATION

FDI is a capital account transaction and thus any violation of FDI regulations are covered 

by the penal provisions of the FEMA. Reserve Bank of India administers the FEMA and 

Directorate of Enforcement under the Ministry of Finance is the authority for the enforcement of 

FEMA.  The Directorate takes up investigation in any contravention of FEMA.

7.3.1 Penalties

(i) If a person violates/contravenes any FDI Regulations, by way of breach/nonadherence/non-compliance/contravention of any rule, regulation, notification, press note, 

press release, circular, direction or order issued in exercise of the powers under FEMA or 

contravenes any conditions subject to which an authorization is issued by the 

Government of India/FIPB/Reserve Bank of India, he shall, upon adjudication, be liable 

to a penalty up to thrice the sum involved in such contraventions where such amount is 

quantifiable, or up to two lakh Rupees where the amount is not quantifiable, and where 

such contraventions is a continuing one, further penalty which may extend to five 

thousand Rupees for every day after the first day during which the contraventions 

continues.

(ii) Where a person committing a contravention of any provisions of this Act or of any rule, 

direction or order made there under is a company (company means any body corporate 

and includes a firm or other association of individuals as defined in the Companies Act), 

every person who, at the time the contravention was committed, was in charge of,  and 

was responsible to, the company for the conduct of the business of the company as well 

as the company, shall be deemed to be guilty of the contravention and shall be liable to be 

proceeded against and punished accordingly. 

(iii)  Any Adjudicating Authority adjudging any contraventions under 6.3.1(i), may, if he 

thinks fit in addition to any penalty which he may impose for such contravention direct 

that any currency, security or any other money or property in respect of which the 

contravention has taken place shall be confiscated to the Central Government. 

7.3.2 Adjudication and Appeals

(i) For the purpose of adjudication of any contravention of FEMA, the Ministry of Finance 

as per the provisions contained in the Foreign Exchange Management (Adjudication 84

Proceedings and Appeal) Rules, 2000 appoints officers of the Central Government as the 

Adjudicating Authorities for holding an enquiry in the manner prescribed. A reasonable 

opportunity has to be given to the person alleged to have committed contraventions 

against whom a complaint has been made for being heard before imposing any penalty.

(ii)  The Central Government may appoint as per the provisions contained in the Foreign 

Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000, an 

Appellate Authority/ Appellate Tribunal to hear appeals against the orders of the 

adjudicating authority. 

7.3.3 Compounding Proceedings

Under the Foreign Exchange (Compounding Proceedings) Rules 2000, the  Central 

Government may appoint ‗Compounding Authority‘ an officer either from Enforcement 

Directorate or Reserve Bank of India for any person contravening any provisions of the FEMA. 

The Compounding Authorities are authorized to compound the amount involved in the 

contravention to the Act made by the person. No contravention shall be compounded unless the 

amount involved in such contravention is quantifiable. Any second or subsequent contravention 

committed after the expiry of a period of three years from the date on which the contravention 

was previously compounded shall be deemed to be a first contravention. The Compounding 

Authority may call for any information, record or any other documents relevant to the 

compounding proceedings. The Compounding Authority shall pass an order of compounding 

after affording an opportunity of being heard to all the concerns as expeditiously and not later 

than 180 days from the date of application made to the Compounding Authority. Compounding 

Authority shall issue order specifying the provisions of the Act or of the rules, directions, 

requisitions or orders made there under in respect of which contravention has taken place along 

with details of the alleged contraventions. 85

Annex – 1

FC-GPR

(To be filed by the company through its Authorised Dealer Category-I  bank with the Regional Office of the RBI 

under whose jurisdiction the Registered Office of the company making the declaration is situated as and when 

shares / convertible debentures are issued to the foreign investor, along with the documents mentioned in item No. 4 

of the undertaking enclosed to this Form)

Permanent Account Number (PAN) 

of the investee company given by the 

Income Tax Department

Date of issue  of shares /  convertible 

debentures

No.

Particulars (In Block Letters)

1. Name

Address of the Registered Office

State

Registration No. given by Registrar of 

Companies

Whether existing company or new 

company (strike off whichever is not 

applicable)

Existing company / New company

If existing company, give registration 

number allotted by RBI for FDI, if any 

Telephone

Fax

e-mail86

2. Description of the main business 

activity 

NIC Code

Location of the project and NIC code 

for the district where the project is 

located

Percentage of FDI allowed as per FDI 

policy

State whether FDI is allowed under 

Automatic Route or Approval Route 

(strike out whichever is not applicable)

Automatic Route / Approval Route

3 Details of the foreign investor / collaborator

Name

Address

Country

Constitution / Nature of the investing 

Entity

[Specify whether 

1. Individual

2. Company 

3. FII

4. FVCI

5. Foreign Trust

6. Private Equity Fund

7. Pension / Provident Fund

8. Sovereign Wealth Fund (SWF)

2

9. Partnership / Proprietorship Firm

10. Financial Institution

11. NRIs / PIO 

12. Others (please specify)]

Date of incorporation

4 Particulars of Shares / Convertible Debentures Issued

If there is more than one foreign investor/collaborator, separate Annex may be included for items 3 and 4 of the 

Form.

2

SWF means a Government investment vehicle which is funded by foreign exchange assets, and which manages those assets 

separately from the official reserves of the monetary authorities.87

(a) Nature and date of issue 

Nature of issue Date of issue Number of shares/ 

convertible debentures

01 IPO / FPO

02 Preferential allotment /

private placement

03 Rights

04 Bonus

05 Conversion of ECB

06 Conversion of royalty 

(including lump sum payments)

07 Conversion against import of 

capital goods by units in SEZ

08 ESOPs

09 Share Swap

10 Others (please specify)

Total

(b) Type of security issued

No. Nature of 

security

Number  Maturity Face 

value

Premium Issue Price 

per share

Amount of 

inflow*

01 Equity

02 Compulsorily 

Convertible 

Debentures 

03 Compulsorily 

Convertible 

Preference 

shares 

04 Others (please 

specify)

Total

i) In case the issue price is greater than  the face value please give break up of the premium received. 

ii) * In case the issue is against conversion of ECB or royalty or against import of capital goods by units in SEZ, a 

Chartered Accountant's Certificate certifying the amount outstanding on the date of conversion 

(c) Break up of premium Amount

Control Premium

Non competition fee

Others

@

Total

@ 

please specify the nature

(d)  Total inflow (in Rupees) on account of issue of 

shares / convertible debentures to non-residents 

(including premium, if any) vide 88

(i) Remittance through AD: 

(ii) Debit to NRE/FCNR A/c with 

Bank_________ 

(iii) Others (please specify)

Date of reporting of (i) and (ii) above to RBI 

under Para 9 (1) A of Schedule I to Notification 

No. FEMA 20 /2000-RB dated May 3, 2000, as 

amended from time to time.

(e) Disclosure of fair value of shares issued** 

We are a listed company and the market value of 

a share as on date of the issue is*

We are an un-listed company and the fair value 

of a share is*

** before issue of shares                                            *(Please indicate as applicable) 

5. Post issue pattern of shareholding 

Equity Compulsorily 

convertible 

Preference Shares/ 

Debentures

Investor category

No. 

of 

shares

Amount 

(Face Value) 

Rs.

%

No. 

of 

shares

Amount

(Face Value) 

Rs.

%

a) Non-Resident

01 Individuals

02 Companies

03 FIIs

04 FVCIs

05 Foreign Trusts

06 Private Equity Funds

07 Pension/ Provident Funds

08 Sovereign Wealth Funds

09 Partnership/ Proprietorship Firms

10 Financial Institutions

11 NRIs/PIO

12 Others (please specify)

Sub Total

b) Resident 

Total89

DECLARATION TO BE FILED BY THE AUTHORISED REPRESENTATIVE OF THE INDIAN 

COMPANY: (Delete whichever is not applicable and authenticate)

We hereby declare that:

1. We comply with the procedure for issue of shares / convertible debentures as laid down under the FDI 

scheme as indicated in Notification No. FEMA 20/2000-RB dated 3

rd

May 2000, as amended from time to 

time.

2. The investment is within the sectoral cap / statutory ceiling permissible under the Automatic Route of 

RBI and we fulfill all the conditions laid down for investments under the Automatic Route namely (strike 

off whichever is not applicable).

a) Foreign entity/entities—(other than individuals), to whom we have issued shares have existing 

joint venture or technology transfer or trade mark agreement in India in the same field and 

Conditions stipulated at Para 4.2 of Consolidated FDI policy Circular of Government of India

have been complied with. 

OR

Foreign entity/entities—(other than individuals), to whom we have issued shares do not have any 

existing joint venture or technology transfer or trade mark agreement in India in the same field.

For the purpose of the 'same' field, 4 digit NIC 1987 code would be relevant. 

b) We are not an Industrial Undertaking manufacturing items reserved for small sector. 

                                                          OR

We are an Industrial Undertaking  manufacturing items reserved for small sector  and the 

investment limit of 24 % of paid-up capital has been observed/ requisite approvals have been 

obtained. 

c) Shares issued on rights basis to non-residents are in conformity with Regulation 6 of the RBI 

Notification No FEMA 20/2000-RB dated 3

rd

May 2000, as amended from time to time.

OR

Shares issued are bonus. 

OR 

Shares have been issued under a scheme of merger and amalgamation of two or more Indian 

companies or reconstruction by way of de-merger or otherwise of an Indian company, duly 

approved by a court in India. 

OR

Shares are issued under ESOP and the conditions regarding this issue have been satisfied 90

3. Shares have been issued in terms of SIA /FIPB approval No.___________________ dated 

____________________

4. We enclose the following documents in compliance with Paragraph 9 (1) (B) of Schedule 1 to 

Notification No. FEMA 20/2000-RB dated May 3, 2000:

(i) A certificate from our Company Secretary certifying that

(a) all the requirements of the Companies Act, 1956 have been complied with;

(b) terms and conditions of the Government approval, if any, have been complied 

with;

(c) the company is eligible to issue shares under these Regulations; and

(d) the company has all original certificates issued by authorised dealers in India 

evidencing receipt of amount of consideration in accordance with paragraph 8  of 

Schedule 1 to Notification No. FEMA 20/2000-RB dated May 3, 2000. 

(ii) A certificate from Statutory Auditors / SEBI registered Category I Merchant Banker / 

Chartered Accountant indicating the manner of arriving at the price of the shares issued 

to the persons resident outside India.

5. Unique Identification Numbers given for all the remittances received as consideration   for issue of 

shares/ convertible debentures (details as above), by Reserve Bank.

    .

    .

    .

(Signature of the Applicant)*   :___________________________________________

(Name in Block Letters)           :___________________________________________

(Designation of the signatory) :___________________________________________

Place:

Date:

(* To be signed by Managing Director/Director/Secretary of the Company)

R

R91

CERTIFICATE TO BE FILED BY THE COMPANY SECRETARY

3

OF THE INDIAN 

COMPANY ACCEPTING THE INVESTMENT: 

(As per Para 9 (1) (B) (i) of Schedule 1 to Notification No. FEMA 20/2000-RB dated May 3, 2000)

In respect of the abovementioned details, we certify the following :

1. All the requirements of the Companies Act, 1956 have been complied with. 

2. Terms and conditions of the Government approval, if any, have been complied with. 

3. The company is eligible to issue shares / convertible debentures under these Regulations. 

4. The company has all original certificates issued by AD Category-I  banks in India, evidencing receipt 

of amount of consideration in accordance with paragraph 8 of Schedule 1 to Notification No. FEMA 

20/2000-RB dated May 3, 2000. 

(Name & Signature of the Company Secretary) (Seal)

FOR USE OF THE RESERVE BANK ONLY:

Registration Number for the FC-GPR: 

Unique Identification Number allotted to the 

Company at the time of reporting receipt of remittance 

3

If the company doesn‘t have a full time Company Secretary, a certificate from  a practicing Company Secretary

may be submitted.

R92

Annex - 2

Terms and conditions for Transfer of Shares /Convertible Debentures, by   way of Sale, from a 

Person Resident in India to a Person Resident Outside India and from a Person Resident Outside 

India to a Person Resident in India

1.1 In order to address the concerns relating to pricing, documentation, payment/ receipt and 

remittance in respect of the shares/ convertible debentures of an Indian company, in all sectors, 

transferred by way of sale, the parties involved in the transaction shall comply with the guidelines set out 

below.

1.2 Parties involved in the transaction are  (a) seller (resident/non-resident), (b) buyer 

(resident/non-resident), (c) duly authorized agent/s of the seller and/or buyer, (d) Authorised Dealer bank 

(AD) branch and (e) Indian company, for recording the transfer of ownership in its books.

2. Pricing Guidelines

2.1  The under noted pricing guidelines are applicable to the following types of transactions:

i. Transfer of shares, by way of sale under private arrangement by a person resident in India to a 

person resident outside India.

ii. Transfer of shares, by way of sale under private arrangement by a person resident outside India to 

a person resident in India.

2.2 Transfer by Resident to Non-resident  (i.e. to incorporated non-resident entity other than 

erstwhile OCB, foreign national, NRI, FII)

Price of shares transferred by way of sale by resident to a non-resident where the shares of an Indian 

company are: 

(a)  listed on a recognized stock exchange in India ,shall not be less than the price at which the 

preferential allotment of shares can be made under the SEBI guidelines , as applicable, provided 

the same is determined for such duration as specified therein, preceding the relevant date, which 

shall be the date pf purchase or sale of shares, 

(b) not listed on a recognized stock exchange in India ,shall not be less than the fair value to be 

determined by a SEBI registered Category I Merchant Banker or a Chartered Accountant as per 

the discounted free cash flow method. 

The price per share arrived at should be certified by a SEBI registered Category I Merchant Banker or a 

Chartered Accountant.

2.3 Transfer by Non-resident  (i.e. by incorporated non-resident entity, erstwhile OCB, foreign 

national, NRI, FII) to Resident93

Sale of shares by a non-resident to resident shall be in  accordance with Regulation 10 B (2) of 

Notification No. FEMA 20/2000-RB dated May 3, 2000 which  shall not be more than the minimum price 

at which the transfer of shares can be made from a resident to a non-resident as given at para 2.2 above. 

3. Responsibilities / Obligations of the parties 

All the parties involved in the transaction would have the responsibility to ensure that the relevant 

regulations under FEMA are complied with and consequent on transfer of shares, the relevant individual 

limit/sectoral caps/foreign equity participation ceilings as fixed by Government are not breached. 

Settlement of transactions will be subject to payment of applicable taxes, if any.

4. Method of payment and remittance/credit of sale proceeds

4.1 The sale consideration in respect of the shares purchased by a person resident outside India shall 

be remitted to India through normal banking channels. In case the buyer is a Foreign Institutional Investor 

(FII), payment should be made by debit to its Special Non-Resident Rupee Account. In case the buyer is a 

NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts. However, if the shares 

are acquired on non-repatriation basis by NRI, the consideration shall be remitted to India through normal 

banking channel or paid out of funds held in NRE/FCNR (B)/NRO accounts.

4.2. The sale proceeds of shares (net of taxes) sold by a person resident outside India may be remitted 

outside India. In case of FII, the sale proceeds may be credited to its special Non-Resident  Rupee 

Account. In case of NRI, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) 

may be credited to his NRE /FCNR(B) accounts and if the shares sold were held on non repatriation basis, 

the sale proceeds may be credited to his NRO account subject to payment of taxes. 

4.3 The sale proceeds of shares (net of taxes) sold by an OCB may be remitted outside India directly 

if the shares were held on repatriation basis and if the shares sold were held on non-repatriation basis, the 

sale proceeds may be credited to its NRO (Current) Account subject to payment of taxes, except in the 

case of OCBs whose accounts have been blocked by Reserve Bank.

5. Documentation

Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), the AD branch should 

arrange to obtain and keep on record the following documents:

5.1 For sale of shares by a person resident in India

i. Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating 

the details of transfer i.e. number of shares to be transferred, the name of the investee 94

company whose shares are being transferred and the price at which shares are being 

transferred. In case there is no formal Sale Agreement, letters exchanged to this effect may be 

kept on record.

ii. Where Consent Letter has been signed by their duly appointed agent, the Power of Attorney 

Document executed by the seller/buyer authorizing the agent to purchase/sell shares.

iii. The shareholding pattern of the investee company after the acquisition of shares by a person 

resident outside India showing equity participation of residents and non-residents categorywise (i.e. NRIs/OCBs/foreign nationals/incorporated non-resident entities/FIIs) and its 

percentage of paid up capital obtained by the seller/buyer or their duly appointed agent from 

the company, where the sectoral cap/limits have been prescribed.

iv. Certificate indicating fair value of shares from a Chartered Accountant.

v. Copy of Broker‘s note if sale is made on Stock Exchange

vi. Undertaking from the buyer to the effect that he is eligible to acquire shares/ convertible 

debentures under FDI policy and the existing sectoral limits and Pricing Guidelines have been 

complied with.

vii. Undertaking from the FII/sub account to the effect that the individual FII/ Sub account 

ceiling as prescribed by SEBI has not been breached. 

5.2. For sale of shares by a person resident outside India

i. Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating 

the details of transfer i.e. number of shares to be transferred, the name of the investee 

company whose shares are being transferred and the price at which shares are being 

transferred.

ii. Where the Consent Letter has been signed by their duly appointed agent the Power of 

Attorney Document authorizing the agent to purchase/sell shares by the seller/buyer. In case 

there is no formal Sale Agreement, letters exchanged to this effect may be kept on record.

iii. If the sellers are NRIs/OCBs, the copies of RBI approvals evidencing the shares held by them 

on repatriation/non-repatriation basis. The sale proceeds shall be credited NRE/NRO account, 

as applicable. 

iv. Certificate indicating fair value of shares from a Chartered Accountant.

v. No Objection / Tax Clearance Certificate from Income Tax authority/Chartered Account.  

vi. Undertaking from the buyer to the effect that the Pricing Guidelines have been adhered to.

6. Reporting requirements

6.1     Reporting of transfer of shares between residents and non-residents and vice versa is to be done in 

Form FC-TRS. The Form FC-TRS should be submitted to the AD Category-I  bank, within 60 days from 95

the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within 

the given timeframe would be on the transferor / transferee, resident in India. The AD Category-I  bank, 

would forward the same to its link office. The link office would consolidate the Forms and submit a 

monthly report to the Reserve Bank

4

.

For the purpose the Authorized Dealers may designate branches to specifically handle such transactions. 

These branches could be staffed with adequately trained staff for this purpose to ensure that the 

transactions are put through smoothly. The ADs may also designate a nodal office to coordinate the work 

at these branches and also ensure the reporting of these transactions to the Reserve Bank. 

6.2 When the transfer is on private arrangement basis, on settlement of the transactions, the 

transferee/his duly appointed agent should approach the investee company to record the transfer in their 

books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been 

received by the transferor/payment has been made by the transferee. On receipt of the certificate from the 

AD, the company may record the transfer in its books.

6.3 The actual inflows and outflows on account of such transfer of shares shall be reported by the AD 

branch in the R-returns in the normal course.

6.4 In addition the AD branch should submit two copies of the Form FC-TRS received from their 

constituents/customers together with the statement of inflows/outflows on account of remittances 

received/made in connection with transfer of shares, by way of sale, to IBD/FED/or the nodal office 

designated for the purpose by the bank in the enclosed proforma (which is to be prepared in MS-Excel 

format).  The IBD/FED or the nodal office of the bank will in turn submit a consolidated monthly 

statement in respect of all the transactions reported by their branches together with copies of the FC-TRS 

Forms received from their branches to Foreign Exchange Department, Reserve Bank, Foreign Investment 

Division, Central Office, Mumbai in  soft copy (in MS- Excel)  by e-mail to fdidata@rbi.org.in

6.5 Shares purchased / sold by FIIs under private arrangement will be by debit /credit to their Special 

Non Resident Rupee Account. Therefore, the transaction should also be reported in Form LEC (FII) by 

the designated bank of the FII concerned.  

6.6 Shares/convertible debentures of Indian companies purchased under Portfolio Investment 

Scheme by NRIs, OCBs cannot be transferred, by way of sale under private arrangement.

6.7 On receipt of statements from the AD, the Reserve Bank may call for such additional details or 

give such directions as required from the transferor/transferee or their agents, if need be. 

4

To the Chief General Manager-in-Charge,  Reserve Bank of India, Foreign Exchange Department, Foreign 

Investment Division, Central Office, Mumbai96

Annex- 3

Documents to be submitted by a person resident in India for transfer of shares to a person resident 

outside India by way of gift

i. Name and address of the transferor (donor) and the transferee (donee).

ii. Relationship between the transferor and the transferee. 

iii. Reasons for making the gift.

iv. In case of Government dated securities and treasury bills and bonds, a certificate issued 

by a Chartered Accountant on the market value of such security.

v. In case of units of domestic mutual funds and units of Money Market Mutual Funds, a 

certificate from the issuer on the Net Asset Value of such security.

vi. In case of shares and convertible debentures, a certificate from a Chartered Accountant 

on the value of such securities according to the guidelines issued by  Securities & 

Exchange Board of India or  DCF method for listed companies and unlisted companies, 

respectively.

vii. Certificate from the concerned Indian company certifying that the proposed transfer of 

shares/ convertible debentures by way of gift from resident to the non-resident shall not 

breach the applicable sectoral cap/ FDI limit in the company and that the proposed 

number of shares/convertible debentures to be held by the non-resident transferee shall 

not exceed 5 per cent of the paid up capital of the company.

viii. An undertaking from the resident transferor that the value of security to be transferred 

together with any security already transferred by the transferor, as gift, to any person 

residing outside India does not exceed the rupee equivalent of USD  50,000 during a 

financial year*.

* RBI‘s A.P. (DIR Series) Circular No. 14 Dated  15.09.201197

Annex - 4

Definition of "relative" as given in Section 6 of Companies Act, 1956.

A person shall be deemed to be a relative of another, if, and only if:

(a) they are members of a Hindu undivided family ; or 

(b) they are husband and wife ; or 

(c) the one is related to the other in the manner indicated in Schedule IA (as under)

1. Father.

2. Mother (including step-mother).

3. Son (including stepson).

4. Son's wife.

5. Daughter (including step-daughter).

6. Father's father.

7. Father's mother.

8. Mother's mother.

9. Mother's father.

10. Son's son.

11. Son's son's wife.

12. Son's daughter.

13. Son's daughter's husband.

14. Daughter's husband.

15. Daughter's son.

16. Daughter's son's wife.

17. Daughter's daughter.

18. Daughter's daughter's husband.

19. Brother (including step-brother).

20. Brother's wife.

21. Sister (including step-sister).

22. Sister's husband.

*****************************98

Annex - 5

Report by the Indian company receiving amount of consideration for issue of shares / Convertible 

debentures under the FDI Scheme

( To be filed by the company through its Authorised Dealer Category-I  bank, with the Regional 

Office of the Reserve Bank under whose jurisdiction the Registered Office of the company making 

the declaration is situated, not later than 30 days from the date of receipt of the amount of 

consideration, as specified in para 9 (I) (A) of Schedule I to Notification No. FEMA 20/2000- RB 

dated May 3, 2000 )

Permanent Account 

Number (PAN) of the 

investee company given by 

the IT Department 

No. Particulars (In Block Letters)

1. Name of the Indian company

Address of the Registered Office

Fax

Telephone

e-mail

2 Details of the foreign investor/ collaborator

Name

Address

Country

3. Date of receipt of funds

4. Amount  In foreign currency In Indian Rupees

5. Whether investment is under Automatic 

Route or Approval Route

If Approval Route, give details (ref. no. 

of approval and date)

Automatic Route / Approval Route99

6. Name of the AD through whom the 

remittance is received 

7. Address of the AD

A Copy of the FIRC evidencing the receipt of consideration for issue of shares/ convertible debentures as 

above is enclosed.

(Authorised signatory of

the investee company)

(Stamp)

(Authorised signatory of

the AD)

(Stamp)

FOR USE OF THE RESERVE BANK ONLY:

Unique Identification Number for the remittance received: 100

                                                                                                     Annex – 6

Know Your Customer (KYC) Form in respect of the non-resident investor

Registered Name of the Remitter / Investor

(Name, if the investor is an  Individual)

Registration Number (Unique Identification 

Number* in case remitter is an Individual)

Registered Address (Permanent Address if

remitter Individual)

Name of the Remitter‘s Bank

Remitter‘s Bank Account No.

Period of banking relationship with the remitter

* Passport No., Social Security No, or any Unique No. certifying the bonafides of the remitter

   as prevalent in the remitter‘s country

We confirm that all the information furnished above is true and accurate as provided by the 

overseas remitting bank of the non-resident investor. 

(Signature of the Authorised Official 

of the AD bank receiving the remittance)

Date :                                                                                    Place: 

Stamp :101

Annex – 7

Annual Return on Foreign Liabilities and Assets

(Return to be filled under A.P. (DIR Series) Circular No.45 dated March 15, 2011

to the Department of Statistics and Information Management, RBI, Mumbai)

Please read the guidelines/definitions carefully before filling-in the Return

Section I: Identification Particulars

For RBI’s use

1.     Name and Address of the Indian Company                               

City:    Pin: 

State:_______________________________________________

2. Income-Tax allotted PAN Number of Company:  

3. Registration No given by the Registrar of Companies:

4. Name of the CONTACT PERSON : ______________________DESIGNATION:____________________

Tel.No. (with STD code): _____________________Fax:______________

e-mail:______________________

5. Account closing date: (dd/mm/yy)                          Web-site (if any):_________________________

6.  In case of change in Company Name and\or activity, specify the old and new Company Name and activity: 

Old Company Name :_________________________New Company Name _________________________

Effective Date  ______________________________ 

Old Activity:_______________________________ New Activity               _________________________

7. Nature of Business: Please tick (   ) the appropriate group of  activity to which your principal line of 

business  pertains and also mention, if possible,  the NIC code in the bracket.

Industry Revenue 

(%)

Industry Revenue 

(%)

Industry Revenue 

(%)

Industry Revenue 

(%)

1. Power

(                  )

2. Electrical & 

Electronics

3. Non - financial 

services

4. Financial Services

     (                  )

COMPANY CODE102

     (                  )  (                  )

5.Telecom

(           )

6.  Hotels & 

Tourism

     (                  )

7. Metallurgical 

Industry & 

Mining

     (                  )

8. Food Processing 

Industry

     (                  )  

9. Transportation 

(           )

10. Petroleum & 

Natural Gas

     (                  )

11. Chemicals 

(other than 

fertilizers)

     (                  )

12. Construction

     (                  )

13. Software and 

ITES/BPO

(           )

      14. Pharmaceutical

     (           )

15.  Other 

    (            )

For RBI’s use (Industry Code)

8. Whether your company is listed in India [please tick (  )]?         

9. Whether your company has any Foreign Collaboration?

    If yes, please indicate whether it is (please tick the appropriate one)

(a) Technical collaboration        (b) Financial collaboration 

(foreign equity 

participation)

(c) Both

Block 1A : Total Paid up Capital of Indian Company 

Item

End-March of previous FY End-March current FY

Number of Shares

Amount in `

lakh 

Number of Shares

Amount in ` 

lakh

1.0 Total Paid-up Capital

[(i)+(ii)]

   (i) Ordinary/Equity Share                                          

  (ii) Preference Share [(a)+(b)]

          (a) Participating

          (b) Non-participating

2.0 Non-resident Equity  

Holdings 

1 Individuals

2 Companies

3 FIIs

4 FVCIs

5 Foreign Trusts

6 Private Equity Funds

7 Pension/ Provident Funds

Yes No

Yes No103

8 Sovereign Wealth Fund (SWF)

§

9 Partnership/ Proprietorship firms

10 Financial Institutions

11 NRIs/PIO

12 Others (please specify)

Note: FY: Financial Year

Block 1B : Free Reserves & Surplus and Retained Profit 

Item Amount in ` lakh as at the end – March of

Previous FY Current FY

3.1 Free Reserves & Surplus as at the end 

of

Amount in ` lakh

During Previous FY During Current FY

3.2 Profit (+) / Loss (-) after  tax 

3.3 Dividend Declared  (excluding tax on 

dividend)

3.4 Retained Profit / loss ( 3.4 = 3.2 -3.3)

Section II

FOREIGN LIABILITIES

2. Investments made under Foreign Direct Investment (FDI) scheme in India: 

In case of listed companies, equity should be valued using share price on closing date of reference period, 

while in case of unlisted companies, Own Fund of Book Value (OFBV) Method should be used 

(see the attached guidelines for details)

Block 2A:  Foreign Direct Investment in India (10% or more Equity Participation)

[Please furnish here the outstanding investments made under the FDI Scheme in India by Non-resident Direct investors, who 

were individually holding 10 per cent or more ordinary/equity shares of your company on the reporting date] 

If this block is Non-NIL, then please give the Name & Addresses of your subsidiary in India, if any, in BLOCK 9.

Name of the 

non-resident 

Company/ 

Individual     

Type of Capital

Country of 

non-resident 

investor

Equity 

holding 

(%)

Amount in ` lakh as at the end of

March 

Previous FY

December 

Current FY

March 

Current FY

1.0 Equity Capital (1.0 = 1.2-1.1)

   1.1 Claims on Direct Investor 

   1.2 Liabilities to  Direct Investor 

2.0 Other Capital(2.0 = 2.2-2.1)       104

2.1 Claims on Direct  Investor

2.2 Liabilities to Direct Investor 

3.0  Disinvestments in India during the year

Note: (i) if investor is a company, then country is the country of incorporation;

            (ii) Please use different sheet using same format to report different non-resident company/individual.

Block 2B:  Foreign Direct Investment in India (Less than 10% Equity Holding)

[Please furnish here the outstanding investments made under the FDI Scheme in India by Non-resident Direct investors, who 

were individually holding less than 10 per cent ordinary/ equity shares of your company on the reporting date]

Name of the 

non-resident 

Company/ 

Individual     

Type of Capital

Country of 

non-resident 

investor

Equity 

holding 

(%)

Amount in ` lakh as at the end of

March 

Previous FY

December 

Current FY

March 

Current FY

1.0 Equity Capital (1.0 = 1.2-1.1)

   1.1 Claims on Direct Investor 

   1.2 Liabilities to  Direct Investor 

2.0 Other Capital(2.0 = 2.2-2.1)       

2.1 Claims on Direct  Investor

2.2 Liabilities to Direct Investor 

3.0 Disinvestments in India during the year

Note: (i) if investor is a company, then country is the country of incorporation;

            (ii) Please use different sheet using same format to report different non-resident company/individual.

3. Portfolio and Other Liabilities to Non-residents (i.e. position with unrelated parties)

  Block 3A:  Portfolio Investment 

Please furnish here the outstanding investments by non-resident investors made under the Portfolio 

Investment Scheme in India. In case of listed companies, equity should be valued using share price on 

closing date of reference period, while in case of unlisted companies, Own Fund of Book Value (OFBV) Method 

should be used. (see the attached guidelines for details)

Portfolio Investment

Country of nonresident investor

Amount in ` lakh as at the end of

March Previous FY March Current FY

1.0 Equity Securities

2.0 Debt Securities(2.0 = 2.1+2.2)