Liberalization of ODI Norms
The RBI vide A.P. (DIR Series) Circular No. 96 & 97 dated 28th March, 2012 has liberalized the provisions related to Overseas Direct Investment.The objective is to provide operational flexibility to Indian Corporate having investment abroad or Indian resident individuals to acquire securities aboard. ;
Key terms of circular are outlined below:
Liberalized provision relating to Corporate having investment abroad :
Creation of charge on immovable / movable property and other financial assets.
As measure of liberalization, now RBI can also consider proposals for creation of hypothecation/pledge /mortgage on movable and immovable properties and financial assets of Indian Party and group companies under approval route within the overall limit of 400% for financial commitment subject to the condition that the Indian party and their group companies are submitting the No Objection Certificate in this respect.
Reckoning bank guarantee issued on behalf of JV / WOS for computation of Financial Commitment
Bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party, shall be considered for computation of the financial commitment of the Indian Party and reported accordingly which was not used to be reckoned as per the extant guidelines.
Issuance of personal guarantee by the direct / indirect individual promoters of the Indian Party
Indirect resident individuals promoters of the Indian Party can also issue personal guarantee provided they are governed by the same stipulations as in the case of personal guarantee by the direct promoters.
Financial Commitment without equity contribution to JV / WOS
As per the existing norms, only Indian party which has equity contribution in JV/WOS abroad can give loan or guarantee to or on behalf of the joint Venture/ wholly Owned Subsidiary abroad.
As per the amended norms Indian party without equity contribution in JV/WOS abroad can also give loan or guarantee to or on behalf of the joint Venture/ wholly Owned Subsidiary abroad under the approval route subject to the condition that: The laws of the host country permit incorporation of a company without equity participation by the Indian party.
This is done for relaxing the business requirements of Indian Party and Legal requirements of host country.
Submission of Annual Performance Report
Indian Party is required to submit the Annual Performance Report in form ODI Part III in respect to each Joint Venture or Wholly Owned Subsidiary outside India, set up or acquired by the Indian party, based on audited accounts of the JV/WOS abroad within 3 months of the closing of annual accounts of the JV / WOS.
Where the law of host country does not mandatorily require auditing the accounts of JV/ WOS, the Annual Performance Report may be submitted by the Indian Party based on unaudited annual accounts of JV/WOS provided:
Un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of the Indian party and
Statutory Auditors of the Indian party certifies that 'The un-audited annual accounts of the JV / WOS reflect the true and fair picture of the affairs of the JV / WOS.
Compulsorily Convertible Preference Shares (CCPS)
As per the extant guidelines only contribution to equity share capital of JV/WOS abroad is considered as ODI and not by contribution to the preference share capital. Now preference share (whether convertible or not) will be considered as capital contribution under ODI and not as loan as used to be considered earlier. This is in contrast to the RBI's stand on foreign direct investment in India where only mandatory convertible preference shares are considered as part of capital.
Liberalized provision relating to Indian Resident Individual acquiring Securities outside India:
Acquiring shares of a foreign company as qualification shares for appointment as Director.
As per the existing provisions, resident individual for being appointed as director in the company abroad can acquire qualification shares which shall not exceed 1% of the paid-up capital of the company.
As per the liberalized norms, the existing cap of one percent has been done away and qualification shares to the extent as required by laws of the country where the company is incorporated and at the same time it has been prescribed that remittance for acquiring such qualification shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.
Acquiring shares of a foreign company in lieu of professional services rendered or Director's remuneration
General permission has also been granted to Resident Individual to acquire foreign securities of company incorporated outside India in consideration for professional services rendered to the foreign entity or in lieu of Director's Remuneration; earlier to the notification RBI approval was required for the same.
The limit for acquiring such shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.
Acquiring shares under ESOP Scheme
General permission has also been granted to Resident Employee or Directors to acquire foreign securities of company incorporated outside India pursuant to ESOP Scheme irrespective of the percentage of the direct or indirect equity stake in the Indian company subject to the following:
i. The shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and
ii. An Annual Return is submitted by the Indian company to the Reserve Bank through the AD Category - I bank giving details of remittances / beneficiaries, etc.