RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001

A.D.(M.A. Series) Circular No.46 December 2, 1998

To

All Authorised Dealers in Foreign Exchange

Dear Sirs,

Subscription to shares of overseas joint
ventures/wholly owned subsidiaries by employees
of Indian promoter company in the field of software


Attention of authorised dealers is drawn to paragraph 12.7 of Exchange Control Manual in terms of which Reserve Bank considers applications from employees of Indian offices/branches/joint ventures/subsidiaries in India of foreign companies for acquisition of foreign currency shares of the foreign companies. It has been decided that Reserve Bank may consider applications for remittance towards acquisition of the shares of the overseas joint ventures/wholly owned subsidiaries in the software field by the employees of the Indian promoter company provided (a) the remittance does not exceed U.S.$ 10,000 or its equivalent per employee in a block of five years and (b) the shares so allotted to Indian employees do not exceed 5% of the paid-up capital of the overseas concern and (c) as a result of allotment of shares of the overseas concern to the Indian employees the shareholding of the Indian promoter company does not fall below the existing percentage of shareholding.

2. The applications for this purpose should be made by the Indian promoter company to the concerned Regional Office of Reserve Bank together with relevant documents such as the names and addresses of Indian employees, name and address of the overseas concern whose shares are proposed to be issued, total number and face value of foreign currency shares to be allotted to each employee togetherwith the certified copies of the overseas concern's latest audited balance sheet and resolution passed by its Board of Directors in support of offer of shares to the employees of its parent Indian company.

3. The following amendments, which also include amendments arising from issue of AD(MA Series) Circular No.25 dated August 7, 1998 may be carried out in the Exchange Control Manual, Volume I.

1. New sub-paragraphs (v) may be added to paragraph 12.6 as per Slip 1.
   
   
2. New paragraph 12.7A may be inserted as per Slip 2 after paragraph 12.7 and its entry made in the Index of the said Chapter.
   
   
3. A note may be inserted after paragraph 9A.4(ii) as per Slip 3.
   
   
4. An Annexure to Chapter 12 may be added as per Slip 4 and its entry made in the Index of the said Chapter.

4. Authorised dealers may bring the contents of this circular to the notice of their concerned constituents.

5. 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 Manage

Slip 1

[AD/MA 46/1998]


12.6 (V) Indian Software Companies are allowed to offer ADR (GDR) linked stock option schemes to their non-resident /resident permanent employees (including Indian and overseas working directors). The scheme is outlined in the Annexure to the Chapter 12. Indian software companies desiring to offer ADR/GDR linked stock option schemes for their resident employees should approach the concerned Regional Office of Reserve Bank on behalf of their resident employees for necessary permission, with relevant documents such as certificates from a Chartered Accountant that the company is engaged in manufacturing and/or production of software and its turnover from software activities is not less than 80 per cent of the total turnover, together with certified copies of approval of Ministry of Finance, Department of Economic Affairs, Government of India for issue of ADR/GDR, special resolution passed by the Board of Directors and a list of eligible employees. On exercise of the option each resident employee will be permitted to remit upto U.S.$ 50,000 in a block of 5 years to acquire the ADRs/GDRs. As the non-resident employees would normally be required to pay the cost of acquisition of the ADR/GDR issues out of their own resources abroad, no remittance of funds from India should be involved. However, non-resident Indian employees would be required to approach Reserve Bank on their return to India for issue of a licence for holding the ADRs/GDRs acquired during their stay abroad, if their continuous stay abroad before return to India is less than one year.

Slip 2

[AD/MA 46/1998]

Acquisition of Foreign Currency Shares of Overseas
Joint Ventures /Wholly Owned Subsidiaries by employees
Of Indian promoter Company engaged in the field of software

12.7A Reserve Bank may consider applications from Indian companies for remittance towards acquisition of the shares of the overseas joint ventures/wholly owned subsidiaries in the software field by the employees of the Indian promoter company provided (a) the remittance does not exceed U.S.$ 10,000 or its equivalent per employee in a block of five years and (b) the shares so allotted to Indian employees do not exceed 5% of the paid -up capital of the overseas concern and (c) as a result of allotment of shares of the overseas concern to the Indian employees the shareholding of the Indian parent company does not fall below the existing percentage of shareholding.

The applications for this purpose should be made by the Indian promoter company to the concerned Regional Office of Reserve bank together with relevant documents such as the names and addresses of Indian employees, name and address of the overseas concern, total number and face value of foreign currency shares to be allotted to each employee, certified copies of the overseas concern's latest audited balance sheet and resolution passed by its Board of Directors in support of offer of shares to the employees of its parent Indian company.


Slip 3

[AD/MA 46/1998]

9A.4(ii)

Note: For subscription to shares of overseas joint ventures/wholly owned subsidiaries by employees of Indian promoter company in the field of software refer to paragraph 12.7A.

Slip 4

[AD/MA 46/1998]

Scheme for issue of ADR/GDR Linked Stock Option for

Employees of software companies in India


(i) A software company which has already floated ADR/GDR or a company which is proposing to float ADR/GDR would be entitled to issue ADR/GDR Linked Stock Option to its employees.

A software company which proposes to issue ADR/GDR linked stock option to its employees should clearly include such proposal as part of its application for ADRs/GDRs . While Government of India, Ministry of Finance, Department of Economic Affairs, approval will be for total issue size inclusive of stock option , the ADRs/GDRs earmarked for the employees up to the specified limit will be issued by the company as and when an employee exercises his stock option. Accordingly, the company shall not exceed the approval level of ADRs/GDRs to be issued by it at any point of time.

In the case of software companies which have already issued ADRs/GDRs, such companies may seek permission for issue of stock options for existing ADR/GDR issue, observing the general parameters of the guidelines.

(ii) The scheme woule be available to listed and unlisted software Indian companies which fulfil the performance track record eligibility and other requirements under ADR/GDR guidelines of Government of India.

(iii) A software company would be defined as a company engaged in manufacture or production of software whose turnover from software activities is not less than 80 percent.

(iv) A software company applying to Government of India for issue of ADR/GDR linked stock options shall be required to submit relevant documents certified by a Chartered Accountant, establishing that they are a software company conforming
to the stipulation indicated above. The relevant documents shall also be submitted to Reserve Bank while applying for permission for remittances of foreign exchange for acquistion of ADRs/GDRs in exercise of the stock option.

(v) The stock option shall be available to non-resident and resident permananent employees (including Indian and overseas working directors) of the company. The stock option shall not be available to the promoters and their relatives (as defined under the Companies Act)

(vi) The eligible employees can remit up to U.S.$ 50,000 in a block of five years for acquisition of ADRs/GDRs . Upon liquidation of ADR/GDR holdings the proceeds should be repatriated to India unless permission from Reserve Bank is obtained for its retention or use abroad.

(vii) Issue of stock options shall require a special resolution as applicable for preferential allotment of shares. The allotment of stock options shall be done by a Committee of the Board of Directors of the company. The Committee of Directors shall have a minimum of two non executive members of the Board as its members.

(viii) The issuing company would be entitled to issue options not exceeding 10% of its issued and paid up equity capital.

(ix) The stock options may be issued at a discount of not more than 10% to the market price prevailing at the time of the issue of the stock option.

(x) While ADRs/GDRs acquired in exercise of the stock option shall be freely transferable, the stock options themselves shall be non-transferable.

(xi) Full disclosure should be made in the Directors Report or in an Annexure to the Directors Report, of the details of the stock option scheme by the company.

(xii) ADRs/GDRs acquired on exercise of stock option would be eligible for concessional tax treatment under 115Ac of Income -tax Act, 1961. (Necessary amendments under Section 115AC of the Income -tax Act, 1961 shall be notified by the Government of India, Ministry of Finance, Department of Revenue, separately.)

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