October 9, 2014
1. Foreign Direct Investment (FDI) in India – Issue of equity shares under the FDI Scheme against legitimate dues: An Indian company under the automatic route may issue shares/convertible debentures to a person resident outside India against lump-sum technical know-how fee, royalty External Commercial Borrowings (ECBs) (other than import dues deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital goods by units in Special Economic Zones subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws. RBI has vide its circular RBI/2014-15/234 A.P. (DIR Series) Circular No.31 dated September 17, 2014 notified that the extant guidelines for issue of shares/convertible debentures under the automatic route have been reviewed in consultation with the Government of India and, accordingly, decided to permit issue of equity shares against any other funds payable by the investee company, remittance of which does not require prior permission of the Government of India or Reserve Bank of India under FEMA, 1999 or any rules/ regulations framed or directions issued there under, provided that:
- The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines etc. as amended by Reserve bank of India, from time to time;
- The issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.
- The lender should mobilise Indian Rupees through swaps undertaken with an Authorised Dealer Category-I bank in India.
- The ECB contract should comply with all other conditions applicable to the automatic and approval routes as the case may be.
- The all-in-cost of such ECBs should be commensurate with prevailing market conditions.