Foreign Exchange Management (Guarantees) Regulations, 2000

Notification No.FEMA 8/2000-RB dated 3rd May 2000 - In exercise of the powers conferred by clause (j) of sub-section (3) of Section 6, sub-section (2) of Section 47 of the Foreign Exchange Management Act, 1999 ( 42 of 1999), the Reserve Bank makes the following regulations, namely:

1. Short title & commencement :-

(i) These Regulations may be called the Foreign Exchange Management (Guarantees) (Second Amendment) Regulations, 2009.

(ii) They shall be deemed to have come into effect from the 10th day of November, 2008 @.

(Above sub-regulations (i) & (ii) has been amended vide NTF. NO. FEMA 189/2009-RB, DT. 27/02/2009)

[OLD-
(a) These Regulations may be called the Foreign Exchange Management (Guarantees) (Amendment) Regulations, 2009.

(b) They shall be deemed to have come into force from the dates specified in these regulations. ]

(Above sub-regulations (a) & (b) has been amended vide NTF. NO. FEMA 187/2009-RB, DT. 03/02/2009)

[OLD-
(i) These regulations may be called the Foreign Exchange Management (Guarantees) (Amendment) Regulations, 2007.

(ii) They shall come into force from November 17, 2006.@]

(Above sub-regulations (i) & (ii) has been amended vide NTF. NO. FEMA 151/2007-RB, DT. 04/01/2007)

(i) These Regulations may be called the Foreign Exchange Management (Guarantees) (Amendment) Regulations, 2005.

(ii) They shall be deemed to have come into force from November 1, 2004@

(Above sub-regulations (i) & (ii) has been amended vide Ntf. No. FEMA 129/2005-RB, Dt.20/01/2005)

[OLD
(i) These Regulations may be called the Foreign Exchange Management (Guarantees) (Amendment) Regulations, 2004.

(ii) They shall come into force from October 16, 2004.@

(Above (i) & (ii) has been amended vide Ntf.No. FEMA 124/2004-05-RB, Dt. 16/10/2004)

[OLD
1. (i) These Regulations may be called the Foreign Exchange Management (Guarantees) (Amendment) Regulations, 2002.

(ii) They shall come into force from the date of their publication in the Official Gazette.

(Above (i) & (ii) has been amended vide Ntf.No. FEMA 56/2002-03-RB, Dt. 18/03/2002)

i) These regulations may be called the Foreign Exchange Management (Guarantees) Regulations, 2000.

ii) They shall come into force on 1st day of June, 2000.]

2. Definitions :-

In these regulations, unless the context requires otherwise, -

(i) `Act means the Foreign Exchange Management Act,1999 (42 of 1999);

(ii) ‘authorised dealer’ means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Act;

(iii) the words and expressions used but not defined in these regulations shall have the same meanings respectively assigned to them in the Act.

3. Prohibition :-

Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability owed by a person resident in India to, or incurred by, a person resident outside India.

4. Guarantees which may be given by an authorised dealer :-

(1) An authorised dealer may give a guarantee in respect of any debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside India, in the following cases, namely:-

where the debt, obligation or other liability is incurred by the person resident in India, -

i) as an exporter, on account of exports from India;

ii) as an importer, in respect of import on deferred payment terms in accordance with the approval granted by the Reserve Bank for import on such terms.

(1A) An Authorised Dealer may give guarantee, Letter of Undertaking or Letter of Comfort in respect of any debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside India (being an overseas supplier of goods, bank or a financial institution), for import of goods, as permitted under the Foreign Trade Policy announced by the Government of India from time to time and subject to such terms and conditions as may be specified by Reserve Bank from time to time.

(Above sub-regulation (1A) has been inserted vide Ntf. No. FEMA 129/2005-RB, Dt.20/01/2005)

(1B) - An authorised dealer in India may give guarantee or standby Letter of Credit in respect of an obligation incurred by a person resident in India and owed to a person resident outside India in connection with payment of margin money in respect of approved commodity hedging transaction of such person residing in India subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time.

(Above sub-regulations (1B) has been inserted vide NTF. NO. FEMA 189/2009-RB, DT. 27/02/2009)

(2) An authorised dealer may give a guarantee in respect of any debt, obligation or other liability incurred by a person resident outside India, in the following cases, namely:- i) where such debt, obligation or liability is owed to a person resident in India in connection with a bonafide trade transaction :

Provided that the guarantee given under this clause is covered by a counter-guarantee of a bank of international repute resident abroad;

ii) as a counter-guarantee to cover guarantee issued by his branch or correspondent outside India, on behalf of Indian exporter in cases where guarantees of only resident banks are acceptable to overseas buyers. (3) An authorised dealer may, in the ordinary course of his business, give a guarantee in the following other cases, namely: i) on behalf of his customer or branch or correspondent outside India in respect of missing or defective documents, or authenticity of signatures;

(ii) in favour of organizations outside India issuing travellers cheques stocked for sale in India by the authorised dealer or by his constituents who are authorised persons.

iii) in favour of foreign airlines/International Air Transport Association (IATA), on behalf of IATA approved travel agents.(Above item (iii) has been inserted vide Ntf.No. FEMA 124/2004-05-RB, Dt. 16/10/2004)

(iv) in favour of an non-resident service provider, on behalf of a resident customer who is a service importer, for an amount upto USD 100,000 or its equivalent.

(Clause (iv) has been inserted vide NTF. NO. FEMA 151/2007-RB, DT. 04/01/2007)

5. Guarantees which may be given by persons other than an authorised dealer :-

A person other than an authorised dealer may give a guarantee in the following cases, namely:

(a)(i) a person resident in India being an exporting company may give a guarantee for performance of a project outside India, or for availing of credit facilities, whether fund-based or non-fund based, from a bank or a financial institution outside India in connection with the execution of such project :

Provided that the previous approval for undertaking the project has been duly obtained from the approving authority in India;

(ii) a person resident in India being an exporter company may give guarantee in lieu of Bid Bond Guarantee, for bidding for a contract outside India without the approval of the Approving Authority provided that the amount of such guarantee shall not exceed 5% of the contract value.

(Above Sub-Regulation(a) has been numbered (a)(i) & (ii) inserted vide Ntf.No. FEMA 56/2002-03-RB, Dt. 18/03/2002)

Explanation :

For the purpose of this regulation, the “approving authority” means the authority referred to in Regulation 18 of Foreign Exchange Management (Export of goods and services) Regulations, 2000.

b) a company in India promoting or setting up outside India, a joint venture company or a wholly-owned subsidiary, may give a guarantee to or on behalf of the latter in connection with its business :

Provided that the terms and conditions stipulated in Foreign Exchange Management (Transfer and Issue of Foreign Security) Regulations, 2000 for promoting or setting up such company or subsidiary are continued to be complied with;

Provided further that the guarantee under this clause may also be given by an authorised dealer in India;

c) an agent in India of a shipping or airline company incorporated outside India may give a guarantee on behalf of such company in connection with its obligation or liability owed to any statutory or Government authority in India.

(d) a bank which is an authorised dealer may, subject to the directions issued by the Reserve Bank in this behalf, permit a person resident in India or on behalf such person to issue guarantee in favour of an overseas lender or security trustee to secure an external commercial borrowing availed under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange ) Regulations, 2000 (Notification No FEMA 3/2000-RB, dated 3-5-2000).

(Above clause (d) has been inserted vide NTF. NO. FEMA 187/2009-RB, DT. 03/02/2009 w.e.f. 11/07/2008)

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