GUIDELINES – ALLOTMENT OF SHARES TO FOREIGN PERSON - SERIES - 463
GUIDELINES – ALLOTMENT
OF SHARES TO FOREIGN PERSON
Specifically FEMA
Guidelines
Any
investment made by a person resident outside India should be in accordance with FEMA or the rules or
the regulations framed thereunder.
A person
resident outside India may hold, own, transfer or invest in a security in India
if such security was acquired, held or owned by such person when he was
resident in India or inherited from a person who was resident in India.
Such investment will be held by such
person on a Non-Repatriable basis.
i. ‘Capital
Instruments’ are equity shares, debentures, preference
shares and share warrants issued by an Indian company.
ii. ‘Foreign
Direct Investment’ (FDI) is the investment through capital
instruments by a person resident outside India (a) in an unlisted Indian
company;
iii. ‘Foreign
Investment’ is any investment made by a person
resident outside India on a repatriable
basis in capital instruments of an Indian
company or to the capital of an LLP
iv. ‘Investment
on repatriation basis' is an investment, the sale/ maturity
proceeds of which are, net of taxes, eligible
to be repatriated and the expression 'Investment on nonrepatriation
basis', will be construed accordingly.
v. ‘Non-Resident
Indian (NRI)’ is an individual resident outside India who is citizen of
India.
vi.‘Overseas
Citizen of India (OCI)’ is an individual resident outside India who is
registered as an Overseas Citizen of India Cardholder under Section 7(A) of the
Citizenship Act, 1955.
vii. ‘Resident
Indian citizen’ is an individual who is a person resident in India and is
citizen of India by virtue of the Constitution of India or the Citizenship Act,
1955 (57 of 1955.
A.
PROHIBITED SECTORS
Investment by a person resident outside India is prohibited in the
following sectors:
1. Lottery Business including Government/ private lottery, online
lotteries.
2. Gambling and betting including casinos.
3. Chit funds (except for investment made by NRIs and OCIs on a non-repatriation
basis).
4. Nidhi company.
5. Trading in Transferable Development Rights (TDRs).
6. Real Estate Business or Construction of Farm Houses.
7. Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of
tobacco or of tobacco substitutes. The prohibition is on manufacturing of the
products mentioned and foreign investment in other activities relating to these
products including wholesale cash and carry, retail trading etc. will be
governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R).
8. Activities/ sectors not open to private sector investment viz.,
(i) Atomic energy and (ii) Railway operations
9. Foreign technology collaboration in any form including licensing
for franchise, trademark, brand name, management contract is also prohibited for
Lottery Business and Gambling and Betting activities
Note: A person who is a citizen of Pakistan
or an entity incorporated in Pakistan can, only with the prior Government
approval, invest in sectors/ activities other than defence, space, atomic
energy and sectors/ activities prohibited for foreign investment.
B.
Allowed – After
Government Approval
Any investment by a person who is a citizen of Bangladesh or Pakistan or is
an entity incorporated in Bangladesh or Pakistan requires prior Government
approval.
C.
Capital Instruments –
Allowed to Issue
Equity Shares
|
Equity shares are those issued in accordance with the provisions
of the Companies Act, 2013 and will include equity shares that have been
partly paid
|
|
Preference Shares
|
Preference shares are fully, compulsorily and mandatorily
convertible preference share
|
Non-convertible/ optionally convertible/ partially convertible
preference shares shall be treated as debt and shall conform to External
Commercial Borrowing (ECB)
|
Debentures
|
Debentures are fully, compulsorily and mandatorily convertible
debentures.
|
|
Share Warrant
|
Share Warrants are those issued by an Indian Company in
accordance with the Regulations issued by the Securities and Exchange Board
of India in this regard.
|
D.
Entry Route:-
Automatic Route
|
Automatic Route is the entry route through which investment by a
person resident outside India does not require the prior Reserve Bank
approval or Government approval.
|
Government Route
|
Government Route is the entry route through which investment by a
person resident outside India requires prior Government approval
|
E.
Pricing guidelines
Listed Company
|
the price worked out in accordance with the relevant SEBI
guidelines in case of a listed Indian company or
in case of a company
going through a delisting process as per the SEBI (Delisting of Equity
Shares) Regulations, 2009
|
Unlisted Company
|
he valuation of capital instruments done as per any
internationally accepted pricing methodology for valuation on an arm’s length
basis duly certified by a Chartered Accountant or a SEBI registered Merchant
Banker or a practicing Cost Accountant, in case of an unlisted Indian Company.
|
Convertible Instrument
|
In case of convertible capital instruments, the price/
conversion formula of the instrument is required
to be determined upfront at the time of issue of the instrument.
The price at the time of conversion should not in any case be
lower than the fair value worked out, at the time of issuance of such
instruments, in accordance with the extant FEMA regulations.
|
(Author – CS Divesh Goyal, GOYAL DIVESH
& ASSOCIATES Company Secretary in Practice from Delhi and can be contacted
at csdiveshgoyal@gmail.com). Disclaimer: The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
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