RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001
A.D.(M.A.Seriees) Circular No.29 20th August,1998 To,
All Authorised Dealers in Foreign Exchange
Dear Sir,
In terms of paragraph 10B.2 of the Exchange Control Manual (ECM) , Reserve Bank has granted general permission to Indian Companies for issue and export of shares to foreign investors who are eligible for investment under the Automatic Route up to 50% /51%/74% in respect of industries/services referred to in priority industries i.e. Annexure III to Ministry of Industry's Press Note no.14 (1997 Series) dated 8th October 1997 or in a trading company primarily engaged in export activity. However applications from NRIs/OCBs for investment up to 100% in priority industries or in export trading activities are required to be referred to Reserve bank vide para 10C.12 of ECM. In order to simply this procedure for investment by NRIs/OCBs under the 100% scheme , Reserve Bank has since granted general permission under Section 19(1) and 29(1)(b) of FERA 1973 to Indian Companies for issue and export of equity shares to NRI/OCB investors under the 100% scheme. A copy of Notification No. FERA 184/98-RB dated 14th July 1998 since issued by Reserve Bank amending its existing notification no. FERA 180/98-RB dated 13th January 1998 on the subject is enclosed. Consequently Indian Companies seeking NRI/OCB investment under the 100% Scheme may henceforth issue equity shares to NRI/OCBs provided the payment for the shares has been received through normal banking channels and or from NRE/FCNR accounts of the investor and other conditions stipulated in the said Notifications are satisfied. The company concerned should also file a declaration in form ISD(R) together with the required documents with the concerned Regional Office of Reserve Bank within 30 days from the date of issue of shares to NRI/OCBs under the scheme
2. It may be noted that in terms of the Explanation to paragraph 1 and paragrah 2 of the Notification dated 13th January 1998 ( as amended) referred to above, the general permission does not cover investment by
a) persons who are citizens of Pakistan,Bangladesh or Sri Lanka
b) companies incorporated in Pakistan or Bangladesh
c) a company being-
i) manufacturer of items reserved for small scale sector
ii) unit manufacturing items which require industrial licence
iii) unit manufacturing any items of aerospace and defence equipments whether specifically mentioned or not
iv) unit manufacturing any item related to production or use of atomic energy including carrying out of any process , preparatory or ancillary tosuch production or use, under the Atomic Energy Act 1962 and v) 100% Export Oriented Unit and unit in Export Processing Zone
3. Incidentally, the general permission referred to above does not also cover investment in partnership firms which are eligible to seek foreign investment from individual NRIs under the 100% scheme. Indian firms proposing to invite the non-resident investment from individual NRIs should therefore make an application to the Chief General Manager, Reserve Bank of India, Exchange Control Department(Foreign Investment Division), Central Office, Mumbai 400 001 in form ISD(R) , as hitherto.
4. It is clarified that cases not covered by the conditions stipulated in the RBI Notification dated 13th January 1998 as amended by Notification dated 14th July,1998 referred to above will need the approval of the Secretariat for Industrial Assistance (SIA)/Foreign Investment Promotion Board(FIPB), Government of India, New Delhi or the Development Commissioner of the Export Processing Zone concerned.After obtaining approval of SIA/FIPB for foreign /NRI/OCB investment, it will be in order for Indian companies to issue securities to foreign investors/NRIs/OCBs subject to complying with the conditions stipulated in Reserve Bank's Notification No. F.E.R.A. 182/98-RB dated 10th February 1998 [c.f.paragraph 10B.2(iii)]
5. Cases where Indian companies have already approached Reserve Bank for necessary approvals as required under the existing procedure will be dealt with by Reserve Bank.
6. It may be noted that non-observance of any of the condition stipulated under the scheme including non-filing of declaration in form ISD/ISD( R ) within the stipulated period will amount to violation of the provisions of FERA 1973.
7. Authorised dealers may bring the contents of this circular to the notice of their concerned constituents.
8. The following consequential amendments may be carried out in the Exchange Control Manual
Volume I(i) paragraph 10C.12 may be substituted as per slip 1
Volume II - Appendix III
(ii) Existing Notification No. FERA 180/98-RB dated 13th January 1998 issued under Section 19/29 of FERA 1973 may be substituted by the amended Notification as per Slip 2
9. 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.
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