Direct investment outside India means investments, either under the Automatic Route or the Approval Route, by
way
of contribution to the capital or
subscription to the Memorandum of Association of a foreign entity, signifying a long-term interest (setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS)) in the overseas
entity. The investment can be made either under automatic route or under approval route.
Conditions precedent
§ The Indian Party has to submit Form ODI, duly completed, to the designated branch of an
authorized dealer. In this connection
the following must be noted:
(a) The Form ODI must be submitted
in duplicate to the
AD for the purpose
of making remittance
towards investment
in overseas JV/WOS.
(b) The form should
be complete in all respects and accompanied by:
(i)
a certificate from
the statutory auditors in the format given
in the form, and
(ii) a certified copy of the resolution of the Board of Directors approving
the investment.
In respect of supplementary proposals involving additional equity, loan or guarantee, the
particulars furnished in Form ODI submitted earlier in respect of the same JV/WOS
shall not be insisted upon; however, revised particulars of the repatriable entitlements etc.,
to the extent applicable, must
be provided.
(c)
Where there is more
than one Indian party making investment in the
same JV/WOS
overseas, Form ODI should be obtained by all
the Indian parties jointly along with
a certificate(s) from other ADs,
if remittances
are effected by the latter.
Methods of Funding:
(a) drawal of foreign exchange
from an AD bank in India; (b) capitalisation
of exports;
(c) swap
of shares (valuation
as mentioned in para B.1 (e) above);
(d) proceeds of External Commercial Borrowings
(ECBs) / Foreign Currency Convertible
Bonds (FCCBs);
(e) in exchange of ADRs/GDRs issued in accordance with the Scheme for issue of Foreign
Currency Convertible Bonds and Ordinar Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines
issued thereunder from time
to time by the Government of
India;
(f) balances
held in EEFC account of the
Indian party; and
(g) proceeds of foreign currency funds
raised through ADR / GDR
issues.
In respect of (vi) and
(vii) above, the ceiling of 400 per cent of the net
worth will not
apply.
However, in respect of investments in the financial sector, they will be subject to compliance
with Regulation
7 of the Notification ibid, irrespective of the method of funding.
Limits
till which the overseas investment can
be made
An Indian party has
been permitted to make investment in overseas
Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), not exceeding 400 per
cent
of the net worth of
the Indian party, i.e. a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under
the Indian
Partnership Act,
1932, making investment in a JV/WOS
abroad and
includes any other entity in India excluding individuals as
may be notified by the Reserve Bank as
on the date of the last audited balance sheet. Networth means paid up capital and free reserves. The
ceiling will include contribution to the capital of the overseas JV / WOS, loan granted to the JV / WOS and 100 per cent of guarantees issued to or on behalf of the JV/WOS. As per the recent
amendment 50 per cent of the amount of the performance guarantees may be reckonned.
purpose of computing financial commitment to its JV/WOS overseas, within the 400
per cent of the net
worth of the Indian Party
as
on the date of the last
audited balance sheet.
400% of Net worth of Indian Party = 100% of capital contribution + Loan
+ 100% of Corporate guarantee + 50% of the performance guarantee
granted
Unique
Identification Number:
§ On
receipt of the form ODI from the AD Category – I bank, Reserve Bank will allot a Unique Identification Number
for
each
JV/WOS outside India and the Indian Party must
quote such number in all its communications and
reports to the Reserve
Bank
and the authorized
dealer.
§ AD
Category – I banks may allow additional investment in an existing overseas concern set up
by an Indian party,
in terms
of Regulation 6 only after the Reserve Bank has allotted necessary Unique Identification Number to the overseas project.
Obligations of the Indian
party
An
Indian Party
is
required to:
(i) receive share certificates or any other document as an evidence of investment in the foreign entity
within 6 months from
the date of remittance
(ii) repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical
fees etc., within 60 days of its falling due, or such further period as the Reserve
Bank may permit.
(iii) submit to the Reserve Bank every year within 60 days from the date of expiry of the statutory
period as prescribed by the respective laws of the host country for finalisation of the audited accounts of the JV/WOS outside India an annual performance report
in Form APR.
Valuation of shares to be
purchased/acquired
In case
of partial / full acquisition of an
existing foreign company where the investment is more than USD 5.00 million
Category I Merchant
Banker registered with
SEBI
or an Investment
Banker / Merchant Banker outside India registered with
the appropriate
regulatory authority in the host
country
In all other cases Chartered Accountant or a Certified Public Accountant.
Capitalization of export and other dues
§ Indian entities are permitted to capitalize the payments due from the foreign entity
towards exports, fees, royalties or any other entitlements due from
the foreign entity for supplying
technical know-how, consultancy, managerial and other
services within the ceilings applicable. Export proceeds remaining unrealised beyond a period of twelve months from the date of
export will require the prior approval
of the Reserve Bank before
capitalization.
Post
Investment changes/additional investment in existing JV/WOS
The
overseas JV / WOS set up by the Indian entity may diversify its activities/ set up step down subsidiary/ alter the shareholding
pattern in the overseas entity
subject to the Indian entity reporting to
the Reserve Bank, the details
of such decisions taken by the JV / WOS within 30 days of
the approval of those decisions by the competent authority concerned of
such JV / WOS in terms of local laws of the
host country, and, include the same in the Annual Performance Report
(APR-Part III of Form ODI)
required to be forwarded annually to the Reserve Bank through AD
Category-I Bank
Transfer by way of sale of shares of a
JV/ WOS outside India
Subject to satisfaction of conditions prescribed, Indian entities may disinvest without prior approval
of the Reserve Bank.
The Indian entity is
required to submit details
of the disinvestment through its designated AD bank within 30 days from the date of investment. An Indian
entity, which does not satisfy
the conditions laid down, shall have to apply to the
Reserve Bank for
prior permission.
Prior approval of
the RBI
Where the overseas direct investment is not eligible under the automatic route and does not comply with the conditions laid down for qualifying under
the general permissions, a prior approval
of the RBI would be required.
For this purpose, application together with necessary documents should be made in
Form ODI
