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

A.D.(M.A. Series) Circular No.49 December 21, 1998

To

All Authorised Dealers in Foreign Exchange

Dear Sirs,

Investment in new issues of Indian companies

under 51 per cent Scheme

In terms of paragraph 10C.11(i) of the Exchange Control Manual NRIs/OCBs are permitted to subscribe up to 40 per cent of the face value of the new issues of shares (both equity and preference) and convertible debentures with repatriation rights of any new or existing company engaged in the areas mentioned therein. Reserve Bank has since decided to introduce scheme for investment by NRIs/OCBs upto 51 per cent of the new issues by Indian companies, which are not listed on stock exchanges. Consequently, NRIs/OCBs are permitted to subscribe to new issues of shares (both equity and preference) and convertible debentures of any new or existing company, with a right of repatriation of capital investment and income earned thereon, provided :

i) The issue of equity/preference shares and convertible debentures to NRIs/OCBs with repatriation facility does not exceed 51 per cent of the face value of each new issue of the company concerned, and

ii) The shares of the company are not listed on any stock exchange, and

iii) The company is engaged in manufacturing activity not being an activity specified in Annexure III to the Statement of Industrial Policy 1991 of Government of India, amended from time to time.

2. Reserve Bank has, accordingly, amended its Notification No.F.E.R.A.187/98-RB dated 3rd October 1998 vide its Notification No.F.E.R.A.190/98-RB dated 2nd December 1998 granting general permission to Indian companies seeking NRI/OCB investment under 51 per cent scheme to issue equity/preference shares or convertible debentures to NRIs/OCBs provided payment for the shares/debentures has been received through the normal banking channel and/or by debit to NRE/FCNR account of the investor and other conditions stipulated in the Notifications referred to above are satisfied. The Indian company concerned should file declaration in form ISD(R) togetherwith the required documents to the concerned Regional Office of Reserve Bank within 30 days from the date of issue of shares to NRIs/OCBs under the scheme. The Indian company should also report within 30 days from the date of receipt of remittance/funds from NRE/FCNR accounts full details such as the name of the non-resident investor, amount, date of receipt of remittance to the Regional Office of Reserve Bank under whose jurisdiction it is situated. With the introduction of this scheme the general permission granted earlier for issue of share under 40% scheme stands rescinded.

3. Following consequential amendments may be carried out in the Exchange Control Manual.

Volume I

Paragraph 10C.11 may be substituted as per Slip 1.

Volume II

i) Notification No.F.E.R.A.187/98-RB dated 3rd October 1998 under Section 19 in Appendix III of ECM may be replaced by amended Notification as per Slip 2.

ii) Heading of form ISD(R) may be replaced as per Slip 3.

iii) In heading of Form ISD, reference to paragraph 10C.11(ii) may be deleted.

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 Manager

Slip 1

[AD/MA 49/1998]

Investment in New Issues of Indian

Companies under 51% scheme

10C.11(i) NRIs/OCBs are permitted to subscribe to new issues of shares (both equity and preference) and convertible debentures of any new or existing company, with the right of repatriation of capital invested and income earned thereon subject to payment of applicable taxes, provided:

(a) The issue of equity/preference shares and convertible debentures to NRIs/OCBs with repatriation facility does not exceed 51 per cent of the face value of each new issue of the company concerned, and

(b) The shares of the company are not listed on any stock exchange, and

(c) The company is engaged in manufacturing activity not being an activity specified in Annexure III to the Statement of Industrial Policy 1991 of Government of India, amended from time to time.

Investment under this scheme can be made for setting up new manufacturing projects or for expansion/diversification of their existing manufacturing activities.

(ii) Reserve Bank, vide its Notification No.F.E.R.A.187/98-RB dated 3rd October 1998 read with Notification No.F.E.R.A. 190/98-RB dated 2nd December 1998, has granted general permission under Section 19(1)(a), 19(1)(d) and 29(1)(b) of FERA 1973 to Indian companies for issue and export of equity shares/convertible debentures to NRI/OCB investors in respect of eligible investments. Indian companies seeking investment from NRIs/OCBs under the scheme and such unlisted Indian companies satisfying the conditions laid down in the said Notifications may issue shares/convertible debentures to NRIs/OCBs without prior approval of Reserve Bank and file a declaration in Form ISD(R) together with the required documents with the concerned Regional Office of Reserve Bank, under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares/convertible debentures. Accordingly, NRIs/OCBs who have been issued shares/convertible debentures under the general permission granted by this Notification would not need any specific approval under Section 29(1)(b) of FERA 1973 from Reserve Bank.

(iii) The Indian company should report within 30 days from the date of receipt of remittance from NRIs/OCBs, full details of remittance like name, amount, date of receipt to the Regional Office of Reserve Bank under whose jurisdiction it is situated.

Slip 3

[AD/MA 49/1998]

ISD(R)

[Paragraphs 10C.9A, 10C.11, 10C.11A, 10C.12, 10C.13, 10C.14 and 10C.16A]

APPLICATION FOR INVESTMENT BY NON-RESIDENT INDIANS/

OVERSEAS CORPORATE BODIES IN THE INDIAN PARTNERSHIPS/

COMPANIES ON REPATRATION BASIS UNDER 24%/51%/100%

SCHEMES/(AUTOMATIC APPROVALS/AIR TAXI/HOUSING

AND REAL ESTATE DEVELOPMENT SCHEMES)

Slip 2

[AD/MA 49/1998]

Notification No.F.E.R.A.187/98-RB dated 3rd October 1998

as amended upto 2nd December 1998 vide

Notification No.F.E.R.A.190/98-RB dated 2nd December 1998

Permission for issue of equity shares to

NRIs and OCBs under 24%/40% Scheme

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 is pleased to permit a company incorporated in India to issue security being equity shares or convertible debentures to the extent and subject to the conditions mentioned in para 2 and 3 respectively, to Non-residents of Indian nationality or origin (NRIs) or to Overseas Corporate Body (OCBs), and to send such shares out of India to their place of residence or location as the case may be.

Provided that the company is not engaged in agriculture/plantation activity, real estate business (excluding real estate development) or as a Nidhi Company.

Explanation :- For the purpose of this Notification -

(a) a person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of "Indian Origin", if -

(i) he, at any time, held an Indian passport; or

(ii) he, or either of his parents or his grandparents was a citizen of India by virtue of Constitution of India or the Citizenship Act, 1955 (57 of 1955).

(b) "Overseas Corporate Body (OCB)" means any overseas company, partnership firm, society and other corporate body predominantly owned directly or indirectly to the extent of atleast 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 issue pursuant to this permission of security being equity shares shall not exceed the limit mentioned below :

(i) issue of shares by a - 51% of the new issue made by the issuer company

specified company

(ii) any other company - 24% of the new issue made by the issuer company

Explanation :- For the purpose of this Clause, " a specified company" means a company engaged in manufacturing activity, not being an activity specified in the list for the time being in force published by the Ministry of Industries, Government of India, as Annexure III to the Statement of Industrial Policy, 1991 and whose shares are not listed on a Stock Exchange.

3. The general permission granted herein to issue security being equity shares or convertible debentures to NRIs and OCBs (hereinafter referred to as "NRI investment") is subject to the following conditions, namely :

(i) in the case of issue of shares by an existing company -

(a) Board Resolution has been passed in connection with preferential allotment of shares, if any, to NRI investors indicating the issue price;

(b) 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;

(c) 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 case of any other company, calculation of fair value of shares (as per erstwhile CCI guidelines) is made by an independent Chartered Accountant;

(ii) approval, wherever necessary, from any authority, statutory or otherwise, required for the activity, is obtained by the company;

(iii) payment for the shares to be issued to the NRI investors has been received either by way of remittance from abroad through normal banking channel and/or by debit to NRE/FCNR account of the NRI investors.

(iv) No disinvestment of shares by the NRI investors shall be made without previous permission of the Reserve Bank;

(v) the issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of issue, the following :-

(a) one copy of Form ISD(R) duly completed;

(b) original Foreign Inward Remittance Certificate (FIRC) evidencing receipt of funds from abroad or bank certificate indicating debit to NRE/FCNR account of the NRI investor, as the case may be;

(c) Memorandum and Articles of Association of the issuer company;

(d) original certificate by a Chartered Accountant, containing particulars of shares issued, date of issue, number of shares, and the issue price;

(e) certified copy each of Board Resolution, Special Resolution, Statutory Auditor's Certificate, or the Chartered Accountant's calculation, referred to in para 3(i) above;

(f) certified copy of the Board Resolution indicating size of the total issue, issue to NRIs/OCBs and residents;

(g) certificate in Form OAC/OAC 1 indicating the NRI shareholding at 60% either directly or indirectly in case of investment by an OCB;

(h) an undertaking that the issuer company is not, and shall not be, engaged in agricultural/plantation activity, real estate business (excluding real estate development) or as a Nidhi company;

(i) such other particulars and documents as may be required or specified by the Reserve Bank from time to time.

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