RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001
A.D.(M.A.Series) Circular No.20 June 3, 1999
To,
All Authorised Dealers in Foreign Exchange
Dear Sirs,
Approval for foreign direct investment upto 100% under the Automatic Route of Reserve Bank
Attention of authorised dealers is drawn to paragraph 10B.2(i)(d) of the Exchange Control Manual (ECM), regarding foreign investment upto 100% in certain industries/sectors under ‘Automatic Route of Reserve Bank’.
2. Government of India, Ministry of Industry (MOI) vide their Press Note No.1 dated 4th January 1999 (copy enclosed) have expanded Part ‘D’ of the existing Annexure III to include construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours as eligible for 100% foreign investment. Accordingly, Reserve Bank vide its Notification No.F.E.R.A./191/99-RB dated 30th January 1999 (copy enclosed) has extended the general permission granted for issue and export of shares in cases eligible under the Automatic Route of Reserve Bank to cover these activities also.
3. Government of India, Ministry of Industry vide their Press Note No.18 dated 14th December.1998 (copy enclosed) have since revised the guidelines for eligibility of foreign investment/technology transfer under the Automatic Route of Reserve Bank. In terms of the said Press Note any proposal under the Automatic Route of Reserve Bank, either for foreign investment or for technology transfer will be eligible to be entertained only if the foreign partner does not have any previous Joint Venture or technical collaboration or trade mark agreement in India in the same or allied field. Accordingly, it will be the responsibility of the applicant Indian companies to ensure that the above referred condition, if applicable, is complied with and the proposal seeking foreign direct investment or technology transfer is eligible under the Automatic Route of Reserve Bank.
4. In view of the general permission granted vide various notifications issued by Reserve Bank in regard to investment under the Automatic Route of Reserve Bank, Form FC(RBI) is not required to be submitted to Reserve Bank for prior approval. However, Indian companies inviting foreign investment have to file a declaration in Form FC(RBI) with the Regional Office concerned of Reserve Bank. Accordingly, necessary changes to this effect have been incorporated in the form FC(RBI).
5. The following consequential amendments may be carried out in the Exchange Control Manual.
Volume I
Existing sub-paragraph 10B.2(i)(d) may be replaced by Slip 1.
Volume II
In Appendix III under Section 19 Notification No.F.E.R.A.180/98-RB dated 13th January 1998 may be replaced by the Notification as amended upto 30th January 1999 as per Slip 2.
First page of form FC(RBI) may be replaced by Slip 3.
In item ‘XIV. Declaration’, of Form FC(RBI) existing certificate No.1 may be substituted by Slip 4.
In item ‘XI. Declaration’, of Form FT(RBI) existing certificate No.1 may be substituted by Slip 5.
6. Authorised dealers may bring the contents of this circular to the notice of their constituents concerned.
7. The directions contained in this circular have been issued under Section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non-observance thereof is subject to the penalties prescribed under the Act.
Yours faithfully,
B. MAHESHWARAN
Chief General Manager
RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI
Notification No.F.E.R.A.191/99-RB dated 30th January 1999
In pursuance of clause (a) and clause (d) of sub-section (1) of Section 19 read with clause (b) of sub-section (1) of Section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank directs that its Notification No.F.E.R.A.180/98 RB dated 13th January 1998 as amended from time to time (hereinafter referred to as "the said Notification"), shall be amended in the following manner, namely:
In the said Notification, in paragraph 3, in clause (i), for the first proviso, the following proviso shall be substituted, namely:-
"Provided that :
In respect of the activity of generation and transmission of electric energy (being electric energy produced in hydro-electric power plants, coal/lignite based thermal power plants, oil based thermal power plants and gas based thermal power plants) and
In respect of the activity of construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours
the capital by way of foreign investment shall not exceed Rs.1500 crores."
Sd/-
Khizer Ahmed
Executive Director
Government of India
Ministry of Industry
Department of Industrial Policy & Promotion
(Investment Promotion Section)
Udyog Bhavan, New Delhi
Dated the 04th January, 1999
PRESS NOTE NO.1(1999 SERIES)
Under the present policy, Indian companies undertaking construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours are eligible for automatic approval upto 74% foreign equity.
2. The Government have reviewed the existing guidelines for automatic approval for foreign equity for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours and has decided to enlarge the provisions for automatic approval for such projects. Accordingly, projects for "construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours" will be permitted foreign equity participation upto 100% on the automatic approval route, provided the total foreign equity in any such project does not exceed Rs.1500 crore.
3. The provisions referred to in Para 2 above would be listed as a fresh entry D-2 under the heading Part "D" of Annexure III as appended to this Press Note. The existing entry No.C-6 in Part "C" of Annexure III shall stand modified to this extent and read as under:
"Construction and maintenance of rail beds, non-vehicular bridges, non-vehicular tunnels, ropeways and runways."
4. The list appended to this Press Note is based on the National Industrial classification of all economic activities (NIC), 1987. The entrepreneurs/investors are advised to give the description of the activities under this classification system when submitting the application to the RBI.
5. All other terms and conditions as notified under Press Note No.2 (1997 series) dated the 17th January, 1997 and Press Note No.14 (1997 series) dated 8th October, 1997 remain unchanged.
Sd/-
(Ashok Kumar)
Joint Secretary to the Government of India
Forwarded to the Press Information Bureau to give wide publicity to the contents of the above Press Note.
Press Information Officer,
Press Information Bureau,
New Delhi.
ANNEXURE-III
(Contd.......)
PART ‘D’
LIST OF INDUSTRIES/ITEMS FOR AUTOMATIC APPROVAL FOR FOREIGN EQUITY UPTO 100%
| Sl. | NIC Code | Description |
| No. | Div. | Group | Class | |
| D-1 | 40 | | | ELECTRICITY GENERATION, TRANSMISSION AND DISTRIBUTION |
| | | 400 | | Generation and transmission of electric energy (only for hydro-electric power plants, coal/lignite based thermal power plants, oil based thermal power plants and gas based thermal power plants, and not for atomic-reactor power plants) |
| | | | 400.1 | Generation and transmission of electric energy produced in hydro-electric power plants |
| | | | 400.2 | Generation and transmission of electric energy produced in coal/lignite based thermal power plants. |
| | | | 400.3 | Generation and transmission of electric energy produced in oil based thermal power plants. |
| | | | 400.4 | Generation and transmission of electric energy produced in gas-based thermal power plants. |
| | | 401 | | Distribution of electric energy to households, industrial, commercial and other users |
| D-2 | 50 | | | CONSTRUCTION |
| | | 501 | | Construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports & harbours. |
Sd/-
(ASHOK KUMAR)
JOINT SECRETARY
Government of India
Ministry of Industry
Department of Industrial Policy & Promotion
Press Note No.18(1998 Series) SUBJECT: Guidelines pertaining to approval of foreign/technicalcollaborations under the automatic route with previous ventures/tie-up in India 1. The Government have reviewed the present Guidelines relating to approval of foreign/technical collaborations under the automatic route and after careful consideration it has been decided that foreign financial/technical collaborators with previous ventures/tie-up in India would be subjected to the following guidelines.
Automatic route for FDI and/or technology collaboration would not be available to those who have or had any previous joint venture or technology transfer/trade-mark agreement in the same or allied field in India. RBI, therefore, have to stipulate necessary declaration before applications for the automatic route are taken on record.
Investors of Technology to the suppliers of the above category therefore will have to necessarily seek the FIPB/PAB approval route for joint ventures or the technology transfer agreements (including trade-mark) giving detailed circumstances in which they find it necessary to set-up a new joint venture/enter into new technology transfer (including trade-mark).
The onus is clearly on such investors/technology suppliers to provide the requisite justification as also proof to the satisfaction of FIPB/PAB that the new proposal would not in any way jeopardize the interests of the existing joint venture or technology/trade-mark partner or other stakeholders. It will be at the sole discretion of FIPB/PAB to either approve the application with or without conditions or reject in toto duly recording the reasons for doing so.
2. The above procedure will form part of the approval procedures contained in the "Manual on Industrial Policy & Procedures in India" published by SIA, Ministry of Industries, Government of India, which shall stand clarified accordingly in respect of foreign/technical collaborators with previous joint ventures/tie-up in India.
Sd/-
(I. SRINIVAS)
DIRECTOR
Forwarded to the Press Information Bureau for giving wide publicity to the contents of the above Press Note.
Press Information Officer,
Press Information Bureau,
New Delhi.
Slip 1[AD/MA 20/1999]
10B.2 (i) (d) Foreign Investment upto 100% in industries/items included in Part ‘D’ of Annexure III, to Ministry of Industry’s Press Note No.14(1997 Series) as amended from time to time provided the foreign investment in a project does not exceed Rs.1500 crores.
Slip 4[AD/MA 20/1999]
FC(RBI)1. The application is eligible under the Automatic Route of RBI in accordance with guidelines issued by Government as amended from time to time. The foreign collaborator does not have any previous Joint Ventre or technical collaboration or trade-mark agreement in India in the same or allied field.
Slip 5[AD/MA 20/1999]
FT(RBI)1. The application is eligible under the Automatic Route of RBI in accordance with guidelines issued by Government as amended from time to time. The foreign collaborator does not have any previous Joint Venture or technical collaboration or trade-mark agreement in India in the same or allied field.
Slip 2[AD/MA 20/1999]
Notification No.F.E.R.A 180/98-RB dated 13th January 1998 as amended upto 30th January 1999[vide Notification No.F.E.R.A. 191/99-RB dated 30th January 1999]Permission for issue of shares to foreign investors under Automatic Route of Reserve BankIn pursuance of clause (a) and clause (d) of sub-section (1) of Section 19 read with clause (b) of sub-section (1) of Section 29 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), the Reserve Bank is pleased to permit a company incorporated in India
which is engaged or proposing to engage in an activity specified in the list for the time being in force published by the Ministry of Industry, Government of India, as Annexure III to the Statement on Industrial Policy, 1991 (hereinafter referred to as "the said Annexure III"); or
which is a Trading Company primarily engaged in export, and is registered as an Export/Trading/Star Trading House, with the Ministry of Commerce, Government of India;
to issue shares subject to the conditions mentioned in para 3, to a person who is not a citizen of India (whether resident in India or not) or to a company (other than a banking company) which is not incorporated under any law in force in India, or to non-residents of Indian nationality or origin (NRIs) or to an Overseas Corporate Body, and to send such shares out of India, to their place of residence or incorporation as the case may be;
Provided that a company, existing on the date of this Notification, which is not engaged in the said Annexure III activities shall be eligible to issue shares, if it embarks upon expansion programme predominantly in the said Annexure III activities, subject to the condition that the foreign equity raised by issue of shares to foreign investor is utilised for such expansion.
Provided further that in the case of a newly set-up Trading Company primarily engaged in export, issue of shares shall be subject to the condition that registration as an Export/Trading/Star Trading House is obtained before remittance of dividend to the foreign investor.
Explanation: For the purpose of this Notification a person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of "Indian Origin", if he, at any time, held an Indian passport;
or
he or either of his parents or his grandparents was citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955)
"Overseas Corporate Body (OCB)" means any overseas company, partnership firm, society and other corporate body predominantly owned directly or indirectly to the extent of at least 60% by non-residents of Indian Nationality or origin (NRIs) and includes any overseas trust in which not less than 60% beneficial interest is held by NRIs, directly or indirectly but irrevocably.
2. The general permission granted herein shall not apply to or in respect of-a person who is a citizen of, or a company incorporated in, Pakistan or Bangladesh.
a company being manufacturer of items reserved for small scale sector
unit manufacturing items which require industrial licence;
unit manufacturing any items of aerospace and defence equipments whether specifically mentioned or not;
unit manufacturing any item related to production or use of atomic energy including carrying out of any process, preparatory or ancillary to such production or use, under the Atomic Energy Act, 1962; and
100% Export Oriented Unit and unit in Export Processing Zones.3. The general permission granted herein to issue shares (hereinafter referred to as "foreign investment") is subject to the following conditions, namely:
the foreign investment shall not in aggregate exceed 50%, 51%, 74% or 100% of the capital of the issuer company, as indicated in the said Annexure III ;
Provided that -
in respect of the activity of generation and transmission of electric energy (being electric energy produced in hydro-electric power plants, coal/lignite based thermal power plants, oil based thermal power plants and gas based thermal power plants) and
in respect of the activity of construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours,
the capital by way of foreign investment shall not exceed Rs.1500 crores.
Provided further that for the purpose of reckoning the extent of foreign investment under this clause, preference shares carrying a conversion option shall be included.
where the issuer company is a Trading Company, foreign investment therein shall not exceed 51% of its capital.
Provided that the ceilings stipulated in clauses (i) and (ii) shall not apply in respect of issue of shares to NRIs and OCBs, and it shall be permissible for the issuer company to issue shares to NRIs and OCBs up to 100% of its equity capital;
In the case of issue of shares by an existing company,
Board Resolution has been passed in connection with preferential allotment of shares, if any, to foreign investor, indicating the issue price;
Special Resolution has been passed under Section 81(1A) of the Companies Act, 1956, wherever applicable, in connection with such preferential allotment, indicating the issue price;
In the case of a listed company, the price for the issue is worked out according to SEBI guidelines and is duly certified by the Company's Statutory Auditors; and in the case of any other company, calculation of fair value of shares (as per erstwhile CCI guidelines) is made by an independent Chartered Accountant;
(iii a) In the case of issue of convertible equity shares, the valuation procedure shall conform to the guidelines issued by the Bank or SEBI, as the case may be.
Approval, wherever necessary, from any authority, statutory or otherwise, required for the project or for issue of shares is obtained by the company;
payment for the shares to be issued to the foreign investor has been received by remittance from abroad through normal banking channels and/or from the NRE/FCNR accounts in the case of issue of shares to NRIs/OCBs;
(vi.a) the rate of dividend payable in respect of preference shares shall not exceed SBI Prime Lending Rate (prevailing on the date of the Board meeting in which issue of shares is recommended) plus 300 basis points.
remittance of dividend in respect of industries specified in the Annexure hereto, shall be subject to the condition of balancing of dividend over a period of seven years to be reckoned in the case of an existing company, from the date of issue of shares, and in any other cases, from the date of commencement of production;
no disinvestment of shares by the foreign investor shall be made without the previous permission of the Reserve Bank;
(vii a) the issuer company files with the Regional Office of Reserve Bank, not later than 30 days from the date of receipt of remittance, a report containing the following:
Name of the foreign investor;
Country of residence or incorporation of the foreign investor;
Date of receipt of remittance and its rupee equivalent;
Name and address of the authorised dealer in India through whom the remittance is received.
the issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of issue, the following
one copy of Form FC (RBI) and/or one copy of form ISD(R), as applicable, duly completed containing NIC code and description of activity in accordance with the said Annexure III;
original Foreign Inward Remittance Certificate (FIRC) evidencing receipt of funds, from abroad or as the case may be, from the NRE/FCNR accounts of the NRI/OCB;
Memorandum and Articles of Association of the issuer company;original certificate by a Chartered Accountant, containing particulars of shares issued, date of issue, number of shares, and the issue price;
certified copy each of Board Resolution, Special Resolution, Statutory Auditor's Certificate, or the Chartered Accountant's calculation, referred to in Para 3(iii) above;
such other particulars and documents as may be required or specified by the Reserve Bank from time to time.
the issuer company shall not be engaged in agricultural/plantation activity, real estate business (excluding real estate development) or as a Nidhi company.
Annexure (See paragraph 3(vi) of the Notification)
LIST OF 22 SPECIFIED INDUSTRIES IN THE CONSUMER GOODS SECTOR IN WHICH DIVIDEND BALANCING IS APPLICABLEManufacture of food and food products
Manufacture of dairy products
Grain mill products
Manufacture of bakery products
Manufacture and refining of sugar (vacuum pan sugar factories)
Production of common salt
Manufacture of Hydrogenated oil (Vanaspati)
Tea processing
Coffee
Manufacture of beverages, tobacco and tobacco products
Distilling, rectifying and blending of spirits, wine industries, malt liquors and malt, production of country liquors and toddy
Soft drinks and carbonated water industry
Manufacture of cigar, cigarettes, cheroot and cigarette tobacco
Manufacture of wood and wood products, furniture and fixtures
Manufacture of leather and fur/leather products
Tanning, curing, finishing, embossing and japanning of leather
Manufacture of footwear(excluding repair)except vulcanised for moulded rubber or plastic footwear
Manufacture of footwear made primarily of vulcanised or moulded products
Prophylactics (rubber contraceptive)
Motor cars
Entertainment electronics(VCRs, Colour TVs, CD Players, Tape Recorders)
White goods(Domestic Refrigerators, Domestic Dishwashing Machines, Programmable Domestic Washing Machines, Microwave Ovens, Airconditioners).
Note: Remittance of dividend should be covered by earnings of the company from export of items covered by the foreign collaboration agreement. Remittance of dividend can also be covered from earnings through export of items not mentioned in the agreement provided these are in the list of industries mentioned in the said Annexure III. The amount of dividend payment may be covered by export earnings of such items recorded in years prior to the payment of dividend or in the year of payment of dividend.
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